Wednesday, March 10, 2010

How to be a responsible credit card holder

How to be a responsible credit card holder

1. Keep only 1 or 2 credit cards
It is easier to maintain and monitor your debts if you have only 2 credit cards or better yet only 1. Paying monthly bill is not easy specially if you have many credit cards and especially if all of your cards are max-out. I have an office mate and he's having problems with his credit cards. He could not pay his bills anymore. And worst he
plans to apply for another credit card company to pay off his outstanding balances.

2. Treat your credit card as if it's cash
It's easier this way. If you are not comfortable of your money flying away from your hands then it's the same with credit card. Don't think of it as another source of income. Because it's not.

3. Do not use your credit card to support an expensive lifestyle
This is the common mistake of the people. People use their credit cards to eat in fancy restaurants, buy big size LCD TV or LED TV, buy luxurious items and many more. If you want to buy something (like an LCD TV), then save or allocate money for that and buy that item with cash.
It is a lie when they say "You can have this LED TV in 12 easy payments". Well it's never easy. Because every payment is hard. And I have experienced this personally.

4. Pay more than the minimum
Credit card companies have a secret. They actually want you to pay the minimum amount so that they could charge you with more interest. The longer you have outstanding balances with them, the more interest they earn. Your 5,000 credit may actually become 20,000 or more after paying it all in minimum.

5. Better yet, pay the whole amount every month
This is the best way to pay your debt. In this way you're actually avoiding the interest they charge on you. If you have 5,000 credit and you pay on time, and you pay the amount in full, then that's it. No interest.

6. Always pay on time
Never ever pay late. Some credit card holders may not be aware of this but the interest that you will accrue if you pay late is much much more than the normal interest you pay. For example normal interest is 3%. Paying late may cause the interest to go up to 5%, then 10% and so on. It depends on the credit card company. Plus there are other charges like finance charges and etc.

7. Avoid cash advance through you credit card
Do you know that if you borrow Php500, cash advance, you will be charge Php300 pesos or 5% whichever is higher as interest?
So if you borrow 500 + the 300 outright interest + the monthly interest = way more than the amount that you actually borrowed.

8. Always check receipts and billing statement
I haven't encountered this yet, hopefully never, but sometimes the amount that you expect to pay is not the amount reflected in the receipts and billing statement. And sometimes there are items that you did not buy and suddenly they appear in the billing statement. So watch out!

9. Ignore leaflets from your credit card company
It's hard to ignore those glossy papers filled with colors, offering you great items to buy using your credit card. That's what they want. It's like them saying to you "go ahead buy some more, splurge!"

10. Report credit card loss immediately
If your credit card is lost, report it immediately so that it can be freeze or stop. People can actually use your credit card because the name, account number, expiry date, verification code on the back of the credit card is all what they need to buy something online.
And there are store cashiers who does not even verify the identity of the card holder when buying something.

Good luck!

12 Steps to Build Wealth On Any Income by Alvin TabaƱag
Personal Experience

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