Credit Cards Alert

Text by: Sarah T. Geronimo
Photo by: Ronnie Salvacion

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A week before she was scheduled to attend a seminar in
Hong Kong, Joanne, a sales executive, was handed a thick envelope by
the office receptionist. At first, she was afraid it was a bill, but it
turned out to be a shiny new credit card—the missing link for a perfect
trip abroad. Joanne closed her eyes in gratitude and thought of all the
food, clothes, and services she could buy with her latest “accessory.”
During her trip, she found a pair of shoes that were to-die-for and
paid the P10,000 price tag with her card. Her new-found mantra went
something like, “buy now, pay later, buy now, pay later.”
Marissa,
got her first credit card in her senior year in college. “There was a
girl from a bank who went to our school, and she had a box of credit
cards—one for each graduate, pre-approved and with our names already
printed on them. We just had to sign for it.” Even if the initial
credit limit was only P5,000, Marissa said some of her classmates
already maxed out their credit cards within the week.

The Young and The Cashless
It’s
now easier than ever to own a credit card—you can often find
pre-approved credit cards being doled out in malls, schools, or sent by
mail. According to statistics of the Credit Card Association of the
Philippines, there have been around two million credit cards issues in
the past five years.
Many credit card companies
also offer rewards programs and give discounts when you pay at certain
shops or restaurants using your card. “When I go to hotels,
restaurants, or boutiques, I’m sometimes unaware that I’m getting
discounts,” shares Jessica, an architect. “I saved myself P2,400 by
paying for my gym’s annual membership with my credit card.” Jessica’s
card also rewards cardholders’ purchases by issuing points that can be
exchanged for various luxury items, electronics, and even trips.
And
you also can’t deny the convenience of being able to buy a much-needed
item now when your funds are low (but you know that payday is just
around the corner).
Cecile was able to save when
she bought a CD player a few days before the store increased their
prices due to the higher peso-dollar exchange rate. “ I didn’t have
cash that time, but I wanted to buy the player at the old price,” she
says.
Jill, on the other hand, treats her credit
card as a short-term loan. “If there’s something I need to buy that
can’t wait until payday, I use my card. But I make sure to pay
everything on or before the due date so I can enjoy postponing my
expenditures a few days without getting charged interest.”

Risky Business
Credit cards are a
safe alternative to cash. “If I lose my wallet, I can always cancel my
cards,” says Pia, a real estate broker. But they also pose a constant
temptation—who doesn’t want instant gratification knowing you can get
that figure-flattering dress in your closet this very moment if you
just use the magic words, “Put it on my card.” But there’s a world of
difference between credit and cash, so even if it feels like you’re
just signing a piece of paper and voila! you have yourself a
new designer outfit, just remember that all your purchases will come
back to haunt you at month’s end (or whenever your credit card
statement is due).
If you purchase something worth
P10,000 and paid P500 every month for it, instead of just 20 payments,
it would take you more than 32 months, or nearly three years, to pay
off the entire balance because of the interest.
Joanne,
the airline executive who went to Hong Kong, thought she could pay off
her purchases within a year. “I thought I would have no problem setting
aside a measly P833 a month for the next year,” she says. However, she
kept on using her credit card for even more purchases—a cellular phone
and a Palm. Now, Joanne has had to drastically cut down on her credit
card use so that she can pay the minimum amount due every month which
is 5% of the total amount. But with a 3.5% finance charge (which serves
as the interest for the money you are considered to have borrowed from
the credit card company) tacked on every month for unpaid purchases,
her debt is diminishing ever so slowly.
Joanne didn’t realize that, aside from the finance fees on the amount left unpaid from the shoes, she would immediately
be charged interest on items she purchased later (like the phone and
PDA). She also didn’t realize that the conversion rate being used in
the credit card bills (since she purchases some items in Hong Kong) was
actually much higher than those published in the newspapers.
Other
people find that being able to pay for their purchases on an
installment basis is actually more convenient. Patricia, a law student,
says, “By paying only the minimum amount due, I was able to stagger
payments on the watch I gave my boyfriend for his birthday. It’s easier
than taking out a loan from the bank, although the interest rates are
higher.” The difference is knowing what you can afford and using your
credit card accordingly. If you’re still paying for that new
coffeemaker, then resist the urge to buy a microwave until you have
paid off your existing debt.

Debt Dilemma
It is unlikely that
you will land in jail for non-payment of credit card purchases. As on
industry insider points out, “It’s more costly for the credit card
company to go to court, so it usually never gets that far.” But if
you’re not afraid of collectors and lawyers hounding you at all hours,
just think about this: Credit card companies can put your name on a
blacklist that is accessible every time you apply for a loan, try to
get a new credit card, or even apply for a job. It could also be
difficult to open a bank account or start your own business.
Cardholders
who are having trouble paying their loans are not usually out to cheat
the card company, but they are understandably scared of what might
happen to them because of their outstanding debt. Credit card companies
are sympathetic to these cases and are very likely to compromise with
the cardholder because they too will benefit if the cardholder pays her
balance. If you’re laboring under the weight of your debt, don’t be
afraid to call up your card company and tell them the situation. The
temporary embarrassment is a small price to pay for your peace of mind.
Remember, “Most Number of Charge Slips Signed” will never make it as an
Olympic category, but the Guinness Book of World Records does have an
entry for “Largest Unpaid Debt”.
Get Card Smart
Your credit card can be an indispensable tool—not a liability—if you know how to use it right.
Do your homework.
You hate math, but if you don’t plan on paying your credit card
purchases in full, a little addition and multiplication will help you
choose which card offers the lowest finance rates. Rates can go as high
as 3.75% per month to as low as 1.5%. Also, be sure to ask the card
company on which date—transaction, posting, or statement date—they
start computing finance charges. Some cards advertise low finance
rates, but if they start computing interest on the day you made your
purchase, you could end up paying more.
Shop smart.
Buying appliances and paying for tuition on installment using your card
are great ways out for those absolute necessities. Try to time your
purchases during installment fairs, when prices and interest rates can
be reduced or waived altogether.
Avoid surcharges.
Businesses that tack on a surcharge over and above the regular cost of
an item are violating their agreement with the credit card company.
While few of these merchants have been penalized, cardholders who end
up paying the additional cost are entitled to have that amount
re-credited to their card. Take a picture of the separate “cash” and
“credit” price, or any other proof that the establishment overcharges
their card-paying clients, and bringing it with you to the credit card
company when you file a complaint.
Mind your cards.
Even expired cards can be used by unscrupulous individuals to make
purchases in your name since your credit card number doesn’t change
when you get your new card. Destroy documents containing your credit
card number which you don’t intend to file—including the carbon paper
inserted in-between the credit slips you sign. As much as possible,
keep an eye on your credit card when paying a salesperson or waiter.
Also, be wary of the credit slips you are signing, some scams have you
sign one too many slips which can later be used to make unauthorized
purchases.
Know and enjoy the perks. Don’t
be afraid to ask what added perks your card comes with—perhaps a free
dental check-up, discounts at restaurants, or rebates and rewards
programs. If you’re in a charitable mood, some card will donate a
portion of each purchase to a worthy organization or cause. Are you
Miss Popularity? Then try cards that reward you for successfully
referring a friend to the company. The promos are endless. Just be sure
to ask what the conditions are, or else that “discount” may actually
end up costing you more than you saved.