advice

Life in plastic, it's fantastic

2:48:00 AM

I briefly worked for one of the largest credit card companies operating in the Philippines. By briefly, I mean three months! Haha! It was my first job, and it wasn't the right career for me, so I left immediately. However, I brought with me valuable knowledge on how credit cards work, and it's been such a great help when, two years later, I actually got issued my first credit card.

For most of us, it's easy to lose control on spending when we first get our hands on those little plastic things - we feel as though we can buy the world! Credit cards make you believe you have more money than you actually do. They're designed to give you temporary spending power.

But when we finally receive the billing statement, that's when we begin to regret the daily trips to Starbucks and the expensive stilettos, because then we realize that we may not be making enough real money to pay for everything. A lot of people seem to forget this fact, and that leads to huge debts.

Credit cards incur a huge interest, at a rate of 3.5% per month, based on the average daily balance. This is a staggering amount, so you need to be very careful. If we're wise enough, though, credit cards could actually be our best friend! If we can control your impulse to spend, having a credit card should not be a problem. In fact, we can use it to our advantage, if we know how to go about it.

To begin with, credit cards are safer to carry around than cash. If you lose your card, you call the bank to have it replaced. If you lose money, good luck getting it back! While I have faith in the goodness in people, it pays to be safe, especially when traveling abroad. Online shopping is another credit card perk, as well as 0% installment plans.

I personally think that the best credit card benefit is reward points, which we can use to redeem a wide range of products and services. In my case, I used up my credit card bonus points to redeem air miles, which I use to travel. In my destination, I can afford to shop a little more because I fly for free (or at a lesser rate)!

To incur more points without spending more than I can afford, I try to swipe everything I buy/pay for. Groceries, utilities, dinners with friends. The day after swiping (sometimes even on the same day), I head to the nearest card payment facility and pay for my purchase in full. That way, I don't even have time to consider using the cash for anything else.

If you're good at remembering dates, you can wait for your cutoff - just be sure you pay the entire amount billed so you won't incur any interests. It's best to spend on your cutoff date; since the purchase will be billed about a month and a half after, you'll get a breather. The point is to not swipe more than what you actually have in cash.

That's a lot of artificial spending power.
(photo from the internet)
For those of you are already in debt, the first thing to do is to analyze your spending, and figure out which expenses you can actually do without. Not everything falls under the category of "emergency" so stop kidding yourself. There is nothing wrong with splurging for as long as you can afford it. Everyone deserves a treat, but they should stick to what their pay grade allows them to spend on.

When you know what you can live without, stop spending money on them! Whatever you will save from unnecessary luxuries could go directly to paying off your debt. When you get your credit card bill, look at the minimum due and pay at least TWICE that. If you pay just the minimum due, you'll still be in debt by the time you have grandchildren. The idea is you settle both the interest and a part of the principal loan.

For those of you who have more than one credit card, it's a smart idea to do balance transfers. That way, you consolidate your debt, and the interest is much, much smaller (0.88% per month). However, I don't recommend this if you're a revolver (bank jargon for a person who doesn't pay his or her credit card bill in full), because you'll end up paying 3.5% and 0.88% add-on interest.

Another thing to avoid at all costs is cash advance. The interest is computed differently, I tell you. I never quite understood how during my stint with the bank (the machines do that for us), but the interest is really higher than when you just swipe your purchase on your card. The ATM charge of Php300 (or 3% of borrowed amount, whichever is higher) should be enough of a deterrent.

To avoid spending more, just leave your cards at home. But if you really can't help but shop and you can't afford your own lifestyle, here's an extreme tip: grab a pair of scissors and cut that card in half! Consider that an intervention. Remember, you should be controlling that piece of plastic, and not the other way around.

isawisay

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