For illustrative purposes only. Image Credit: Rex Features

Dubai: If you learnt that you’re the most profitable customer through your credit card payments, would you change your spending habits?

People who keep credit card balances from month to month, thereby incurring interest and finance charges, are virtually money machines to credit card companies or banks.

They’re called ‘revolvers’. Banks love them and intend to keep them as customers for as long as they can. Most revolvers don’t know they’re one. In cases when they know, they feel trapped. Or they’re in denial.

Broadly speaking, people can have good salaries but they collect stuff; by “stuff” I mean they got to have the latest go pro, latest iPhone, latest TV, latest car.”

 - Andrew Prince | Financial adviser

A Study on Consumer Debt Stress Caused by Credit Card published in the Arabian Journal of Business and Management Review last month found that the majority of UAE residents who participated in the study paid only the minimum payment and carried balances month to month.

Only 16 per cent of the 250 respondents from five local banks in the UAE paid their credit card bills in full each month.

Dr Jaishu Antony, Assistant Professor, Finance and Accounting, at the City University College of Ajman, said he conducted the study because mismanagement of credit cards in the UAE still occurs despite abundant information on the risks of mishandled credit.

“A lot of the people I know who have been in the UAE for a long time tell me they are not able to manage their credit cards in a proper way,” Antony told Gulf News.

Apart from not paying off balances, many also never check their monthly statements before paying their bills.

The majority of the users also shared their card use with others and make cash advances on their cards.

Making only the minimum payments on credit cards means you pay back almost nothing. Pretending the problem isn’t there won’t make it go away.”

 - Bina Mathews | Master NLP coach

“To settle the credit card bill of one card, they will make a cash advance on another card. It’s like shifting your debt burden from one shoulder to the other. They are only creating more liabilities,” Antony said.

UAE credit card market

According to UK-based Lafferty Group, knowledge services provider for the financial industry worldwide, the UAE is the most profitable credit card market in the world based on the group’s profit pool analysis with profit per card in excess of $200 (Dh734) in 2016. There are around 5.9 million credit cards in circulation in the UAE.

Because of their profit potential, debt, and the most common of which are credit cards, is the most marketed financial products in the industry. Often, revolvers easily take the bait. Some end up having three to eight cards at once.

“The first thing to emphasise is that banks ... are a commercial organisation,” Andrew Prince, professional financial adviser, told Gulf News.

But revolving credit may not necessarily be evil all the time, Prince said, as there is what is called a ‘smart revolver’.

“I’m a revolver, but a smart one so much so that my UK credit card very often gives me 12-month interest-free [cash withdrawal]. So rather than spending my cash on my rent, I take out the 12 months interest-free credit card, pay the rent, and then each month in a disciplined fashion, emphasis on the word discipline, I repay that debt over the course of 12 months.”

To settle the credit card bill of one card, they will make a cash advance on another card. It’s like shifting your debt burden from one shoulder to the other.”

 - Dr Jaishu Antony | City University College

Revolvers typically have a disassociation with money generally. This is because of the lack of financial education in school curricula.

Another reason for becoming a revolver is uncontrolled spending due to an emergency or due to peer pressure, ending up borrowing from the future to pay for the whims of today.

“So broadly speaking, people can have good salaries but they collect stuff; by “stuff” I mean, they got to have the latest go pro, the latest iPhone, the latest TV, the latest car,” Prince said.

Behavioural change

The common solution revolvers turn to is debt consolidation. But Prince said it isn’t always the answer.

“One of the biggest challenges is getting people to change their habits. Back in the UK when I was doing voluntary work for the charity Citizens Advice, there was a perfect example of somebody who used revolving credit and racked up a high credit card bill. H took out another credit card to help make payments, then consolidated it into a bank loan. He cleared the credit card but didn’t change his habit and therefore built up a credit card debt again.”

Prince said revolvers should educate themselves as on the available information on how to tackle debt such as the debt snowball or debt avalanche. 

Both Antony and Prince said credit cards are a useful tool if used wisely. The decision to misuse it ultimately lies on the user.

“When bank people come to you, you can say no also. It’s not necessary that you should have a credit card. It’s not a necessity. You will survive without a credit card,” Antony said.

“At the end of the day, it’s your life, your card, your decision. You have to manage it, not anyone else.”