Reading time: 6 minutes
February 6, 2019
Credit card debt is a perennial problem in the Philippines. Data from the Bangko Sentral ng Pilipinas show that Filipinos owe hundreds of billions of pesos on their credit cards.
Although nobody has been and will never be jailed because of credit card debt, you do not want to go through the stress and hassle of repaying debt on your card.
Have you received your new card? To avoid being trapped in debt, keep in mind these 10 tips on how to use a card wisely.
Before you use your new card for the first time, take time to read carefully the issuing bank’s Terms and Conditions that contain the rules of using the credit card. Make sure to understand them to avoid problems with your credit card later on.
Using credit cards properly takes a lot of discipline and the right mindset.
Credit cards are not unlimited sources of funds. Each time you use your card, you’re essentially borrowing money from the bank—an amount you have not earned yet. If you spend with your card more than you can afford to pay each month, you will be in trouble.
Here are the practical ways to avoid credit card overspending:
Keep a careful watch over your credit card to avoid any error in the transaction.
If the cashier will swipe your card twice, ask for a proof that the transaction (the first swipe) is canceled. Always check all the details on the sales slip before signing it. Make sure that the amount indicated on the slip matches the actual amount of your purchase. Do not sign a blank slip.
As soon as the cashier returns your card to you, check it to make sure it is yours and it is not tampered.
Credit cards have security features such as the EMV chip, hologram, security code, and signature panel. But it does not mean that yours is 100% safe from people who are out to use credit cards for unauthorized transactions.
You are responsible for keeping your card safe and secure. Here are the dos and don’ts to avoid becoming a victim of a scam.
Aside from physical theft, scammers can steal your information in other ways:
Keep your credit card details private, especially your account number, card expiration date, and security code. Never share them with anyone asking for your data online or over the phone. Do not reply to or click on a link in a suspicious email.
Internet shops, hotels, airports, cafes, and malls are among the unsafest places to perform online transactions because it is easy for hackers to steal your personal data over public Wi-Fi connections.
Before you shop online, check the URL address of the website. A secure site starts with “https” (and not “http”) and has the padlock icon. Avoid saving your credit card information on the website by unchecking the box that asks you to save your details.
Responsible credit card users check their card activity at least once a week. It takes only a couple of minutes to monitor the transactions made using your credit card. That way, you ensure that you spend within your budget, do not exceed your credit limit, avoid penalty fees, and have no unauthorized transactions charged to your card.
Here are the easy ways to monitor your credit card transactions:
Cash advances on credit cards are an expensive form of credit and an easy way to incur debt. Each time you withdraw cash from an ATM using your credit card, you will have to pay around 5% cash advance fee.
Interest rates for cash advances are also higher than regular purchases. Most credit cards have no grace period on cash advances, so you cannot avoid a finance charge on a cash advance unless you pay it off quickly.
Each time your billing statement arrives, do not just look at the minimum amount due, outstanding balance, and the due date. The statement contains other details that you must keep an eye out for, such as each transaction detail.
Review all your credit card transactions listed on your billing statement and ensure the following:
If you spot any unauthorized transactions on your credit card statement, report it immediately to your credit card provider.
Many Filipino credit card users fall into the debt trap because of one costly mistake: making only the minimum payment. If you do that, you will end up shelling out more money to pay the interest.
Credit cards are among the most expensive forms of debt, with monthly interest rates ranging from 2.00% to 3.54%. Banks also charge at a compounding interesting rate. This means if you often carry over balances, you are charged interest not just on the amount you owe but also on your interest.
The only way to enjoy your credit card rewards and avoid finance charges is to always pay the total amount due in full by the due date. Ignore the minimum amount due and pretend as if it does not exist.
Missing or delaying payments is another no-no when it comes to using credit cards. On top of the finance charge, you will also be slapped with a late payment fee each time you pay your balance after the due date. In the Philippines, late payment fees can go as high as Php 750 or 8% of the total amount due.
Aside from avoiding late fees, paying your monthly balances on or before the due date helps you improve your credit history and keep your monthly credit card payments low.
Sometimes, certain emergencies and unexpected expenses keep you from paying your balance in full. During those times, the most logical thing to do is to pay at least the minimum amount due on time and avoid adding up to your balances. Until you can pay off your credit card balance, put your card away and don’t use it. This way, you can avoid racking up credit card debt.
Now that you know how to use a credit card wisely, you can avoid the costs and stress of dealing with debt and other problems caused by misuse of credit cards. It takes practice to be a responsible credit card user, and the best time to start is now.