Swiping boo-boos

WE know that credit cards are not our best friend, but somehow, we find ourselves relying on them more than we should. A card can be a beneficial financial partner when it’s simply a substitute for cash, meaning you’ll pay in full come due date because it’s hassle-free and virtually interest-free. Other than that, it’s your second worst enemy (the first one is yourself for not having the discipline). Here, in descending order, are the reasons why your card can suddenly turn on you:

1. Debt settlement—This is a really bad transaction, almost as severe as filing for bankruptcy. It may sound like a sweet deal as you can slash a big percentage of your debt as long as you pay the required “discounted” amount on time. But your credit score will take a major hit, which means applying for loans in the future won’t be that easy, if that doesn’t immediately put you in the black list.

2. Skipping a payment—Even if it’s only one single payment, a series of domino effect events will reflect in your bill. Some automatic processing systems may label that as delinquency and you’ll see an immediate rise in your interest fees—over and above the other penalties that the missed payment will incur. It can also interrupt the zero-percent deals you made on your card and you’ll be discontentedly confronted by a myriad of complicated computations and a shocking balance.

3. Cash advances—Everything is jacked up the minute you withdraw that “free” money from the ATM. This should be reserved for real life-threatening emergencies. Otherwise, you’re just digging a deeper grave with every withdrawal. Imagine the higher interest rate and lack of grace period.

4. Maxing out—On its own, it’s not a severe problem as long as you pay the balance in full every month. But once you go beyond the limit (card companies give you about 15-percent extra to accommodate big purchases), the charges are astounding and that’s a negative indicator of your credit utilization.

5. Having too many cards —A symptom of bad financial habits, having more than three cards is a downward spiral. It’s difficult to keep track of the fees and charges, making it easier to miss a payment. If you’ve maxed out all of them the same time, it’s most likely you cannot afford to pay them off.

6. Late payments—Not as tragic as missing it entirely, paying late will still give you a pile of problems—in the form of multiplied interest charges and penalties. It also goes on your permanent record as a delinquency, a cause for your chances of limit increases and other perks to be slimmer.

7. Balance transfers—When done once to simply consolidate your debts into a single account, it’s forgivable. But if you hop from one card to another (and still, another) to take advantage of the low interest rates, it becomes a red flag in your credit history because each transfer is viewed as a different debt, not the same one.

8. Minimum payments —If you do the math, you’ll discover that you’re paying way more than you’ve spent as interest is being charged on both the principal amount and the interest itself. Two years later, you’re still paying it off and only have shaved off a fraction of the interest. That’s not a bargain, is it?

9. Using a card in emergencies—You may think, that’s what cards are for. And you’re right. In times that cash isn’t an option, it’s a blessing to have a card ready. What matters is how you manage that transaction. It’s not a mistake to stagger payments over the course of a few months as long as you don’t fall into the trap of deferring it or stretching it for more than really necessary.

10. Getting a card for rewards—This is the least damaging “mistake” for cardholders. Rewards are good perks when you’re an on-time full-balance payer because they’re really extras—something you didn’t pay for. However, their value cancels out with interest when you don’t pay in full. –Ed Biado, Manila Standard Today