CAN you still remember the time when you graduated in college or when you started in your first job?
There are a lot of first things in your life such as opening your first savings account or first digital bank account.
As we grow older, we get wiser in the things we do such as using a credit card. Being in the financial services industry and growing up, I encountered a lot of people struggling in the use of credit card. Let’s answer the question if getting a credit card will be beneficial for you or not.
Here are some of the principles in using a credit card:
1. Maximize the rewards and bonuses. Many credit card companies provide perks such as cash back, airline miles or even sign-up bonuses. If you use your card wisely; meaning you pay it right away and avoid the interest rates, you can maximize such benefits. Let’s say for example you’re a frequent traveler and you use your card to build points and convert these to flights, this way you are maximizing the freebies.
2. Do not spend excessively. Once you have an approved credit card, you need to have discipline and avoid unplanned expenses as this can cause you to buy a lot of things without even thinking of your budget. Since you can spend money even though you haven’t earned it yet, it causes a lot of people to be in great debt.
3. Get an accountability partner. Managing your usage of credit card can be challenging if you don’t have someone who can help you with your struggles. Make sure to open up with your family member, colleague or a trusted friend if you are having challenges in managing your finances. Setting up limitations is crucial if you think you have tendencies to spend a lot overnight.
4. Be patient in paying your debts. If you are one of the credit card users who incurred a lot of debt, you should be aware of the following methods:
- The debt snowball. This involves making minimum payments on all your debts while putting extra cash toward the smallest amount and paying that off first.
- The debt avalanche. This focuses on paying down the debt with the highest interest rate first and then moving onto the next balance.
5. Establish your emergency funds. Even though you have a good credit score with your credit card/s, you still need to have separate emergency funds. Although it is not easy to build one, this can help you avoid unnecessary debts in case of an unforeseen event arise in the family such as sickness, accident or untimely demise. If you have this fund in place, you can just use your credit card for other needs that will not incur you interest rates.
6. Identify your needs and wants. If you can use your credit card every time you buy groceries or pay for your utilities, you can build a good credit line and maximize the free points. Once your wants are also identified, you can also use your card for these transactions such as travelling outside the country, booking a 5-star hotel and dining out. With these things, you can have a mindset of rewarding yourself because you have discipline in your expenses.
7. Delayed gratification. While buying stuff using your card is tempting, having delayed gratification as a principle will help you know if your cash flow is in place before making big purchases. Try to sleep for three more days before buying big purchases such as home appliances or other stuff that you think you really need.
Every time you earn big, always think first what the best use of your resource is. My hope is you can maximize the opportunity in having a credit card than being paralyzed because your debts are now eating up a majority of your income. But then again, you can always start somewhere with the help of people around you in case you are struggling. Be wise and be a better person by maximizing the tools available for you and your family.
Karlo Biglang-awa is a registered financial planner of RFP Philippines. To learn more about personal-financial planning, attend the 102nd RFP program this July 2023. To inquire, e-mail info@rfp.ph or text at 0917-6248110.
