Using Credit Card Wisely

In my younger days, I was never a wise credit card user and I will never be one anymore because I do not have them now. I remember having my first credit card in 1980 with One Thousand (PhP1,000.00) Pesos credit limit which ended up at Thirty Thousand (PhP30,000.00) Pesos in one of them in late 1990’s. Yes, I said in one of them because I had four (4) credit cards in the peak of my earning and spending years and that was not wise because there was always the chance to overspend when you have more than one credit card.

I made this blog post not to brag about my extravagance in using my credit cards in the past but to give advice to to current credit card holders on how to use it wisely. Nowadays, just like in the past, the use of  credit card to pay purchases offers convenience for cardholders who no longer need to carry a big amount of money all the time. Periodic promos, such as zero-interest for say, a six-month payment period, also makes it easier to pay for goods and services if the credit cardholder does not have enough cash.

There are other reasons why one should have a credit card but more important than the flexible payment terms, reward points and security that it gives to a holder is using credit card wisely so that you won’t end up with big debt that you cannot pay. Below are some of the ways to avoid a credit crash.

  1. Live or spend within your means – Determine how much money you earn, either from salary or a business in a month and subtract from that amount your monthly expenses and savings (save 15 to 20% of your salary for the rainy day). The remaining amount will serve as your guide on the amount to pay for your monthly credit card bill.
  2. Pay using credit card on big amount only – Use cash for small day-to-day purchases, not your credit card. Set a limit that say for purchases below PhP2,000.00, you will pay with cash and for purchases above that, use your credit card. Deliberate use of credit card for all your purchases can lead to huge debt.
  3. Spend below your credit limit and make full payment on time – It is never advisable to use the maximum credit limit of your card, As much as you can spend below 30 or 50 percent of your credit limit to make it easier for you to pay your credit on time.
  4. Understand the interest payment schemes – For promos saying zero-interest for six months, it means you need to pay the full credit amount in six months or less. Paying the amount beyond the period will mean added interest and late fees.

Lastly, do not forget to read the fine print in your contract with the credit card company. Look for a card that charges a lower annual percentage rate and that has no annual membership fee if there is one.

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