The Credit card is one of the best inventions of mankind in this modern times. It gave us the convenience when shopping at physical and online stores, booking hotels, or buying airline tickets over the internet. Credit cards can make our lives easier if used responsibly and wisely. Otherwise, that innocent-looking plastic card can make your life miserable financially and emotionally if the user is not aware of its ins and outs.
When it comes to getting a credit card, one must think thoroughly and choose carefully. We at PesoMind.com decided to write this article to help Filipinos all over the world about credit card applications and ownership. We hope that someday, no one will be buried in credit card debts again through financial education and management.
Things You Must Know Before Getting a Credit Card
Although most credit cards in the Philippines have similar features, not all are the same. Even cards issued by the same credit card company have slight differences in their features. If you think you are qualified to own one, choose the best credit card that fits your needs, budget, and spending habits. Before filling out that application form, you should always compare features and choose the best one for you.
Here are some of the things to consider if you are planning to get the plastic thing:
1. Spending Habits
How you intend to use the credit card is the first thing you have to consider before getting one. Are you planning to use it only for emergencies, or you want to use it to pay for everything? Do you intend to pay the bill in full every month or you want it in staggered payments and just pay the interests?
- If you are the type of person who wants to pay the bill in full every billing cycle, then interest rates don’t really matter. You can choose a card with lower or no annual membership fee. Some credit card providers allow you to use the accumulated points to pay the annual fee.
- If you just want to pay the monthly minimum payment and pay the amount on a staggered basis, get a credit card with the lowest interest rates.
- If you intend to use it only for emergency purposes or when you are traveling abroad, look for a card with the lowest annual fee and interest rates.
- If you are going to use it to pay for everything like groceries and utility bills, choose the card with the highest possible credit limit, low-interest rates, and a good rewards program.
2. Interest Rates
First-time credit card owners should know that every swipe using that card is a loan and every loan must be paid. Unless you pay the amount in full on or before the due date, that loan will incur interest. When searching for the right card for you, always look for the lowest interest rates. A difference of 0.25% can mean savings of thousands of pesos in interest payments.
3. Annual Fees
Competition is also stiff in the credit card business nowadays. This increase in competition between credit card companies is a win for us, consumers. To attract customers, most credit card providers in the Philippines offer low membership fees ranging from ₱2,000 to ₱6,000. Some cards waived their annual fee for a year or two, and there are companies who do not have any annual fee at all.
4. Late Payment Fees
If you fail to pay your bill on time, credit card companies often charge penalty fees to cardholders. This is a way for them to make money aside from annual fees and interests. The late payment penalty is computed based on the amount due (usually 7%) or a minimum fixed fee, whichever is higher.
When scouting for the best credit card in the Philippines, look for the one with reasonable penalty charges. Stay away from cards with exorbitant fees because even the most prudent cardholder might miss a payment once or twice in their lifetime. To avoid paying late payment fees, manage your payments well and submit them on time.
5. Cash Advance Fees
One of the most tempting features of a credit card nowadays is the ability to make cash advances. It let us withdraw cash from an ATM just like a debit card. This feature is very handy, especially in emergency situations. This cash advance feature is good, but it has a potential to ruin your finances if not used wisely. When you make a cash advance, there will be a corresponding fee. The fee is a percentage of the cash advance amount (usually 5%) or a minimum fixed fee whichever is higher.
6. Credit Limit
This is the maximum amount you can charge to your card. Depending on your credit history and income, credit limits for cards usually range from ₱30,000 to ₱600,000 or higher. For most cardholders, ₱30,000 to ₱50,000 should be ok. You tend to spend more if you have a bigger credit limit.
Make sure you do not exceed the credit limit when making purchases. If you manage to max out your card but have to make another purchase, you can do so but it will cost you over-limit fees. Credit card providers or institutions will charge you for every transaction you make using the card, once you exceeded your monthly credit limit.
7. Grace Period
The grace period or the free float period is a certain period when you can delay payments without incurring any penalty or interest charges. Some credit card companies in the Philippines give cardholders up to 20 days to settle their balance. This means that the floating period will be around 40-45 days. If you settle the amount before the due date, you will be paying for purchased items without any interest.
Keep in mind that free float or grace period is only applicable if you have no outstanding balance on your credit card. Make sure to settle your bills on time to take advantage of the free float features.
8. Rewards and other Freebies
Like what I have said before, competition between credit card companies is getting intense every day. To get ahead of the pack, many card issuers offer rewards and freebies to entice customers to use their cards. Some companies give cash back privileges, reward points, and discounts.
These accumulated reward points can be exchanged for cinema tickets, free meals, or can be used to pay the annual fee. When choosing the best credit card for you, pick one which allows you to use reward points in a variety of ways, like converting to cash or payment for your balance.
Owning a credit card gives you the power to buy products and services even without cash, pay online purchases or book hotels and flights at the comfort of your couch. But with great power comes great responsibility. Using, or just simply owning a card can be disastrous to an uninformed cardholder. If you are planning to get one, always think twice if you really need the card, or can you support it with your income.
When applying for a credit card, always read the fine print. If you do not understand a term or condition, ask the agent or someone who knows. If you can’t read it due to small font, use eyeglasses or let others read it for you.
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