Credit Cards: A Double-Edged Sword

Hey beautiful ladies!

Before we dive deep into this week’s topic (HINT: CREDIT CARDS), let me invite you one more time.

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Last week, we delved into the world of debt and how to free ourselves from its chains. If you missed that enlightening chat, you can catch up here. Today, we're shifting gears to a tool that, when used wisely, can be a game-changer: Credit Cards.

Credit Cards: A Double-Edged Sword 🗡️

Credit cards can be like that tempting dessert on the menu. Indulge responsibly, and it's a delightful treat. Overdo it, and you might regret it later. Especially in our beautiful Philippines, where the allure of shopping and dining can be hard to resist!

But remember, having a credit card isn't just a perk—it's a responsibility. Every swipe, every purchase, is a commitment to pay back. And paying off your card every month is crucial.

Why?

Because letting those bills pile up can lead to credit card debt, which can be a roadblock on your journey to financial freedom.

So, how does using a credit card work?

A credit card is a financial tool that allows you to borrow money up to a certain limit to make purchases, whether they're everyday items or larger expenses. Here's a step-by-step breakdown:

1. Issuance: First, you apply for a credit card from a bank or credit card company. If approved, you're given a credit card with a specific credit limit, which is the maximum amount you can borrow.

2. Making Purchases: When you use your credit card to buy something, you're borrowing money from the credit card issuer up to the amount of your credit limit.

3. Billing Cycle: Credit card activity is tracked in billing cycles, which are typically monthly. At the end of each cycle, you receive a statement listing all transactions, the total amount you owe (balance), and the minimum payment due.

4. Repayment: You're expected to pay back what you borrowed. You can:

   • Pay the full balance by the due date to avoid interest.

   • Pay the minimum amount due, or any amount between the minimum and the full balance. However, any unpaid balance will carry over to the next month and will likely incur interest.

5. Interest: If you don't pay off the full balance by the due date, the remaining amount is subject to interest. This interest is calculated based on the card's annual percentage rate (APR).

6. Rewards and Benefits: Many credit cards offer rewards like cash back, points, or miles for purchases. Additionally, cards may come with benefits like travel insurance, extended warranties, or special discounts.

7. Fees: Some credit cards have annual fees. Additionally, there can be fees for late payments, cash advances, or exceeding your credit limit.

8. Credit Score Impact: Responsible use of a credit card (like paying the full balance on time) can positively impact your credit score. Conversely, late payments or carrying a high balance relative to your credit limit can negatively affect your score.

Remember, while credit cards offer convenience and potential rewards, they also come with the responsibility of managing debt. It's essential to use them wisely to avoid accumulating debt and incurring unnecessary interest.

Sample Computation of Credit Card Interest Rates

Let's walk through a sample computation for a credit card with a 3% monthly interest rate using the Philippine peso (₱) as the currency.

Scenario: Suppose you have a credit card balance of ₱10,000 at the beginning of the month and you don't make any payments or new purchases during the month.

Computation:

1. Calculate Monthly Interest: To determine the interest for the month, you multiply the balance by the monthly interest rate.

   Interest = Balance x Monthly Interest Rate
   Interest = ₱10,000 x 0.03 (3% as a decimal)
   Interest = ₱300

2. Determine New Balance: At the end of the month, the interest is added to your initial balance.

   New Balance = Initial Balance + Interest
   New Balance = ₱10,000 + ₱300
   New Balance = ₱10,300

So, if you started the month with a balance of ₱10,000 and didn't make any payments or new purchases, you would owe ₱10,300 at the end of the month due to the 3% interest.

Note: If you continue to not pay off the balance, the interest will compound. This means that the next month, you'd be charged 3% on the ₱10,300, not just the original ₱10,000. This is why it's essential to pay off credit card balances as soon as possible to avoid accumulating significant interest.

I hope this sample computation helps clarify how credit card interest works! If you have further questions or need more examples, let me know!

Top Credit Card Picks in the Philippines

Navigating the world of credit cards can be overwhelming, but choosing the right one can offer a range of benefits tailored to your needs. Here are my top picks for various categories:

Best for Earning Points: BPI Visa Signature

• Rewards: Earn 1 point for every ₱20 spent, making it a fantastic choice for those who love to accumulate and redeem points.

• Eligibility Criteria:

  • Must be 21-60 years old.

  • Should have a minimum annual income of ₱1.5 million.

  • Must be a Philippine resident or Filipino citizen.

  • Should have a business or residence landline.

Best for Low Interest Rates: Eastwest Priority Visa Infinite

• Interest Rate: Offers a competitive interest rate of less than 2% monthly, ensuring you save more in the long run.

• Eligibility Criteria:

  • Must be at least 21 years old.

  • Should have a minimum annual income set by the bank (typically higher due to the card's premium nature).

  • Must be a Philippine resident or Filipino citizen.

  • Should have a business or residence landline.

Best for Low Income Earners: PNB Ze-lo Mastercard

• Features: Designed for those on a tighter budget, offering decent perks without a high-income requirement.

• Eligibility Criteria:

  • Must be 21-65 years old.

  • Should have a minimum monthly income as set by the bank (typically lower to cater to a broader audience).

  • Must be a Philippine resident or Filipino citizen.

  • Should have a business or residence landline.

Best for Building Credit: Security Bank NextMastercard

• Features: Ideal for those looking to establish or rebuild their credit history, offering a stepping stone to financial empowerment.

• Eligibility Criteria:

  • Must be 21-65 years old.

  • Should have a stable income source, with the bank setting specific income requirements.

  • Must be a Philippine resident or Filipino citizen.

  • Should have a business or residence landline.

When choosing a credit card, it's essential to consider not only the perks but also the responsibilities. Ensure that the card aligns with your financial habits and goals.

For a more comprehensive comparison, including insights on rewards and perks, check out these articles: Moneymax and Grit.ph.

When used wisely, credit cards can be powerful allies. They can help build your credit score, offer rewards, and even provide security during emergencies. But the key is to use them responsibly. Every time you swipe, remember: it's not just about enjoying the present but also ensuring a bright financial future.

Ladies, let's embrace the power of credit cards while also understanding the responsibility they come with. Together, we can master the credit card game and stride confidently towards financial freedom.

Stay empowered and keep shining,