by Atty. Ignacio R. Bunye
This week, an acquaintance asked via text to see me after work . He sounded very urgent so I told him to see me after dinner.
As it turned out, a credit card company is breathing down his neck. He initially bought, on credit, appliances worth P30,000. A few months later, after missing successive installments, he started receiving text messages from the credit company’s collection agent billing him for over P100,000.
A worse case happened to an executive and his young wife. The wife, unknown to her husband, started buying miscellaneous items using their joint credit card. The husband was later surprised to receive a bill for more than P600,000. The buying spree habit of the wife eventually led to their separation.
These are just two true-to-life stories on how not to use your credit cards.
Credit cards are a popular alternative to make purchases. There are a lot of advantages to owning credit cards, such as not having to carry excessive cash or even earning points in exchange for products, such as appliances, air miles, gas, and “free” meals.
While credit cards have their many advantages, the lack of knowledge in using them has become a bane to many consumers who find themselves deep in debt after a season of uncontrolled spending.
The Bangko Sentral ng Pilipinas’ Economic Financial Learning Center (EFLC), headed by Director Antonio B. Cintura, has repeatedly issued reminders on how to use credit cards wisely, to wit:
• Familiarize yourself with credit card terms such as credit limit, total amount due, minimum amount due, and finance charges. Remember, your lack of understanding of the language, credit card offers and statements could lead you deep in debt. Read and understand the credit card’s “terms and conditions” before you use it.
• Spend as you earn. It is only sensible to avoid spending more than you are earning. Overspending could lead to financial quagmires for you and your family.
• Keep track of your spending and do not exceed your credit limit. It is important to make a list of your expenses so you could set aside money come payment date. Always retain receipts and check them against your billing statement. Immediately report any discrepancies to the card issuer.
• Distinguish what you want from what you really need. Impulse buying has a lot of consequences: You end up with a lot of useless stuff that you still have to pay for.
• Pay your bills in full and on time. If you fail to pay at least the minimum amount due on or before the payment due date, a late payment fee will be charged to your next billing statement. Some issuers charge a fixed amount while others charge a percentage of the minimum payment (e.g. 3 percent to 5 percent).
• Pay more than the minimum amount due. Your credit card can be a very expensive form of credit if you pay just the minimum amount due every billing cycle. Card issuers usually require a minimum payment of 5 percent of the outstanding balance billing cycle such that a R5,000 balance could mean that you can choose to pay only P250. But once you do so, the remaining balance of your outstanding credit card obligation will then be charged a “financing fee.” Assuming that the fee is 3.5 percent a month, this translates to a whopping 42 percent annual interest rate!
• Make sure your payment arrives on time. When paying, provide allowance for posting of payment to ensure that your payment is recorded on time.
• Guard against credit card fraud. Ensure that the transaction on your credit card is done in your presence. Also check your card upon return by the cashier to ensure that it is yours and that it has not been tampered with in any way.
On a personal note, let me add: Handle your credit card as if it were cash.
Years ago, my wife Mira was surprised to receive a statement for a dinner at a restaurant in Kuala Lumpur. Immediately, she wrote the credit card company to dispute the bill for the simple reason that she did not go to Kuala Lumpur.
After several calls, the credit card company sent her the record of purchase. The restaurant bill showed a signature which I immediately recognized. It was mine!
As it turned out, I still had my wife’s extention card in my wallet when I travelled to Kuala Lumpur that year. I absent-mindedly presented my wife’s card at the restaurant. The restaurant, without checking the identity of the card holder, simply swiped my wife’s card.
I could just imagine what would have happened if my wife’s card had fallen in the wrong hands.
Not to over-emphasize: Handle your credit card as if it were cash.
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