Credit cards are helpful financial tools
that come with perks, only if they're used properly. Irresponsible use can lead to a lot of problems, including debts and poor credit history
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 credit card wisely.
1. Read the Terms and Conditions carefully.
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.
- Pay close attention to these details in your credit card's terms and conditions:
- The credit card fees and interest charges
- Length of grace period
- How finance charges are computed
- How to qualify for credit card promos and rewards
- Rules on the rewards program (e.g., types of transactions that qualify for rewards, amount of rewards earned on purchases, and minimum amount that can be redeemed)
2. Only spend what you can afford to pay off monthly.
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:
- Make a list of all your expenses for each month.
- Set a strict budget based on your list of expenses and the maximum amount you are going to spend using your card.
- Use your card for purchases and payments you regularly make such as groceries, utility bills, and gas. You may earn rebates or rewards for such transactions, depending on your credit card type.
- Every time you buy something with your credit card, ask yourself if you can afford to pay it in cash. If not, then do not proceed with the transaction.
- Stay below your credit limit, ideally lower than 30% of your available credit.
- Never max out your card. Spending beyond your credit limit will make it hard for you to pay off your balances. You will also have to pay over-the-limit fees.
3. Check your card and sales slip after every purchase.
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.
4. Protect your credit cards against theft and fraud.
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.
Be aware of the different credit card scams.
Aside from physical theft, scammers can steal your information in other ways:
- Identity theft. Scammers hack into a merchant's database or pose as bank representative to get the data they need.
- Skimming. Fraudsters illegally copy someone's information from a credit card's magnetic strip. They may use the stolen details for online transactions and producing fake credit cards.
- Phishing. Fake emails or text messages from the bank asking the recipient for credit card details.
Don't share your credit card information with anyone.
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.
Don't use free Wi-Fi in public places.
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.
Be careful when using your credit card online.
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.
5. Monitor your card activity regularly.
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:
- Set up an online account with your bank. This allows you to review your expenses using the bank's website or mobile app.
- Subscribe to email or mobile alerts that prompt you each time your card is used.
- Keep all your credit card receipts and a running total of your expenses.
6. Avoid making cash advances.
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.
7. Read your credit card statements thoroughly.
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:
- The amounts for all purchases are correct.
- Your last payment, rebates, and other credits were applied properly.
- There are no errors and unauthorized charges on your card.
If you spot any unauthorized transactions on your credit card statement, report it immediately to your credit card provider.
8. Pay your all monthly bills in full.
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.
9. Pay your credit card bills on time.
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.
10. Do not use your card when you cannot pay in full.
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.
Be a smart credit card user!
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.