Are you a revolver? What banks don’t tell you

Dubai: If you found out that you are the most profitable customer through your credit card payments, would you change your spending habits?

The people who keep credit card balances from month to month, incurring interest and finance charges, are practically slots for credit card companies or banks.

They are called “revolvers”. The banks love them and intend to keep them as customers for as long as they can. Most guns don’t know they are. In cases where they know, they feel trapped. Or they are in denial.

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

– Andrew Prince | Financial Advisor

A study on consumer debt stress caused by credit cards published in the Arabian Journal of Business and Management Review last month found that the majority of UAE residents who participated in the study only paid the minimum payment and carried balances from month to month.

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

Dr Jaishu Antony, assistant professor of finance and accounting at City University College in Ajman, said he conducted the study because credit card mismanagement in the UAE persists despite extensive information about the risks poorly managed credit.

“A lot of people I know who have been in the UAE for a long time tell me that they are unable to properly manage their credit cards,” Antony told Gulf News.

Besides not paying their balances, many never check their monthly statements before paying their bills.

The majority of users have also shared their card usage with others and are making cash advances on their cards.

Making only the minimum credit card payments means you hardly pay back anything. Pretending that the problem does not exist will not make it go away.

-Bina Mathews | NLP Master Coach

“To pay off one card’s credit card bill, they’ll make a cash advance on another card. It’s like shifting your debt burden from one shoulder to the other. They just create more liabilities, ”said Antony.

United Arab Emirates Credit Cards Market

According to the UK-based Lafferty Group, a provider of knowledge services to the global financial industry, the UAE is the most profitable credit card market in the world based on profit pool analysis of the group with a card profit exceeding $ 200 (Dh 734) in 2016. There are approximately 5.9 million credit cards in circulation in the United Arab Emirates.

Due to their profit potential, debt, the most common of which is credit cards, is the most marketed financial product in the industry. Often, revolvers bite easily on the hook. Some end up having three to eight cards at a time.

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

But revolving credit isn’t necessarily bad all the time, Prince said, because there’s what’s called a “smart gun.”

“I am a gun, but so smart that my UK credit card very often gives me 12 months without interest [cash withdrawal]. So rather than spending my money on my rent, I take the 12-month interest-free credit card, pay the rent, and then every month in a disciplined manner, emphasizing the word discipline, I pay off that debt over 12 months. “

To pay off one card’s credit card bill, they’ll make a cash advance on another card. It is as if you are shifting the burden of your debt from one shoulder to the other.

– Dr Jaishu Antony | University College of the City

Revolvers generally have a dissociation with silver in general. This is due to the lack of financial education in school curricula.

Another reason to become a gun is the uncontrolled spending due to an emergency or peer pressure, ending up borrowing in the future to pay for today’s whims.

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

Behaviour change

The common solution of revolvers is debt consolidation. But Prince said that wasn’t always the answer.

“One of the biggest challenges is getting people to change their ways. Back in the UK, when I was volunteering for the Citizens Advice charity, there was a perfect example of someone using revolving credit and racking up a high credit card bill. He took out another credit card to facilitate payments, then consolidated it into a bank loan. He wiped out the credit card but did not change his habits, so he ran into credit card debt again.

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

Antony and Prince both said credit cards are a useful tool if used wisely. The decision to abuse it is ultimately up to the user.

“When the people from the bank come to you, you can also say no. You don’t need to have a credit card. It is not a necessity. You will survive without a credit card, ”said Antony.

“At the end of the day, it’s your life, your card, your decision. It’s up to you to manage it, not someone else.

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