The good and the bad in credit cards

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JEREMY JESSLEY TAN, RFP

JEREMY JESSLEY TAN, RFP

Having credit cards can be a double-edged sword. On one end, it can dig your own grave of debt if used carelessly. But on the other end, it can give you some nice benefits when used the right way.

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In this day and age, where technology, convenience and time are very important, it seems like at some point we got to have at least one of those evil plastic cards. Booking your cheap flights would be a whole lot harder and a lot less convenient without a credit card.
Purchasing items of large value would not be safe if you just carry around your cash.

I won’t be a hypocrite and say that I don’t have a credit card, in fact, I have three and throughout the years I’ve learned how to maximize the benefits they can give and avoid the dangerous traps that some features it offers. Knowing how to smartly use the credit cards, I have to say, can be empowering.

Here are some of the things I learned about credit cards that I feel can be helpful:
Pay as soon as you swipe. I’m very diligent in keeping track of how I spend my money. I use an excel sheet just to budget and track every centavo I spend every day. The same excel sheet I use to track all my credit card expenses. What works for me is that I have two bank accounts—one where my salary/commissions are credited, the other where I use to pay all my bills, credit card purchase included. My rule is, as soon as I swipe and purchase using my credit card; I transfer that credit card expense from my salary account to my bills payment account. This way, when the credit card bill comes I won’t have to worry about where I’m going to get the money to pay my bill.

Use credit cards to pay other high-interest credit card debts. You heard it right, some credit cards offer lower interest rate debt called the Balance Transfer that allows you to use your card to pay-off your debt in another card. This feature can be beneficial to those in limbo as they try to figure how to get out of their debts.

Get free meals, discounts and nice rewards. As soon as you master the “Pay as soon as you swipe” strategy, then you can enjoy a lot of offers from credit card companies. You can get free meals from your favorite fast food chain, avail of discounts in some establishments or claim GCs/reward items as you accumulate points. Just to note, these benefits will only be worth it if you have no credit card debt.

To make sure you don’t go YOLO and swipe all you want until your card gets maxed out, here are some things you should avoid:

Do NOT use Cash Advance. For one, as soon as you withdraw money through the Cash Advance Feature, you are already charged. This is on top of the interest they charge you once you don’t pay back in full before the due date. So don’t treat your credit card as an ATM card or debit card because it definitely is not. Money you get from your credit card is a loan that you have to pay back, so be careful.

Not paying bill in full. Interest rates for credit cards range from 3-4 percent per month.

That’s around 36-40 percent per year. Those rates are no joke. In case you are not aware, the minimum amount due indicated on your credit card bill is just the interest amount. So if you pay only the minimum amount, then you come up with a plan to pay more than the minimum each month.

Avoid using so many credit cards. One credit card will actually do, in case you have a lot, you don’t really need to use them. I see some people go crazy trying to track cutoff and due dates to figure out which cards to use. This can be confusing and does not offer peace of mind. Before you know it, you’ve maxed out all your cards and you are in deep financial trouble.

Credit cards have been portrayed to be a bad tool to have in personal finance, but the convenience it brings can sometimes outweigh the image it has. Credit cards are only as bad as how the person use them. They have some nice benefits when used right, but they can get nasty when we don’t understand how they can work for us. If you feel it is getting out of hand, stop using them and get back to the basics.

Jeremy Jessley Tan is a Registered Financial Planner of RFP Philippines. Learn personal financial planning at the 53rd RFP program this April 30-July 4. To register, e-mail to info@rfp.ph or text <name><e-mail><RFP> at 0917-9689774.

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