Credit cards: Friends or foes?

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Wednesday, June 11, 2014

I GOT a special delivery two weeks ago. It was a bit heavy and contained in an attractive envelope as if winking at me to go open it. It was an announcement that I got a credit card upgrade.

The first time I got something like this was when I was just starting work, and I felt like, "Wow! I must be rich for this bank to offer me a free credit card!" How naïve I was then.

Credit cards are not created for the rich who can buy a car by paying cash. Rather these credit cards precisely target lower to middle income earners because these markets are the ones on a budget and may need to put some of their purchases in credit.


My dear readers, understand that the credit card business is exactly that: a business. Credit cards earn money from any or all of the following ways:

Membership Fee - which is usually waived during the first year (giving you time to get attached to your plastic friend who dupes you into not feeling your money saying bye-bye until your bill arrives).

Late Payment Charges - which is about 7% of the amount due or P200, whichever is higher

Monthly Interest Rate - this is the rate on the amount you have not paid by the due date. Take note that this is over and above the Late Payment Charges.

Others such as Returned Check Fee, Invoice Retrieval Fee, Card Replacement Fee, Cash Advance Fee, Installment Pre-termination Fee, Over Credit Limit Fee, Multiple Payment Fee, Gaming Service Fee, Service Fees for Foreign Currency Transactions and many more.

However, just like "The Force" in Star Wars, you can choose to use the power of credit cards for good and to your financial advantage.

In order not to be lured by the dark side of consumerism- something which is easy to succumb to when you're using plastic instead of cash- it is important, first and foremost, TO KNOW THYSELF.

If you are fully aware that you go berserk over the word "SALE" and you can relate fully to the agony of that girl in the Confessions of A Shopaholic then for your sake, cut your credit card and refuse any offer for one.

Do not go after that freebie worth around a hundred pesos of dessert wherein you have to pay a minimum of at least thousands in purchases, urging you to buy more to get something you may not actually want.

Again, the allure of what seems free does not necessarily mean it really is. Revert to the truth of the wisdom that there's no such thing as free lunch.

However, if you have fully meditated and know deep in your heart that you can be Luke Skywalker who can put down his light saber despite the temptation to give in to the dark side, then congratulate yourself and be worthy of the power given to you.

But as they say, with great power comes great responsibility. So tread carefully and remember some basic tips on handling credit cards:

* As much as possible, have a maximum of only three credit cards. Assign each card for a purpose: one for paying bills, one for online purchases (research and ask your bank about its security features, there is usually a different kind of credit card meant only for online purchases), and one for regular purchases like groceries and fuel.

* Pay your Total Balance Due in full.

* Pay your Total Balance Due on or before the due date.

* Pay in cash for your wants or unplanned purchases

* Take a Cash Advance only if it's a matter of life and death. Unless you're an accountant or an expert in financial planning, borrowing money through credit card to support a business endeavor is very risky.

* Use the Time Delay Advantage that credit cards give to roll your budget and maybe earn from your purchases. However, I cannot stress this enough, make sure that you have "sure money" to pay the full amount by the due date as charges applied would wipe out any advantage you may have had for using the card.

* Use the convenience that credit card offers. Nowadays, it's not safe to carry around large amount of money, therefore the convenience that credit card offers is a big help.

* Maintaining a good credit standing also increases your overall credit standing, making it easier for you to apply for loans and other special financial needs. It can also be a ground for you to negotiate possible waiving of the annual membership fee for your card.

So, are credit cards friends or foes? Boon or bane? In the end, it's all a matter of self-control. Master yourself first. Only then can credit cards be tamed and turn into a friend.

Published in the Sun.Star Bacolod newspaper on June 11, 2014.


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