What is a credit card?
A credit card is a plastic card that the bank issues to its qualified clients and allows them to make purchases on credit. That means the client, for example me, I purchase a good, the bank pays for the purchase I made then I pay the bank later.
Now wait a minute. Let me first say this, I know the title is a little bit intense but I'll let you know why in a minute. Also, a credit card is not a bad thing to have if you can answer the following two questions;
a) What are my reasons for wanting to own a credit card?
b) Is it necessary for me to have the credit card?
Now, let's dive in to today's topic!
How many of you own a credit card? I did 🙋. And if your experience with a credit card was as mine, then you probably have already shred your card into pieces😂.
It's story time, yay 😄.
Six months into my employment, my bank called me and informed me that I qualified for a credit card. I hadn't heard of the term credit card before so I had no idea what it was. I decided to ask around from my colleagues what a credit card was and they simply told me it was a card which you are given and has a certain amount of money that I can either shop, withdraw or transfer to my M-pesa for my personal use. The deal felt good and I decided to give it a try. At the bank, my card manager, (whom until this day I have never forgiven for not fully explaining to me how a credit card truly works), shallowly explained to me how the card operates. After all the paper work was done, my card was ready and I left the bank with it. So here I am, its not pay day but I am a couple of thousands rich, imagine my joy 😁. The first thing I did was test whether the card was working, so I headed over to the ATM and withdrew a fraction of the cash. Later that afternoon, after work, I told my mom to join me in town. It was time to 'spoil' my mum 😂. Never before had I ever done such an enormous shopping that I had to walk around the supermarket with not just one trolley but two. With just one day, I had maxed out my credit card limit. That was in December 2022. What my understanding of the card was at the time is that the bank would deduct $10 every month from my salary until I cleared the debt. What I had not understood was that there were interests involved. (In my previous blog, you can recall how life was difficult at the beginning of 2023). So every month after the bank deducted their share from my salary, I would go ahead and withdraw that same amount from the card to M-pesa. At this point, the card was fully used, there was not even an allowance of a dollar. The card started accumulating interest;
a) first interest was charged after I withdrew money at the ATM.
b) second interest was late payment fee. This happened because the date that was set on my credit card as the monthly due date was earlier than my pay day.
By the following month the card had obtained another interest;
c) interest charged to the card because it had gone above the limit.
In April 2023, I shifted to a different bank for my salary payment so the automatic pays that were done to my card stopped. At this point I had done over $40 in payment but the amount never reduced and this is because every month I was only paying interest fee so the money I had spent was still intact, unpaid. I would occasionally pay an average of $10 every once in a while but the debt never reduced since what I was paying were the interests charged to the card. Every month had interests of about $12. It got to a point the occasional $10 that I was paying stopped. Then the calls from the bank started, at first I would answer and just say that I was aware of the card situation and I intended to pay. As time went by, I got tired of picking up the calls and I would just ignore them. This was around February 2024. At this point, the set amount on my credit card that I was to pay was 1.5 times greater than the original amount. What I mean is, if the limit on my card was $100 at the time I was issued with it, at that particular time, that is Feb 2024, it had accrued interest and I owed the bank $150. By God's grace, in March 2024, I cleared all my Sacco loans. That was a very big step for me and I thank God I actually managed that. Being debt free in the Sacco, I was able to apply for another loan of about 5 months and that loan helped me pay off my credit card. The reason as to why I opted to take a loan from the Sacco to pay the credit card is because, the Sacco loan interests were reasonable compared to the interests that the credit card was accruing.
I must say, my financial journey with my first credit card was full of mistakes. But reflecting on it I believe I had to go through that so that I could learn, and from my experiences and by God's grace, I intend on educating as many people as I can on financial literacy which will eventually lead to financial freedom.
Now, I did close that account for security purposes, you know, just to be sure I won't get tempted again 😂. But this doesn't mean that I resent credit cards. I have actually learnt that they are not such a bad thing to own, especially if you are financially responsible. For example, with how technology is growing and hackers and con-people are everywhere, if you go somewhere and you need to swipe a card for payment, you can use your credit card. It's much safer than using your debit card. Something else that I realized is that, taking money from a credit card is like borrowing from a friend. If you pay it back on time and never miss a payment, you'll have a healthy relationship with your card.
Bottom line, only own a credit card if you really must. Otherwise, owning a credit card, is not that necessary.
Till next week, STAY SAFE.😊
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