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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.

Know Your Card
Your credit card statement is like a contract—the fine print is sometimes more important than what you see right away. A lot of people don’t understand all the fees and penalties that the credit card company imposes on its cardholders, especially when they have existing balances or don’t pay on time. Don’t be afraid of the jargon—read it, understand it, act upon it and you could be saving yourself some money and a lot of headaches in the future.

Credit Limit. This is the maximum amount that the company will lend you. It is a fixed amount and is not replenished every month so you don’t get the credit back unless you pay in part or in full. Some card companies will allow you to go over the limit but be sure to ask if there are additional charges for exceeding the credit cap.

Finance Charges. This is referred to as the interest charged to your unpaid balance, such as when you postpone full payment and pay only the minimum amount due. Usually, when a balance is carried over to the next period or cycle, any new purchases on your credit card will immediately be charged interest as well. This is because as long as you have an unpaid amount, you are treated as a borrower or “revolver” and the company is your creditor, so all purchases are like additional loans you get from them.

Late Charges. A penalty imposed for neglecting to pay your credit card bill on time. It is usually 5% to 7.5% of the minimum amount due. Some creditors charge a minimum late fee, so even if your bill is only P50, you could end up paying a few hundred pesos in late charges.

Balance Transfer. This is when your existing balance on one credit card is transferred to another card. This is usually done when you switch credit cards and the new card company is willing to absorb your existing debt on another card. What you owe will be transferred to the new card, which is great if you want to avail of better promos (such as lower finance rates). Some card companies charge a fee for this, so be sure to verify the rates first.

Minimum Amount Due. The lowest amount you can pay to avoid late fees and penalties. Usually computed at 5% of your total balance. Take note that paying the minimum amount does not exempt the cardholder from being subject to finance charges on the remaining, unpaid balance.

Cash Advance. Many companies allow you to use your credit card as an ATM card to withdraw money from machines or over-the-counter at select outlets. The money you take out is charged to your credit card and will appear on your monthly statement like a regular purchase. But keep in mind that you will be charged interest from the very day you get the cash, and not merely when the cash advance appears on your statement like on normal purchases. So try to save this option for true emergencies.

Peso Payment. Most cards let you pay only in pesos. This means that when you use your card abroad, your purchases will be converted from that country’s currency to Philippine pesos at the exchange rate set by the credit card company, usually in their favor. Certain card companies give you the option to pay in US dollars, but these are few. Before shopping abroad, ask if you card company is one of them.

Transaction Date. It is the date on which you made your purchase. Some card companies retroactively charge interest on unpaid balances starting on the date of purchase, so be sure to check on what date they start computing interest.

Posting Date. The date the merchant reports the purchase to the credit card company. It may or may not be the same as the transaction date.

Statement Date. The day the company generates your credit card bill every month.

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.