Israeli population: 7.6 million
No. of persons eligible for a credit card: 5.4 million
No. of Credit Cards in circulation: 6 million
Total Credit Card Debt: NIS 9.1 billion
Translated, this means that the average adult owns at least 1 credit card and at least 10% of them own more than 1 credit card. If however, we were to spread this debt equally it would mean that everyone who owns a credit card owes at least NIS 1,645 on his/her card. Not bad right?
Not quite! The vast reality is that most of us maximize our credit card limit every month and because our credit card debt is tied to our overdraft facility at the bank we find ourselves paying off our credit card debt only to find ourselves in even bigger debt.
But we’re getting ahead of ourselves. Let’s start from the beginning. You arrive to Israel or have been living here all your life and finally you arrive at the big threshold – adulthood. First thing that is needed in each case is a bank account. So you arrive at the bank of your choice to open an account and of course you are presented with all the options of owning a credit card. (Note the option of taking a debit card instead does exist but of course it’s rarely mentioned). The thought of having more cash at your disposal never seems like a bad idea. So of course you fill out the necessary forms, sign on the dotted line and in a few days you have an extra NIS 5000, NIS10,000 or even NIS 30,000 plus – all in shiny, new plastic in your wallet. Life is good! But is it really?
As Voleh organization explained in their blog, “Credit Cards and Lines of Credit”, Israeli credit cards are tied to our checking account, which in fact means that they act like debit cards on our actual checking account. In other words whatever purchases we make with our credit card will be automatically debited from our checking account every month, on the date chosen. To ensure that this picture is fully understood we must stress here that the full amount owed on our credit cards every month will be automatically withdrawn from our account. (Usually from the options given we can choose the date that is closest to when our monthly salary is deposited in our account to avoid overdraft interest. But as we will explore next month this is often not the case).
Note there is no option for a minimum payment on our credit cards and this is just one of the “minor points” we often neglect to fully understand about credit cards in the Israeli society. So in a nutshell here are some key points you should be aware of about your Israeli plastic:
1. As mentioned before the full amount owed on your credit card is withdrawn from your account every month. No minimum payment option is given unless you make prior arrangements with your bank, and they notoriously rarely agree.
2. You are allowed to split payments for almost anything you purchase without any interest. Yes, anything, even your grocery bill! But the fine print says these payments are interest free only for the first 3 months after this period you do pay a very high interest rate.
3. Similar to the US or UK system there are a number of private companies that offer credit cards besides the banks such as SuperSol, PazGas, SuperPharm, etc. but as usual they charge a high annual fee for their maintenance.
So armed with the basics how do we get a handle on curbing our credit card debt? Look out for part 2 at the end of this month!