Reining in debt

Credit cards are an ingrained part of life for many of us living in the UAE. They open up a world of financial freedom and opportunity. They also provide us with the power to buy life's necessities. Yet for many, credit cards create more financial burdens than solutions.

Though the changing economic climate has the average consumer tightening his purse strings, the reality is that many of us are already planning and budgeting for the upcoming season of gift-giving, travel and leisure and entertainment activities.

Check your spending

How do we manage credit card debt in such a situation? The good news is that you don't have to be knee-deep in debt to continue enjoying a balanced lifestyle. Nor is managing your finances the burden it initially appears to be.

By keeping your spending in balance with your earnings, being responsible for your finances, and starting off on the right foot by choosing a card with payment, interest and rewards benefits tailored to your lifestyle, credit cards can be ultimately rewarding.

Change the way you think

• Credit cardholders should take responsibility for their spending habits and manage credit card use and payments.

• Credit cards and credit card debt are not ‘evil'. Rather, they are tools managed by us — not the other way around. Do not blame cards for bad management of your finances.

• Credit cards should be used for the things that you need, not for things that you can do without.

• Spend within your limits. Use your credit card for what you can afford to pay back.

More power to you

• Prioritise. Managing financial commitments should be a priority for credit cardholders to avoid or reduce personal burdens or debts. Collectively, credit card users have an influence on reducing overall risk and capping interest levels.

• Choose the right card. The consumer is spoilt for choice with a competitive market full of feature-rich credit cards. Select a card that offers you rewards that benefit your lifestyle and your financial circumstances. A good offer is only good when it is needed, otherwise it has no value. For example, Najm cards offers a 4 per cent cashback reward on everyday necessities such as food.

• Look at the value. Consumers need to look at the value offered by credit card providers and define how it applies to their current needs. Credit cards should be viewed as facilitators and not a means to spend on nice-to-have things you can't afford. It is too often the case where consumers sign up for attractive card offers, which have high interest rates incurring even more loss.

• Keep things easy. Look for convenient, low-interest payment plans as a good credit card option to help settle debt over a longer period of time.

Another option is to find a card with an easy payment plan for those necessary expensive purchases that cannot be paid back immediately.

The easy payment plan allows the cardholder to settle these purchases over a period of time through fixed instalments with a considerably reduced interest rate. For example, Najm cards recently offered one-month payment holidays on international travel ahead of the peak summer travel season, with 0 per cent interest on purchases.

• Use your phone. Many cards offer Loan on Phone features, a way of securing a loan that goes against your credit card limit. This benefit helps in settling those important financial commitments such as emergency family needs, paying the rent or school fees as cash is readily transferred into your account, granting you the freedom of managing them without going through the hassle of loan procedures. It is a practical way of managing finance with a credit card while keeping interest rates to the minimum.

Bottom line

Credit cards are flexible and convenient tools. They grant you finances to meet a commitment without the hassle of having to take out a bank loan or arranging for funds one way or another. Credit cards are your ally and not to be taken advantage of. Taking responsibility of your finances is the first step towards managing your credit card debt.

— The writer is Chief Executive Officer of Majid Al Futtaim Finance