Credit cards were designed for the shoppers’ convenience. Or so that is how it is advertised.
About two percent of households have credit cards. This seemed minuscule compared to the number of credit card holders in our neighboring countries such as Singapore, South Korea, and Japan. With too many stories of spiraling credit card debt, a typical Filipino would be avoiding credit cards.
Additionally, credit cards seemed to be synonymous with uncontrolled spending. The plain truth is these thin plastic cards carry a lot of risks. A bit of overspending can turn your finances into chaos.
I admit that I now have a couple of credit cards too, but I am still not 100% comfortable when using them. A small misuse can send me into snowballing debts, unfortunately, I need to use a credit card to help with my credit score and have additional proof of billings when needed.
So I will be sharing the top 10 mistakes Filipinos do with the credit cards that have caused them serious financial dilemmas.
Taking a cash advance
Did you know that you can withdraw cash from an ATM using your credit card?
Cash advance is a credit card feature that lets you withdraw cash from an ATM. While it sounds like instant money, you must not use it unless it is an emergency.
No matter how the banks make it sounds too inviting, cash advance comes with fees and other charges.
This novelty has no grace period. And issuers charge daily interest starting from the day you withdrew your money from an ATM.
This can easily blow up as debt if you are not careful. That’s because the longer it takes for you to settle your balance, the more you will have to pay eventually.
What to do: Avoid cash advance. Take note that its interest is different from the effective interest rate. Find another way to have cash such as getting a personal loan.
Paying the minimum amount
It’s true that you will only be charged an interest rate if you fail to pay your bill on time. And even if the bank keeps telling you that it’s okay to pay a minimum amount, the remaining balance is still charged with an interest rate.
What to do: Always pay the bill in full. This way you can avoid the late payment fee and the interest charge.
Missing the due date
Other than accumulating interests for every day that you miss paying your bills, you’ll also incur late payment penalty. You may have a lot of due dates to remember for utility bills and tuition fees, but credit card bills are equally important. You could ruin your credit history if you are not careful.
What to do: Keep track of your due dates. Use a calendar or log in reminders on your phone. If you keep thinking that there is still a long time before the due date, you might use the money for other things. It is better to pay ahead if you can.
Using a credit card as free money
There is no such thing as free lunch with credit cards. Credit cards give you the privilege that the bank will pay your purchases for you. Then you will have to pay the amount at a later date. There is no interest charge unless the bill is not settled.
These plastics cards represent instant loans. You may not be paying with tangible cash but you are still buying products and services.
What to do: Purchase only what you can actually pay. Balance your budget carefully to make sure that your bill will be covered by its due date.
Shopping abroad with a credit card
Credit cards have foreign currency transaction fees of 1.75% to 2.50% charged on the purchased items. Unless your credit card has a dual currency feature, it is not smart to use it abroad.
Let’s say you purchased something in South Korea and your credit card was charged in Won. Do not expect the purchase to directly convert to peso. All foreign transactions are first converted to US dollars before it becomes peso. Then your credit card issuers will also top up the total amount with service charges.
What to do: Use your credit card only for emergency purchases or just leave it at home. It is hard to estimate how much you will pay eventually, so it is better to keep your finances safe.
Maxing out your credit limit
Banks offer various credit limits depending on their own discretion. It is the maximum amount you can charge on your credit card, but it does not mean you always have to max it out.
Usually, transactions do not push through if the credit limit has been reached. On the other hand, there are some cases when the transactions get accepted. These are charged with an over limit fee of Php500.
What to do: Keep track of your purchases to know how much is left on your credit limit. As much as you can, only make purchases of up to 50% of your monthly credit limit. This way, even if you’ve got emergency purchases, you will not go beyond the credit limit.
Always eyeing promos and discounts
Credit cards offer a myriad of promos and discounts. They sure make the perfect eye candy for shoppers. However, keep in mind that each promo has terms and conditions that must be met. If you just focus on discounts, freebies, and promos, you might spend more than you should.
What to do: Before purchasing, validate if it is a need you can pay or just a want which is over the budget.
Paying the annual fee
Most credit cards have an annual fee with the amount depending on its category. This will be charged starting from a year after your credit card was activated.
What to do: Ask the bank on how you can waive the fee. Most banks waive the first annual fee, while some waive it in exchange for a certain amount of accumulated rewards points.
Charging medical bills
Medical bills can increase quickly and it can blow up with the steep credit card interest rates of up to 42% a year. While the hospital bills get bigger, the balance on your credit card also multiplies. Your debt will be an avalanche in no time.
What to do: Find other options to pay your medical bills. Use your PhilHealth benefits, get a personal loan, and negotiate with the hospital.
Having too many credit cards
You must take note of every purchase, credit limit, statement dates, and due dates of every credit cards that you have. You might miss these important details if you have too many.
What to do: Keep one to three credit cards according to your financial capacity and needs. Analyze your spending habit. If you think your spending behavior is difficult to control, then having a credit card can put you at financial risk.
What’s Take Away?
Credit cards are useful, but simple mistakes can easily lead you to long-term financial disasters. Read the fine prints and know your alternatives. There are more options than you can think of.
If you need cash on tap, you can get an online personal loan from Cash Mart. Cash Mart offers flexible loan terms which you can use to fit your financial needs.