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[Tips for freshmen] Three common credit card traps to avoid

As the new semester begins, university students are presented with attractive credit card promotions and offers by banks which set up promotion booths on campus. Typical offers include welcome gifts, rebates and annual fee waivers, enticing freshmen to apply for their first credit card.If you make good use of your credit card wisely and pay your bills on time, it can help you to save money, earn bonus points for gift redemption, and minimise physical contact during the pandemic. However, there are also some pitfalls that you should look out for.Trap 1: Should I make minimum payment?It may seem easy to make just the monthly minimum payment on your credit card, but your debt can quickly snowball too. For example, with an outstanding balance of $20,000 and an interest rate of 35% p.a., it will take 26 years to pay off the debt if you only make a minimum payment every month, provided that there are no more transactions during the period. What’s more, interest will be charged immediately for all new transactions, existing interest-free instalments and autopay arrangements through your credit card (such as monthly insurance premiums).Trap 2: Is it easy to get a cash advance on your credit card?Many credit cards offer the option of a cash instalment plan, allowing you to convert available credit limit into cash. However, this seemingly handy service with no application and approval required generally comes with higher interest rates exceeding 30% p.a. Unlike general transactions with an interest-free payment period, cash advances will accrue interest immediately, and incur administrative fees.Trap 3: Is it easy to extend the repayment period?It is important to repay the monthly balance on time – the longer the repayment period, the more interest it will incur. This snowballing effect will not only create financial stress, but also have an impact on your credit record. A low credit score may prompt banks and financial institutions to charge a higher interest rate, or even deny your future loan applications. Besides, some companies and employers may review your credit report and score during the recruitment process. How much should I repay each month to clear credit card debt?If you have any unsettled credit card bills, you should set a clear goal and make repayment as soon as possible to save on interest. You can use the calculator on the Investor and Financial Education Council website to work out the required monthly repayment amount. Information source:

Starting work and planning for the future

Starting your first job is exciting, especially when you get your first month's pay. It brings financial freedom and puts you in charge of your own money. It also gives you the chance to set financial goals and come up with a plan to achieve them.After starting your first job, it's natural to have an idea of how you want to be in five or 10 years. This could mean further studies, buying a property, getting married, or even starting your own business. No matter what the goal is, you will need money to realise it.Be realistic when setting goals. While short-term goals are often easy to reach, longer-term aims like getting married or buying a property can take years or even decades. The sooner you come up with a plan, the more time you have to save money to reach your goal.Your first short-term goal should be to save for an emergency cash fund. It should be enough to cover your expenses for six months. The Savings Goal Calculator on Investor and Financial Education Council website can help you estimate how much to save and for how long, in order to reach your goals. Make a monthly budgetAfter setting goals, it's time to manage your income and spending. Your first job probably won't be very well paid, but it's tempting to spend. Even so, it's much better to be careful and avoid living from paycheck to paycheck.Use the Money Tracker mobile app to set a monthly budget, record income and track expenses. It can also compare the budget you set with actual spending. This allows you to manage your money all the time, anywhere.Save before spendingIt's important to learn good saving habits while you are still young. The key is to always save before you spend. So, after getting your wage, put aside 10 to 20% as savings straight away. The rest can be spent as you wish. The sooner you start saving, the more money you will have due to the compound effect. This will boost your financial freedom.Most people have lots of things they want to buy but don't have enough money. Simply put: if you buy this, you can't buy that. It's important to know the difference between what you need and what you want. Think about what you will do with what you buy. Ask yourself: "Would it cause me any problem in the coming months if I don't buy it?" If the answer is no, it means you don’t really need it. More financial issues to think about 1. MPF managementThe Mandatory Provident Fund (MPF) is a long-term saving and investment scheme for retirement, which both you and your employer put money into. When you start work, your employer has to enrol you for the MPF scheme within 60 days. The contribution is 5% of your income for both you and your employer. Good MPF management is important, as it will affect how much money you have when you retire.2. Repay student loansIf you have a student loan, put aside part of your salary to repay it. You can set up autopay so you pay on time. Student loans are from public money. Paying on time is your obligation and a social responsibility. Also, late payments will mean surcharges and interest. This could affect your credit history. You can use "SFO E-Link" to check your repayment schedule and history.3. Smart use of credit cardsWhen you first get a credit card it's tempting to spend money you haven't earned yet or buy things you can't afford. Apart from spending on necessities like meals and transport, young people also like to buy trendy clothes and gadgets. But it's best to buy what you need rather than spend too much. Do not fall into the "enjoy now, pay later" trap. Repay the full amount before it's due, as interest on a credit card can be more than 30%.4. Prepare to pay taxesHong Kong has a provisional tax system. When you receive a tax return you must report your income, deductions and claim allowances. For example, you can claim tax deductions on MPF contributions. The Inland Revenue will assess your tax for this year and the next, based on what you report. Therefore, tax is for the current year, while provisional tax is for the next year. As a result, the total amount for a tax bill could be very high. You should prepare by using the Salary Tax Calculator to work out the tax due on your wage, then save based on how much you need. (Information source: Investor and Financial Education Council)