Paying your share purchases with credit card!

Hong Leong Bank & HLG Securities offer Mastercard credit card that allow their clients to settle share purchase via credit card. At first glance, it seems to be a revolutionary concept. Using credit card to pay for share purchase actually extends your settlement days from T+3 to as long as T+50 days!

On a closer look, the handling fee is 1.5% of the settlement value. So beside paying 0.6% normal brokerage charge, you will suffer another 1.5% for a financing period stretched from 20 to 50 days. (If the T+3 settlement day falls right after your credit card statement day, you will have 50 days before the due date of credit card payment. If the T+3 settlement day falls right before your credit card statement day, you will have 20 days before the payment dues.)

So, 1.5% for 20 days to 50 days. A quick calculation shows that the financing cost ranges between 11.0% (1.5%/50 x 365) to 27.4% (1.5%/20 x 365)! It is extremely expensive even compare to share margin financing which usually ranged between 5% to 12%.

If you have already used share margin financing or personal loan to pay for your trading activities, stick to it. This credit card deal is really not a good deal...

More about share margin financing...actually our view is that DON'T borrow money to invest.

Preventing credit card mess (3)

...continued

Two actions for a quality lifestyles

Action plan 11
Focus on quality and not on spending. Check your statement and identify your killer spending habits.
The best coffee that I had was not from coffee bars like Starbucks, Coffee Bean, Strudels, etc. but from a small air-conditioned Indian restaurant in Leboh Ampang. The coffee is Bru Coffee and it cost me RM1.

Action plan 12
Look for alternatives.

For example, if a trip to London is too expensive, how about Melbourne or Shanghai? Buy used car instead of brand new? Share CDs, books, VCDs with your friends? Remember, whatever you do, wherever you go, when you live the moment you will realize that the means to the moment sometimes is insignificant. List down your killer spending habits (check your statement now) and brainstorm 3 solid alternatives for each habits.

Choose places where you are comfortable with their prices.
Whether you eat out or have fun in karaoke with a crowd of family or friend, choose a place that you are comfortable with the maximum prices in the menu ("All on me"”, you may happily say knowing it is affordable.) and not a place where you have to worry if they order the items above the average price of the menu.

More...
Income level has got nothing to do with debts problem. There are simply too many bankrupt higher earners around for us to know this. It is about how you treat your money and life, as simple as this.

Practice the above 12 action plans and let credit card problems be a thing of the past.

If there are material things in life that you couldn't do without, even if it means being NOT ABLE to pay off your cards this month or for the next few months, forget about all the above preventive action plans. Because, sooner or later, you WILL get into credit card debts trouble.

If this is the route you choose and you believe you can always get out of it, go ahead. No judgement here. (Honest! We all have the right to choose the way we want to live.)


12 amazing action plans avoiding credit card debts mess...
Part 1: Preventing credit card mess (1)
Part 2: Preventing credit card mess (2)
Part 3: Preventing credit card mess (3)

A refined article of twelve action plans in preventing credit card mess published in EzineArticle.

Preventing credit card mess (2)

...continued

Three actions from getting your magic number, budget

Action plan 6
Find out your limit and set a maximum limit.
How? Spend less than the total of
a. One month income, less
b. Your fixed monthly payment add 20% buffer
If you spend any amount more than this magic number, you are either eating into your savings or increasing your debts.

You don't have to do a detail listing of expenses unless you enjoy doing it. It should be simple and quick. Just do a quick calculation with pencil and calculator now. Once you get the magic number out, you know you should never spend anything more than this amount at any one month.

Action plan 7
For big ticket item, find and decide a repayment method before spending.
Find the resource to pay back when you use your 2nd card for big ticket expenses like overseas trips, new kitchen cabinets, sofa, etc. Do you have fixed deposit elsewhere to payback the credit card balances? Are you willing to sell off your shares in stock market to clear the balances? Remember, credit card provides convenience of payment only.

Action plan 8
Still keen to spend without financial resources? Draft a repayment plan and stick to it.
If you still insist to buy even if you do not have existing financial resource, i.e. shares, unit trusts, fixed deposits, etc. to pay back, then develop a repayment plan. For example, cut down your future night outing, change your lunch place from restaurant to hawker centre, identify a bank that offer 0% balance transfer for 6 month, refinance your house equity, etc. Most importantly, you must know you can stick to the plan. Swear to yourself.

Two actions for a different mind set

Action plan 9
Live now.

"Live today" is not equal to "spend today". Mass media propagates the virtue of spending by equating it with "live now". "Carpe diem and you buy" is the message that drives a generation of debt-ridden middle class. If you need a brand new BMW 5 series to make yourself feel good even it means breaking your financial limit, you are highly ineffective, for you need such a big spending for such a small gain of satisfaction. Yes this is the word, consumption ineffectiveness. You need to consume more in order to bring your happiness level equal to an average person. It is not how rich you are that you can avoid debts problem, it is about YOUR effectiveness of spending in bringing satisfaction. When you have more money you get numb from the original level of spending. You need to spend more just to get to the earlier level of joy. The action plan is to change your mind set and find happiness that costs little and elevate your consumption effectiveness.

Action plan 10
Procrastination is a virtue, for once.
Practise procrastination in buying things. Tell yourself you are going to buy it but not now. After cooling down, it probably doesn’t seem to matter whether you own it or not.

More action plans on prevetion of cerdit card debts in Part 3...

12 amazing action plans avoiding credit card debts mess...
Part 1: Preventing credit card mess (1)
Part 2: Preventing credit card mess (2)
Part 3: Preventing credit card mess (3)

A refined article of twelve action plans in preventing credit card mess published in EzineArticle.

Preventing credit card mess (1)

Credit card mess is usually the first sign of longer term financial troubles. These are 12 amazing action plans to manage your credit cards that you will never fall into credit card mess again. We tackle the issue from four fronts:
1. Proper credit cards administration
2. Budget (no spreadsheet, no accounting, just 5 minutes with pencil and paper)
3. A different mind set
4. Quality lifestyles

Five actions from proper cards administration

Action plan 1
Keep three cards.
The 1st card for fixed payments (i.e. handphone, insurance, utilities, subscriptions, Astro, etc.), the 2nd card for ad hoc payments like shopping, eating out at restaurants, groceries, petrol, etc. The 3rd card is for emergency. (Why such three credit cards system?)

Action plan 2
Clear the entire balances of the three cards every month.
Yes, the ENTIRE balances of ALL THREE CARDS. Not just any amount above minimum balance. The moment you leave a small balance, it adds up to the next month's balance. This is a preventive action plan, remember?

Action plan 3
Otherwise put the 2nd card away.
The moment you cannot pay off the entire balances, put the 2nd card (the card for shopping, eat out, etc.) away for one month until you manage to payoff the entire balances of the 1st, 2nd and 3rd card in one month. You will have to pay cash on day to day spending now. (More about the 3rd card here. You are not supposed to use it, remember? It is only for emergency.)

Action plan 4
Give standing order instruction to your bank to pay the FULL AMOUNT of your cards from you salary bank account every month. This will not only ensure your credit card debts are cleared every month, it also ensure you will control your expenses at the point of charging the expenses to your credit cards.

Action plan 5
Review, reduce and/or cancel fixed payments that you charged to the 1st card.
If you still cannot clear the entire balances of your cards every month even after you have put your 2nd and 3rd card away, you should then review your monthly fixed payments that are charged to your 1st card. Do you really need Astro? Can you cut down petrol or hand phone expenses? Go through your 1st card statement and decide.

Still have problem to clear the entire outstanding balances monthly? Ok, now, it is not about prevention, it is about salvation from credit card debts. We will add another article on this soon. More action plans on prevetion of cerdit card debts in Part 2...

12 amazing action plans avoiding credit card debts mess...
Part 1: Preventing credit card mess (1)
Part 2: Preventing credit card mess (2)
Part 3: Preventing credit card mess (3)

A refined article of twelve action plans in preventing credit card mess published in EzineArticle.