Credit Card Tactics - Part 1: How Not To Get Buried In Debt

Credit Card Tactics - Part 1: How Not To Get Buried In Debt. I know a lot of people are wary of credit cards, I felt the same way myself at first. But after a while, I discovered it's not so bad if you use it wisely. In fact, lately I've been optimizing the use of my credit card. And in this series of posts, I'll share everything I've learned and thought about. In this first part, we'll discuss the most basic tactic: how not to get buried in credit card debt.
I know a lot of people are wary of credit cards, I felt the same way myself at first. But after a while, I discovered it's not so bad if you use it wisely. In fact, lately I've been optimizing the use of my credit card.

And in this series of posts, I'll share everything I've learned and thought about.

If we all operate from knowledge rather than fear (or ignorance in some cases), there's a lot we can take advantage of. My hope is for everyone who reads this series to start thinking a little differently about their use of money.

In this first part, we'll discuss the most basic tactic: how not to get buried in credit card debt:

Always pay in full each month.

Once you can't, lock the credit card away and don't use it again until 1 month after you've paid off the balance on your card. This way, you'll be forced to go on cash-basis for a month and get a feel for how much disposable income (i.e. spending money) you really have.

If you're struggling to pay in full each month, or you find that it's a little time-consuming or confusing to keep track of your spending, here's a tip that will surely work: pay on the same day you spend (preferably online, for convenience).

Personally, that's what I do myself. That way there's no chance of me forgetting about a bill. I know money has time value, and it's better to pay later, but the risk-reward scenario for that isn't great. There's very little interest or capital appreciation my money can get in one month, but the interest and/or finance charges are huge if I forget to pay.

Don't swipe if you can't pay it in full. This is especially useful for big-ticket purchases. Even if it's on 0% installment, and your disposable income may cover it, it still might not be a good idea. For one, a surprise (but necessary) expense may come up. If that happens, you might be forced to cover the surprise expense and incur (huge!) finance charges on your credit card.

Don't enroll your credit card on auto-pay facilities for any bill. If there's an error on the bill, you might no be able to dispute it before your card gets debited. Besides, it's better to manage your bills yourself to get a feel for how much you are spending.

Don't use the cash advance "feature". It's not a feature, it's really a trap. The interest rates are usurious, no matter which credit card you have.

Pay a few days before your due date. Though not common, sometimes depending on the timing, a payment transaction on the very last day might not make it through on time. The credit card company will not understand whatever excuse you give. Instead you'll just get charged for the late payment (interest on the whole amount due, from what I understand; even if you just forgot to pay a 100 peso charge, but already paid the rest of the 2K due, for example).

Enroll you credit card for online banking. Aside form the convenience, it will enable you to easily  and conveniently monitor your credit card account regularly. In case there are suspicious transactions, you can quickly dispute it and not be forced to pay first and get a rebate or reversal later. In extreme cases, you might even be paying off transactions you didn't make without you knowing it.

That's it for today. In the next part, we'll discuss how to choose the right credit card for you.


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8 comments:

  1. I like having a credit card because it's definitely more convenient than ensuring that I always have cash in my wallet.

    But you're right, it's a must to pay your balance in full every month, otherwise, the interest rate will get you in the long run.

    Have you ever tried paying your credit card bill online after the payment due date but before the next bill is issued? I have been abusing that gray area for years now because even if the due date has passed, you will still not be slapped with a penalty as long as the new bill hasn't been issued yet. Of course, you have to at least pay the minimum before the due date for this to work.

    I use this when I have a large credit card bill and stagger the payments. I wrote about that here: http://www.frugalhoney.com/2012/06/staggered-credit-card-payments.html

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    1. Yeah, I like not being forced to have cash in my wallet too. That's why most of my expenses are paid thru credit card.

      Nice technique! I wasn't aware of that gray area.

      Delete
  2. I don't have a credit card ever! Can you believe that?! No, I don't carry cash around. I am using debit card which is like credit card. I don't spend much and I don't see myself with CC. May debit card na bah sa pinas?

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    1. Yep, there are debit cards here now.

      It all depends on context though. For example, in the U.S. debit cards can be just as predatory. They allow you to go over the amount in the card and then charge you for it. So even though you avoided a credit card for that reason, you still end up stuck in the same situation. (Though I'm not sure if that has changed since I read about it a couple of years ago.)

      Most ATMs can also be used to pay. Though some are concerned about the security. But it seems just as secure as a credit card to me...

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    2. The debit card I am using now has this option to turn off the access to OVERDRAFT. Besides, I don't spend that much. I'm addicted to saving money and it's hard. I spend hours and hours in the grocery store to find a good deal. If I see something, I convert it to Peso. " ay, 500 pesos na yan?, grabeh naman!" I just can't spend and I need to change this mindset or I might end up a miser!

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    3. Haha! A better problem to have I guess.

      Don't get me wrong, I'm not knocking debit cards (except the ones that charge fees for every transaction).

      Depending on the person, they really can be the best option.

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  3. I don't find any wrong or bad experience so far by enrolling my credit to automatic pay bill in full monthly directly from my bank account. First because i am not abusing using credit on all my purchases except for online ticketing or purchases that can not be done on cash basis.It saves me time and from worrying of penalty charges due to delay of payments and so on which is the major reasons.

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    1. Hi Diamond R,

      I guess it's just different for everyone. I do agree it saves time and avoids hassle.

      But my reservations about auto-pay are not necessarily about abuse of credit cards. It's more on mistakes by either the credit card company or the merchant. In case there's a dispute (overseas call you did not make, website you did not sign up for, or any mistake in the electricity and phone bill, wrong billing on your epass/ectag, etc.), you might not catch it or have a hard time refunding it (which can also cost you a small amount, when they send money back to you) since you've already paid.

      You have the option of just letting it stay as a credit amount on the card (or the account with the problem), to pay for later bills. But that could potentially be inconvenient if the amount is large or you need it for something else.

      I do admit that instances like those would be rare. Although if someone has the time, monitoring how much they spend thru their credit card and on what items can be an eye-opener too.

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