Six and a half years ago I received my first credit card. I just started working then as a Barrio Doctor on a remote island in Palawan. With over 14,000 people, four islands, and being the only doctor there, I’m forced to live a simple life. Having a credit card did not appeal to me. Or rather, prevented me from using it.
“How in a world can I be able use it in the Barrio where you can only see unspoiled white sand beaches, hidden lagoons, smiling and caring people and Cashew trees?” Yes, I’m making you envious.
In addition, I did not use the credit card right away because, I’m scared. I have heard of several horror stories from people who are using credit cards. And I don’t want those stories to happen to me.
THE BAD
But then again, as they say, “Never say Never!” The inevitable happened, I used it for the first time. It was nerve wracking the first time I used it. I was booking a flight from Palawan to Manila. And guess what? The most convenient thing to use in booking a flight when you are in a remote place? It’s using a credit card. Luckily, there is a slight intermittent internet signal. After the first use, I remember saying. “Madali lang pala to! (How easy!) How convenient.”
So my love story with my credit card begun that day. A year later I got my credit card. I started using it in all my other transactions.
When I first received the billing statement. I saw something like this:
Due Date: September 20, 2009
Balance due: 10,000
Minimum amount due: 2,000
Finance Charge: 0
Ignorant as I was before, I was happy and excited. “Wow, ang saya pala ng credit card. Ang bait pala nila, they are only charging me a minimum amount of 2,000 pesos.” So, I just paid the 2,000 pesos, two days after the due date. Little did I know finance charge and late payment charge then. I kept on using it again whenever I am in the City.
At the next billing statement, it looks something like this:
Balance due: 15,000
Minimum amount due: 2,500
Finance charge: 280
Late payment charge: 250
I called up my sister, she is a financial adviser and I am just starting out my training in finance. She explained to me that, whenever I don’t pay the total amount due ON TIME and IN FULL. The bank will charge me 3% – 3.5%/month finance charge and late payment charge on the remaining amount that I was not able to pay. “Oh, that’s the finance charge and late payment charge!” I exclaimed.
“Ok, now I know.” I said then, “Never again will it get to me, again!” But knowing that fact, did not stop me from using it. Only today, I promised myself to pay always on time and in full.
THE UGLY
My love story with my credit card continued and became even sweeter when I discovered the instalment facility. “I can now buy a TV worth 36,000 pesos and they will divide the payment for 12 months at zero % interest? How cool was that? That is just 3,000 pesos per month.” I felt powerful then. I felt I can buy whatever I want (almost) and just pay it monthly on time and in full to avoid the charges.
It worked when I needed it most. Newly wed as I was, my Barrio doctor stint was nearing its end and we needed to buy new appliances for our new home. We bought TV, Refrigerator, Gas Stove, etc…
When those instalments added up, it rippled up my BALANCE DUE to almost 46,000 pesos per month. That’s when I realized, I over bought again. Only today, I have my husband to help me out. Now, the billing statement looks like this.
Balance due: 46,000
Minimum amount due: 15,000
Finance charge: 1,400
Again, I started paying more than the minimum due. But the bad news is, since the instalment has been for 12 months, that is approximately the amount due I get every month for the next 12 months. We have to endure those torturing months. There are moments WE CAN’T pay the whole amount, there are times WE CAN. But those months taught me another lesson. The dangers of using cards for instalments. It gives you false hope, false power that you can buy anything you wish. It pushes you to the edge until suddenly you are too close to the edge that you eventually fall into.
When I reached that point, I vowed to pay everything off and NEVER to use a credit card ever again. Again, I used the word, “Never!”
THE GOOD
Today, I use it in every transaction I can use it. In all opportunities that they have a credit card facility, I use it.
You may wonder and say, “She didn’t learn a thing! Here she goes again!”
The advantage of being in the financial management industry, you learn so many things that should make you worthy of advising people. I learned in one of our sessions. There are two types of people who use a credit card:
- Revolver
- Transactor
Let me define them:
Revolver – by (investopedia) A consumer who carries a credit card balance from one month to the next. Revolvers as a group are a major source of revenue for credit card companies because they pay interest on their balances.
Transactor – (by Investopedia) A consumer who pays his or her credit card balance in full and on time every month. Transactors do not carry a balance from month to month; they always pay their credit card bills in full by the due date. Transactors do not pay interest or late fees.
From one of the classes I attended on becoming a Certified Wealth Planner, Mr. Jong Merida relates to us a conversation he had from a credit card person he knows:
“Who is your best client? Is your best client the Platinum Card holders?”
Credit Card Company: “Heck no, actually they are our WORST clients. Yes, they have an unlimited credit limit, they do have big purchases, they even purchase everything using our credit card. But the problem is, they pay ON TIME and IN FULL. We can’t get anything from them, yet, they reap all the REWARDS. Free trip abroad, free hotel stays, free spa, free food and free gifts.”
If you are not earning anything from them, who pays for their Rewards?
Credit Card Company: “Ah, well that is paid for by our BEST clients.
Who are they?
Credit Card Company: The best clients that we have are the CLASSIC OR REGULAR card holders, the one that have a smaller credit limit. The one that makes their purchase but DOES NOT pay on time and in full. That’s where we gain more because of the charges. They are also the ones that pay for the rewards of our worst clients, the trip abroad, the hotel accommodation, the free gifts and free foods.
The best thing that we can learn from this conversation is, if we only become a Transactor instead of a Revolver, we can actually gain from it. I made a decision, to become a Transactor and use only the instalment facility in extreme need.
That is the reason that I am using my credit cards at any possible circumstances that I can, the benefits I get:
- I get to map all my transactions and expenses more accurately. It has a billing statement and dates of purchases.
- I get free gifts: like free watch, free movies and free food. Actually, I have converted all of my points to “Mabuhay Miles,” I am saving for a free ticket to Canada or USA.
- I get rebates and discounts. Like 5%-10% rebates/discounts on groceries or gas. Depends on what credit card you are using.
- Safety reasons. If I need to buy a big ticket item, I don’t have to bring cash. I just pay using the credit card. Then pay the credit card by online transfer. Then I even get more reward points for that.
To become a Transactor, it takes a lot of self-discipline and this is not for everyone. If you think you don’t have the self-discipline to do this, then do not attempt. I have to warn you, that you really need to have the discipline to really pay ON TIME AND IN FULL. If you can’t, this may not be for you for now.
If you ask me, is Credit card good or bad?
From the book, Dare to Journey:
“Credit card is a tool. Like a hammer as a tool can be used to build a cathedral in the right hands or crack someone’s skull in the wrong hands.”
It all depends on how you use it.
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Tnx Doc Pinky,
This is very enlightening!
After 5 years of being a doctor, i am now only starting to learn and apply smart financial pratices and i need all the help i can get.
Salamat again for your great articles!
Sure thanks too doc kharla. Let’s help others too, don’t forget to share. 🙂
thanks Doc Pinky! God bless the works of your hands..
thanks ms shiela