5th NU12 Paper – New Spending Habit:
AVOIDING THE CARD TRAP
Submitted by: thebluetigerMD
February 11, 2013
MBAH – 10B
Entrepreneurship – Class H04
Submitted to: Prof. Jorge Saguinsin
Paper or Plastic?
One notable thing in this modern era is the new way people buy and pay for commodities. Whereas in the olden days, before an individual can buy something worth a considerable amount, he/ she should have saved up the amount of money needed to purchase the desired item. Now, you only need a credit card and the much coveted item is yours. Furthermore, it's so easy to acquire a credit card these days, which makes more people vulnerable to the card trap.
The problem with credit card usage is you don't instantaneously feel the effect of your purchases. So if one gets a new cell phone, it doesn't really hurt much if you're charged 1000 pesos every month for the next 24 months. This will make the card holder feel he/ she can still make a few more purchases, add a new LED TV for another 1000 pesos/month, and maybe charge the groceries and gasoline in the card as well.
Not long after, the card holder sustains a considerable outstanding balance, and he/ she begins to feel the effect of the interest rate (suddenly that 3.5% doesn't seem so small anymore). The card holder is constrained to pay the minimum amount due only (because there are other bills to be settled) and monthly payments doesn't seem to take a chink off the outstanding balance.
A lot of people have fallen to this card trap. Still, the credit card is a helpful instrument if used wisely, and not abused. So here are a few points I personally apply to my credit card usage to keep it in-check.
1. Try to maintain two (2) credit cards – You may think this is twice the temptation and will bring twice the damage. However, I find using two cards useful; one for my zero (0%) percent purchases and one for straight payments. If you mix your 0% purchases with you straight-up purchases, your 0% wouldn't be 0% anymore unless you pay the entire outstanding amount. Not settling the entire amount will leave you with monthly finance charges for the remaining balance, which will include your 0% monthly charges. Also, a separate card for 0% purchases will make it easier to track your monthly charges.
2. Try to pay half the amount in cash and only half charged to the card- I've always done this when purchasing a new phone or a new laptop. This makes monthly payments lighter and earlier to complete.
3. Try to pay twice the minimum amount (or higher) every month- The minimum amount almost only covers the interest gained (finance charges) and settling this alone monthly will take forever to complete.
4. Try to delay another 0% purchase until you are in the last 3 months to pay of your previous 0% purchase- this will prevent high monthly minimum amount dues for extended periods which are difficult to settle.
Be wise! Use it, don't abuse it. Don't fall into the trap! < if you fail to pay on time, the interest and penalties apply - that is 9% per month!!)
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