Back in 2008, I already touched on the subject about credit card debts (from my own experience that is) – Rule of 72 Working Against You – Credit Card Interest. I’d like to update on this subject since just lately, I’ve experience another credit card debt gone bad.
You see, back then (2008), I already got 3 credit cards – BPI, Citibank and HSBC. Of all the 3, BPI credit card is the best credit card and my favorite (more of this story later). Today, I still got 3 but already dropped Citibank and got Metrobank M Card. I didn’t actually applied to get the Metrobank M Card, I just got a call one afternoon from Metrobank (maybe because I have an account with them) offering their card. Their offer is hard to resist since they don’t have annual fee – for LIFETIME. So I thought what the heck. As long as I will be careful using it, then it will not be a problem. At least I won’t have to pay for annual fee (altho I found out you can also do that with other cards, I will show you how at the latter part of this article).
Fast forward. Just this year, first week of 2011 is my due date on Metrobank Credit Card. However, since I didn’t get any billing statement, I thought I don’t have any outstanding balance. Come February, here comes the mail and dang. I have a balance of P900.00. I quickly checked on the details and guess what, P500 is for the charge for not paying the minimum fee and P400.00 for the unpaid balance. The interest is even greater than the amount I’m suppose to pay. But I paid it anyway, as if I have options to choose from.
I think the same reason why BPI is my favorite is that, you can easily monitor your credit card usage using their online banking. And since it is tied with your bank account, paying is as easy as you can imagine. Not to mention the vast network of BPI banks everywhere. And on top of that, as long as you pay before your next cut off date, you can expect it to be charge free.
Why should you be cautious of your credit card usage?
I’ve seen too many (worst) cases of credit card debt gone bad stories. There’s this ex-officemate that acquired around 10k bill on his card but never bothered paying. After some years, he was surprised to see his statement quickly doubled because the interest also earned interest. Imagine, if your card company is charging 3.5% a month, that’s an easy 42% in a year – compounding monthly. So if you’ve accumulated an amount of P30,000, in just a year, that would be around P45,000+ because of the compounding interest. And if you also happen to read the comment on the previous post, this professor of mine back in college was blacklisted for non payment of his credit card debt.
I just wish we also have a system here like that in the US where debt consolidation is offered for public. It’s a system where they group people’s debt making it possible to turn them into one low monthly payment. So like if you have a credit of $10,000.00 and you’re paying an interest rate of 2%, they’ll combine them with other’s debt bringing down the interest rate. For example a group of 3 people with $10,000 each, making a total of $30,000.00 will have a lower interest rate. Instead of 2%, they may be able to bring it down to just 1%.
I read somewhere that a company named A New Horizon (http://www.anewhorizon.org) is offering the said service. If you will check their website and see their illustration, if say you have a starting balance of $37,000 and you’re only paying the minimum, you’ll have a total payment of $64,000 in a year. Compared to that of only $40,000.00 if you are enrolled to the program. You’ll have a total savings of $24,000.00.
I’ve also searched info on debt consolidation and found out that there are some groups that gives advise in financial matters like budgetting. That is super beneficial if you can’t handle your debt anymore. Basically when we talk about credit card, most often than not, we’re dealing with debt later on.
In essence, it’s more like balance transfer as what is being offered here in the Phils. Say if you got an outstanding balance of P30,000.00 in your card and you wish to pay a lower interest rate, you can transfer the balance to say BDO where they offer 1% or even less interest for the transferred balance.
On the positive note, credit cards are exceptionally useful when traveling and you want to avoid carrying too much cash with you. Not to mention the ease of shopping without change to local currency.
Another incentive I get when using credit cards is the freebies like for every specific amount, you can exchange it with food items for example with BPI. For every P2,000 receipt, you get a Jollibee Chicken Joy and Yumburger for FREE.
Conclusion
If you want to have a credit card, be sure you need it for a purpose. If you just want it to increase your spending power, chances are, you’ll be buried in debt without you knowing. Use cash as much as possible. Or use credit card for the freebies but be sure to pay the next day even if you don’t get the billing statement yet.