Another Credit Card Tutorial by GenX @ http://www.GenXGenYGenZ.com
I have mentioned in CC 101 that 0% Installment Plans termed as Easy Payment Plan (EPP) or Installment Payment Plan (IPP) are well laid traps by banks to entice credit cardholders to spend beyond their means. You may ask, how can that be? Isn’t 0% Interest Good for us? The answer is Yes and No.
IF you have the cash in hand, then YES, 0% Installment Plans are great as it can earn us some pocket money as we can use the money in hand to go deposit into Fixed Deposit and earn interest.
IF you don’t have the cash in hand (savings) prior to signing up for a 0% Installment Plan, then the answer is NO. This is because you are spending beyond your means. And if you only pay the minimum payment due every month, don’t even consider using your credit card until your debt is fully settled.
The banks know that many people who own credit cards have no discipline in controlling their spending.
In order to entice cardholders to spend more on materialistic stuff which are not required for survival, the banks offer 0% interest free plans. Yeah, the banks in Malaysia are really freaking generous.
So card users will happily swipe their credit cards for this and that using 0% Installment Plans as who can resist such a wonderful offer to experience a short burst of temporary happiness. What these people don’t realize is that every time they utilize the 0% Installment Plan on materialistic stuff, they are incurring more debts which means that they will have less money in the future to save (e.g. children education fund, retirement, etc) or spend on necessary expenses (as their disposable income has been reduced until the debt is paid).
In addition to having less disposable income in the future, if these people fail to pay the Statement Balance in full prior to the Payment Date, the banks then get to impose interest on the Outstanding Balance (including the portion that is supposed to be 0% Interest!!).
Seriously, if you have no money (savings in the bank) today to pay for a specific item you want to purchase, but still purchase that item with 0% Installment Plan, what makes you think you will have money tomorrow to pay for stuff that is really essential?
0% INSTALLMENT PLAN IS A TRAP TO ENTICE YOU INTO THE SHIT HOLE OF DEBT
I shall now give you two examples as to how 0% Installment Plan Is A Trap laid out by credit cards issuers to make you fall into the shit hole of debt.
Example No.1 – A fresh graduate who just started working in KL for 6 months and earning RM2.5K a month.
After paying for his room rent, repayment for his education loan, 2nd hand Myvi car loan (where his parents paid 30% as down payment), medical insurance and other essential expenses (petrol, parking, toll, Pre-Paid Mobile Top Up, Unifi, makan, etc), he is able to save RM300 every month; thus, he has RM1800 in his savings account.
He currently uses a 3.5″ Android smartphone and is on a prepaid plan where he tops us RM30 monthly. But all his friends are using iPhone 6. Therefore, he wanted to get the newest iPhone 6s where the cheapest is retailing for RM3199.
So he went to all the Telcos to check out their iPhone Plans and was told he could get an iPhone 6s 128GB for about RM150 monthly by opting with a credit card 0% Interest Rate 24 Months Installment Plan. So he calculated in his head, RM150 x 24 = RM3600. He concluded that he can save RM599 as the iPhone6s was selling for RM4199 at Apple Store.
So, he went back and googled “best credit card in Malaysia” and stumbled upon a webpage called Introduction to Credit Cards CC 101 by GenX at http://www.GenXGenYGenZ.com. And because he is after quick info and lazy, he did a BIG MISTAKE by not taking the prerequisite course Life – Goal Is To Be Debt Free. And the Introduction To Credit Cards CC 101 FREE tutorial was so freaking long, so he glanced through it and only read the part where GenX recommended FREE FOR LIFE credit cards.
So the next thing he did was to go apply for FREE FOR LIFE Maybank 2 Gold Cards (Visa and AMEX) and FREE FOR LIFE CIMB Cash Rebate Platinum MasterCard and was approved Credit Limits of RM3K and RM5K respectively.
With the credit cards safely in his wallet, he goes to the Telco of his choice with the intention of using his Maybank 2 Cards AMEX (which earns him 5X reward points) to sign up for the 24 months installment plan. But his Maybank credit card was rejected! Because the device total cost of RM3600 is higher than his Maybank’s Credit Limit of RM3K.
So he used his CIMB Credit Card to sign up for the 24 months contract where he will only need to pay RM150 per month for the device. But in order to be eligible for the offer, he also has to sign up for RM78 Post Paid Call Plus Data Plan, and with 6% GST, the actual cost for the Post Paid Plan works out to be RM82.68. In other words, starting from that day and for the next 2 years, he has to pay RM230.68/month for owning the iPhone 6s.
RM230.68 per month may not seem much, but 2 years is a very long time. And at the end of two years, he would have paid RM5,536.32 for a phone that would be considered obsolete.
Now, prior to buying the iPhone 6s, he was saving RM300 per month. But now that he has to pay RM230.68 every month for the iPhone, he is left with RM99.32 to save (RM300 – RM230.68 + RM30 savings for his previous monthly Pre-Paid Top Up).
Then a month after he bought the iPhone,he received an offer to purchase a Apple Watch for only RM1200 versus retail price of RM1599. So, he went and bought himself an Apple Watch that cost RM1200 with 0% 12 Installment Plan with his CIMB credit card again.
The young man was so happy that he managed to save in total RM998 for his Apple products, i.e. RM599 for the iPhone 6s only with a Telco 24 Months Contract and RM399 for the Apple Watch. And it’s all possible because he owns credit cards that enable him to have the lifestyle he otherwise could not afford (at that particular moment). But in reality, we all know that by the time he finish paying of his 2 installment plans, the devices would be considered obsolete and all his friends would be carrying Apple iPhone 8s+++.
Then 3 months later, suddenly his second hand car breaks down and it will cost him RM5K to make good the car. And he needs to have a car for some reason(s). He has RM2K in savings and uses it to pay for part of the car repairs and the balance RM3K is charged to his Maybank Credit Card.
The following month he gets his 2 credit cards’ Statements but he can only afford to pay RM330.68 monthly to CIMB for his iPhone 6s and Apple Watch which he has already committed with the installment plans and defaulted in paying Maybank’s credit card bill. Maybank will then impose late charges and daily interest charges on the outstanding balance and this is the beginning of his spiraling journey deeper down into the shit hole.
If he had not bought the iPhone 6s and the watch, he could have saved RM300 a month and for 4 months that would total up to RM1,200. So he would have RM3,200 on hand when his car needed repairs and only needed to use up RM1,800 credit from one of his credit cards. He than could still afford to pay RM300 a month to the credit card issuer every month and within 7 to 8 months, he would have cleared his debt.
Note: The guy above could only qualify for credit cards from 2 card issuers as he earned less than RM36K/per year. As such he could not apply for another credit card to perform 0% Balance Transfer. And since he did not make the minimum payment to Maybank, he credit history will be tarnished and he may face problems in the future when applying for a housing loan. Also, he could have converted his Maybank RM3K Transaction to 12 Months Ezy Pay where upfront interest will be imposed and he needs to call Maybank to convert it before the Statement Date.
If you have yet to read my tutorial on Card Card Fees and Interest Rate – CC 114, click here now. In this tutorial, I not only warned you on the high interest rates imposed by banks BUT I even showed how one can end up in the shit hole of debt with different so called benefits (loans) offered with credit cards.
Example No.2 – A young executive earning RM5K a month.
A young executive earning RM5K a month qualifies for Public Bank Platinum credit card with a credit limit of RM15K.
His major monthly commitments are:
- Car loan – Honda HRV with 9 years loan;
- Condo Loan- 40 years;
- Medical Insurance Premiums.
With a salary of RM5K and being a bachelor, he has no problems paying for the above commitments and gets to splash money on latest fashion trends and dining at air-conditioned restaurants. However, he has very little savings (say RM5K) because he had used whatever he saved to pay for his condo’s down payment and also to furnish it.
The guy then falls for a girl and knows that the girl just loves LV handbags. To impress her and hoping that she will fall for him, on Valentine’s Day the guy goes and buys an LV handbag that cost RM6,000 (LV doesn’t have installment plan but he can convert the purchase to 0% 12 Months Installment Plan with PB Flexipay and only needs to pay RM500 a month) and gives it to her. Girl falls for boy. Both boy and girl are happy dating at fancy restaurants – happy moments. Guy continues dating girl and buying her stuff, guy goes for beauty treatment (by signing up for a package with 0% Installment Plan) to impress girl and takes her for holidays with RM0 AirAsia tickets but total bill for a couple comes out to more than RM1K with Airport Taxes.
After a couple of months, he has used up his RM5K savings on his dream girl. But he continues to splash money on her, e.g. buying her a diamond pendant for her birthday using 0% installment plan at Poh Kong, going outstation every other week and staying at 5 Star hotels, etc ……… until he maxed out his credit limit (remember, he used 0% installment plan to purchase the LV bag which will use up his Credit Available) and has no more credit to utilize. With his RM5K monthly salary, after deducting his monthly commitments, he could still afford to pay the Minimum Payment of 5%, e.g. RM750 (5% x RM15K) and not tarnish his Credit History. But he is imposed interest of 18% on the Outstanding Balance not paid which consist of the 0% Installment Plans monthly repayments!!!
So the guy now dates the girl at mamak stalls over teh-tarik. You think the girl with her thick make up and LV bag wants to sit at a non air conditioned restaurant ar? Girl finally comes to her senses that she’s got no security with that guy and leaves. The guy had invested on another person’s future wife!
So he went googling and came across GenX GenY GenZ website where he learned about pros and cons of Balance Transfer Plan. In order to avoid paying the high interest on his Outstanding Balance, the guy applies for a new credit card with AEON Credit and performs a 0% Balance Transfer. But the fact remains, even with 0% Balance Transfer Plan, he is still in debt. If he had not used his credit card on temporary happy moments, he would not have ended up in the shit hole of debt. But luckily he has no problems settling in full the Balance Transfer monthly repayments by adjusting his lifestyle for a few months.
If you have no savings, I hope with the above, you’ll think twice before you go swipe your credit card with a 0% installment plan chasing after temporary happy moments (and ending up in the shit hole of debt).
A Credit Card Tutorial by GenX