Make Your Credit Card Work for You
Nowadays it's common to get calls from credit card companies asking if you're interested in getting their so-called "plastic money." More so if you're in your early twenties, a fresh graduate, and have a newfound spending power.
After all, banks are neck-and-neck in getting their fair share of potential customers. But before you say yes to the bank agent, here are some things you should think through.
A credit card is a powerful tool if you manage its use. But like with anything, abuse of power can cause harm. In this case, it can lead to you ending knee-deep in debt.
Treat your card as cash
Financial planners and financial books say the key in managing credit is to always remember: Some debt is good, while some debt is bad.
Credit advisers the world over have been reiterating to avoid borrowing for things that you can't fully pay for within a month or two.
"I use the card for things I can't conveniently buy by paying in cash, like plane tickets and other stuff I book or buy online. But I treat it as cash; if it's not something I can afford using just my monthly paycheck, I probably won't buy it," says Josh Lagrimas, a 23-year-old programmer who's been using his own credit card for two years.
While Lagrimas claims to have never spent beyond his means, he says it's not easy to resist the temptation of charging your way around.
"It's really hard since it's just there calling your name, especially if I haven't maxed out the credit limit yet," he admits, but notes that so far he has "paid everything within the cut-off" date.
Credit card users should also avoid paying only the minimum amount due on their monthly credit card bills, as it barely covers the interest you owe and will take longer to pay off the balance. This can result in you spending thousands of pesos more than the original amount you charged.
Paying everything on time is also a boost to your credit history and should bode well if you need to secure a higher credit limit or when you ask a bank for a loan. Keep in mind that banks share credit information through credit bureaus.
Getting out of the debt trap
But not everyone is like Lagrimas. A lot of new credit card users spend thousands without much thought to what they're buying-- swiping away for new clothes, food, and vacations every moment they can. This is indisputably the easiest way to fall into the debt trap.
If you find yourself not being able to keep up with even the minimum monthly payments, face the problem and talk to your bank. Tell them that you're keen on lifting yourself out of debt, and ask if they can meet you halfway by lowering monthly dues.
Of course, this also means that you have to cut down on spending, particularly on luxuries, but maybe even little wants.
Do you owe much from multiple cards and feel like you've fallen into a sinkhole? Don't panic. List down all your debts and their corresponding interest, and decide which dues you have to prioritize in terms of urgency.
Not all credit cards are equal, so you shouldn't treat them so. Keep paying the minimum due, and pay whatever extra you can afford to the ones that have the highest rate. Once the highest-interest debt is paid down, move on to the next highest, and so on.
If you really feel that your debt is more than you can manage, get help before you lose sleep. There are reputable debt counselors and financial planners out there that may be able to consolidate your debt and assist you in better managing your finances.
The task won't be a walk in the park, but it's better than running away from what you owe. Remember, your credit history will always be there to haunt you.
Still think you're up to the responsibility of handling a credit card? If so, go get it and charge away, but remember to keep yourself in check, not in debt.