How to use credit cards to your advantage

Tuesday, 16 June 2020

Credit cards are an immensely practical tool in helping cardholders bridge their finances until the next payday or during emergencies.

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Credit cards are an immensely practical tool in helping cardholders bridge their finances until the next payday or during emergencies.

Credit cards also provide users with a certain level of security as they would not have to bring too many wads of cash with them when they go out to shop or to buy groceries.

The advantages of using credit cards
Photo courtesy of pexels.com

How to use credit cards to your advantage




    On credit card spending


    When used wisely, credit cards can even train you to better manage your finances. Sadly, not a lot of people are successful in using their credit cards to their advantage. It’s easy to fall to the trap of excessive (and unwise) credit card use. 

    After all, having credit cards makes us feel as though we have a lot of money so our tendency is to just pick random stuff from shelves when we are shopping and pay for it without much regard for the money that we have (or will have) on hand.

    Our personal credit card usage


    On a personal note, we use credit cards primarily when buying groceries. Other than that, my credit card is essentially an emergency line. It’s actually a great tool especially for parents like me who spend more for their kids than for themselves.

    A caveat before you continue reading: I am not financially-savvy. Admittedly, I am one of those people who, at some point, have stumbled and committed mistakes when using credit cards. I consider myself quite lucky though because Ihave realized my mistakes early one so I was able to bounce back before it was too late. Some people realize their mistakes too late when it becomes almost impossible for them to bounce back and pay off their debts.

    Anyway, I would like to share with you the lessons that I’ve learned and continuously learn from using credit card. Hopefully, you could find some of my stories relatable,practical, and applicable to your situation. so that you too could find success in using your credit cards.

    How do banks earn from credit cards?


    Before we proceed with our story, let us first know how banks earn from credit cards. Well, banks earn from credit cards through interest, and fees and charges.

    Essentially, credit cards are unsecured loans. These are very similar to salary or personal loans. They are unsecured loans because they are not guaranteed or backed by collaterals or assets that banks and lenders accept as security for the money that they lend out to borrowers. 

    In the case of credit cards, the loan is unsecured, as such, the credit limit is kept at a minimum amount (i.e. Php20,000 or P50,000). Depending on a person’s credit history, the bank may increase this credit limit.

    When I started with my credit card more than a decade ago, I only had Php30,000 credit limit. However, with my good credit or payment history throughout the years, my credit card provider gradually increased my credit limit which is now more than thrice the initial amount.

    Common credit card mistakes and how to avoid them


    When using or owning a credit card, the first thing that you should try to avoid is to incur interest charges. Keep in mind that credit card interest is compounding. That means interest is applied to current unpaid balance plus all unpaid balances for the previous months.

    In effect, you could be paying interest on interest if you have unpaid dues during the part months, so this is what you need to avoid. Anyway, here are some of the things that you have to be on the lookout for when you actively use your credit cards:

    1. Not paying the full amount due


    There are two types of credit card customers: transactors and revolvers. A transactor is one who pays the full amount on or before the due date. On the other hand, a revolver is one who pays only partial or the minimum amount due on or before the due date.

    Between the two credit card types, the transactor is the more ideal spender because he is able to pay the full amount he owes on or before his due date. He is protected from interest charges because he pays the full amount of the money he spent using his card.

    2. Forgetting about your due date


    Do not forget about your due date! Yes, you may incur a small finance charge if you miss your due date but keep in mind that this small mistake that could pile up over time. Furthermore, remember that banks require a two-day clearing before your payment is posted to your account. In effect, you have to pay your balance at least two days before your actual due date to avoid sustaining late charges.

    3. Spending beyond your means


    Overspending is one story that is so common among people who are deep into credit card debts. In other words, these cardholders are spending money beyond their capacity to pay. When using your credit card, treat it as if you are spending using cash. This means that you have to spend only the amount that you would normally spend, say, when doing groceries.

    Going beyond your normal budget, even just a little, is already asking for possible disaster in the future. Keep in mind that those little expenses could pile up without us noticing it. You will be surprised with how much you’ve spent beyond your budget when you do an audit of your monthly expenditures.

    4. Falling for marketing traps


    If you own a credit card, chances are you’ve received calls from marketing representatives happily informing you about the ongoing sale on this so and so store or a promo at a certain hotel. You might have also encountered flashy emails announcing a free item when you purchase an expensive luggage for a particular amount. These are all marketing strategies that attract people to spend with their credit cards. The more you use your credit card, the greater your chances of incurring fees and charges.

    5. Converting your balance to installment


    Technically, converting your balance to installment is part of most banks’ marketing initiatives. However, I would like to give special focus to this because this is one strategy that could make huge money out of credit cardholders. 

    In simple words, you use your credit card for a big ticket expense. You will receive a message from your bank offering you a way to pay off this spending in easy installment terms for a certain number of months. Sure, the monthly intallment is smaller than having to pay off the full amount. 

    In reality though, installment schemes are subject to interest charges so if you add up the monthly amount that you have to pay, you will end up with a bigger total versus your original payable sum. Again, before availing of installment arrangement, think of points 1 & 3 above (paying full amount and spending beyond your means). If you must avail of installment, be sure it’s 0% interest.

    Using credit cards wisely and to your advantage
    Photo courtesy of pexels.com


    How to use your credit cards wisely


    As I have said earlier, you credit card can bring you countless benefits as long as you use it wisely.  Go ahead and use it to pay for your expenses without feeling guilty if you know that you can fulfill your obligation when the due date arrives.

    Make it work to your advantage instead of it being a burden to you though these simple strategies:


    1. Treat it like an emergency fund


    Again, treat your credit card as an emergency fund. Keep it with you and use it only when necessary and only for important expenses such as hospitalization and for tuition fees. This is how Khris and I treated our credit cards whenever we are expecting important milestones such as when we got married, during the instances when Khris was due to give birth, and during our first son’s first birthday. 

    We never used our credit cards for non-important items months before our expected big expenses. With that, our credit cards were a big help to us when it was time to pay off our wedding venue, our hospital bills, and our son’s birthday suppliers. Again, we were confident in using our cards because we knew that there was money arriving soon from our salaries.

    2. Always think of it as borrowed money


    Even if you own a credit card, think of it as borrowed money. Meaning, it’s not yours so you would have to pay for it eventually. Spend only the amount that you need and that you can comfortably pay.

    3. Use it for essential items only


    Again, use your credit cards only for essential items. For us, we limit it only to groceries. We do not use it to splurge on expensive items. If ever we use it for an important item, such as a laptop, we ask for 0% installment or, if this is not available, we choose a price that we know we can pay in full as soon as possible.

    4. Pay off your dues immediately


    Lastly, pay off your debts immediately unless, again, it is on 0% installment. Pay the full amount of your monthly balances to avoid incurring interest and late charges.

    5. Be wary of credit card scams and fraud


    The proliferation of online and electronic payments have also led to the increase of fraud and scams. Most common of which is phishing, wherein a dubious link masked as a legitimate link will be sent by fraudsters to unknowing cardholders in hopes of obtaining personal and security information.

    Once the information has been obtained, these can be used by the hoaxer for unlawful online credit card transactions. If undetected, the illegal transactions can go on indefinitely. Aside from phishing, some unscrupulous individuals will try to obtain personal credit card information by pretending to be telephone representatives. 

    As a security measure, never divulge your personal information to anybody, including your credit card number and the CVV or the three-digit number at the back of your credit card.

    6. Use credit cards that let you earn points


    If you must use credit cards, you might as well get one that lets you earn points and rebates so that you will have some form of rewards in the future. However, do take note that this is another way to encourage you to use your credit card for spending. Again, do keep your spending at a minimum and use it only for buying necessary things.

    Simple and practical tips on how to use credit cards to your advantage
    Photo courtesy of pexels.com

    In the end, how successful you are in using your credit card to your advantage will depend on your discipline. If you use it wisely and only for essential items, your credit card is your best ally in helping you in budgeting your finances.


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