Users need to understand these points to use credit cards safely and effectively.

The story of a credit card holder whose debt increased from 8.5 million VND to over 8.8 billion VND after 11 years has been a hot topic in the media and on social networks, attracting millions of views recently. To date, the bank has confirmed that it will not collect the 8.8 billion VND debt from the cardholder. However, the story raises the issue of credit card usage and management to ensure that credit cards fulfill their purpose as a convenient and civilized form of payment.

Consumers need financial literacy when using credit cards - Photo: TU LINH

Specifically, Mr. PHA in Quang Ninh recently received a notice from the bank demanding repayment of a debt of 8.8 billion VND after 11 years. The bank claims that he opened a MasterCard at Eximbank's Quang Ninh branch on March 23, 2013, with a credit limit of 10 million VND.

Subsequently, two payment transactions occurred at a single point of sale. However, the bank stated that because Mr. PHA failed to repay the loan, after 11 years the debt, including interest and penalty fees, had accumulated to a huge amount. This incident serves as a warning to everyone, especially those who use credit cards but do not fully understand the nature of this type of card.

The above story startled Ms. Truong Thi B. in Dong Ha City, reminding her that she had opened a credit card with a local bank during a trip abroad six years ago. While overseas, she had shopped and paid with her credit card very conveniently without needing to exchange currency for the local currency.

After returning to her home country, Ms. B. deposited money back into her card. Since then, she hasn't used the card and hasn't gone to the bank to request its closure, so she's worried about whether any debt has accumulated. Fortunately, when she went to the bank to request the closure, she learned that she had no outstanding debt on her credit card, so the closure process was resolved quickly.

To date, users have acknowledged that credit cards offer many advantages. First and foremost, credit cards are a more convenient and safer means of payment compared to cash. When opening a credit card account, the cardholder is granted a loan by the bank based on their creditworthiness, typically three or four times their monthly salary.

Cardholders can purchase goods first and pay the bank later; enjoy convenient domestic and international shopping; buy goods in person or online and receive many promotional offers when shopping, and especially, it provides a financial solution in case of urgent need for money.

Essentially, the funds provided on a credit card are a bank loan under specific unsecured conditions, with interest rates many times higher than normal secured loans, along with penalties for late payments and very high compound interest if the cardholder fails to repay the outstanding balance in full and on time to the bank (within 45-50 days depending on the bank's regulations).

However, many people still don't fully understand the nature of this type of payment card. When they have a large sum of money in their card, many people easily develop an illusion of financial capability, leading them to spend and shop beyond their means.

If the cardholder fails to fully repay the borrowed amount, the very high interest rate will lead to compound interest, causing the cardholder to lose the ability to pay and face financial difficulties. Furthermore, during use, many people overlook various fees such as: credit card annual fees, credit card cash withdrawal fees, credit limit overdraft fees, credit card foreign currency conversion fees, etc., as well as the card interest rate, resulting in significant additional financial burdens by the payment due date.

According to banking experts, to avoid unnecessary financial losses when using credit cards, users should note that: failure to pay the entire outstanding balance on time, failure to pay the minimum balance on time, or paying the minimum balance on time but not the entire balance on the statement on time... will result in the bank charging credit interest.

Cardholders should not give their cards to others to pay for services without their presence. Furthermore, they should not access unfamiliar or unofficial links to enter card information during the payment process. They should never disclose credit card information under any circumstances. Credit cards should not be used to withdraw cash, as their primary function is for payments, not cash withdrawals.

Therefore, when using a credit card to withdraw cash, cardholders may incur relatively high withdrawal fees. It's not advisable to use a credit card if your monthly income is insufficient to cover at least 30% of your credit limit.

Finally, it's not advisable to open multiple credit cards as this can lead to overspending and make it difficult to control your spending. If you want to close a card, pay off the outstanding balance first and then notify the issuer. Do not stop using the card prematurely if there is still an outstanding balance, as this will result in overdue debt and high interest rates.

Therefore, to maximize the value and benefits of a credit card, you should choose a card that suits your needs, pay off your credit card balance on time, register for automatic payments, always check your credit limit, register for SMS notifications, and limit purchases close to the statement date... in order to avoid unintentional mistakes that could turn you into a credit debtor.

Tu Linh

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