Credit Cards

I am not really a fan of credit cards. I had been offered different credit cards before but I always have them cancelled on the anniversary date so that I would not have to pay the annual fee. I had a BDO Gold for my first credit card but I had it downgraded to BDO ShopMore since I saw that the annual fee is too expensive for me during that time. I had it cancelled after I had my Citibank Classic Visa credit card since Citibank offered a higher credit limit, though I do not really need that much credit limit. I also had Citibank Mercury Drug and Premiere Miles card but I already cancelled the Mercury Drug card since I never used it. I kept the Classic Visa card since it is my first card and I am sometimes able to waive the annual fee. I also kept the Premiere Miles Card since I was foolish enough to buy an LED TV using the 12 month 0% interest even though I already had the cash to pay it during that time. I was thinking about the miles that I would earn but after computing it was just then that I realized that I would need to spend PhP600,000 using the Premiere Miles Card to get the 20,000 miles I would need to get the round trip ticket to Hongkong via Cathay Pacific.

I just have one rule regarding credit card use: Always pay in full.

The interest rate of 3.5% per month (most common interest rate on credit cards) on the unpaid part of the balance will accumulate as fast.
Example: If you have a PhP10,000 credit card debt and you only pay the 5% minimum payment then it will take you 851 months or 71 years to pay your debt paying a total of PhP29,850.73. If we factor the PhP500 minimum monthly payment if the 5% of the total debt is below PhP500 it will take you 33 months or almost 3 years with a total payment of PhP16,500.

PhP6,500 seems to be a small interest payment stretched over a period of three years but look at it this way, if you put your PhP6,500 in a regular peso savings account at 0.0375% per annum you will have PhP7259.01 after 3 years. If you invest it in a mutual fund, it could become as high as PhP13,000 based on the historical performance based on the past three years of Sunlife and Metrobank Equity funds (but this is not guaranteed and you might actually lose money on that three year period, I’ll write a future blog about mutual funds in the future).

I am not saying that credit cards are bad, it’s the decision of people using the card is the one that’s bad. I use my card to pay for airline tickets or to buy groceries when I do not have cash available at hand. I just make sure that I fully pay my bill at the end of the billing period. For one, there are a lot of cards that can be helpful for the consumers, like for those who uses their cards for gas purchases there is a 2%-5% rebate when you use your Citibank Shell, BPI Petron or HSBC Caltex cards, it’s a lot of savings specially with the high prices of gas. Though I would still recommend the shopping cards from different banks that has a lot of rewards if you use them for paying your utility bills or groceries like Citibank Cashback, Robinson’s card, BDO ShopMore.
Again Just use it wisely and pay it in full