Credit Cards

You and I have seen it all before -- the relative, friend, or officemate who finds herself or himself deep in credit card debt. Check their wallets and they will probably have 5 or 6 credit cards in there -- all being used and soon, with all limits maxed out. Soon, these people will be hounded by individuals asking them to pay up.

The credit card is a wonderful invention. Used with caution, it saves you a lot of trouble by allowing you to go around without carrying tons of cash. Used indiscriminately, however, it can be the start of your financial woes.

I got my very first credit card when I was in college, if I remember correctly. It was a supplementary credit card given by my parents. I've since canceled or terminated that card -- first, it was just a supplementary credit card; second -- it would have problems when I would use it at times; third -- the billing was not very efficient.

I have been working (or should I say I was working?) since 1988 and throughout those years, I have only applied for one credit card. Numerous credit card companies have been offering cards, left and right, with the fees waived for the first two years, but I choose to stick to just one credit card. I have another credit card -- again, something that I did not apply for but was automatically approved by a bank that we use -- but that has only been used once or twice in the last 5 years.

Should we give our kids supplementary cards when they are old enough? I don't know how I will be when my kids are in college but here are some things that I will most likely tell them:

1. Use only 1 card: Having a lot of credit cards just opens you up to the temptation of actually using them. You can't rack up credit card bills or can't drown in credit card debt if you just had one card. Having only one card will save you costs in terms of annual fees and will make monitoring of your charges easier. If it is unavoidable for you to have another card, keep another card if you must -- but use this only for emergency purposes.

2. As much as possible or feasible, use your card only for needed things: Do you really need that item that you are about to buy? If you don't have the cash to pay for it, should you actually make that purchase?

3. Pay your credit card bills in full: Avoid going for installment payments. The interest rates charged by credit card companies in the Philippines, for example, are just so high! (2-3% a month?) If you can't afford to pay your credit card bills in full on the due date, then you should probably start reviewing your spending patterns.

4. List down all your expenses: Just because you can charge away does not mean you can conveniently forget about all the purchases that you have made. Keeping a log of all your expenses (cash and credit card combined) will allow you to always keep track of how much will be due during the next payment date. You can then make plans on how to settle these bills. Making a list will allow you to avoid situations wherein you say to yourself -- "What? How did I end up spending P500,000?"

Be wise when choosing your credit card. Be wiser still when it comes to actually using it. Will the credit card in your wallet be a foe or a friend?