Avoid debt trap through responsible credit card use

By Sally Atento-Altea

“Credit cards are not just for accumulating debt; they can also provide rewards and rebates.” This realization came to Raya, a 40-year-old government information officer, after using a credit card for over a year.

Like many Filipinos, she initially hesitated to get a credit card due to alarming stories from friends and family about falling deep into debt.

“I used to avoid credit cards, even when I received several offers, especially when opening savings accounts,” she shared.

“However, after doing my research, I discovered that I had many misconceptions, and I was missing out on numerous opportunities,” she added.

Change in mindset

Raya made her first credit card purchase when she bought a mobile phone through an installment plan. After meeting the minimum spending requirement within two months, she qualified for a no-annual-fee promotion.

Now, she uses her credit card for her monthly grocery shopping and other purchases, earning points that can be converted into cash rebates and perks. Recently, she enjoyed a 50 percent discount at a restaurant through a credit card dining promotion.

Transactor, not a revolver

Raya participated in an information session on debt management organized by the Bangko Sentral ng Pilipinas (BSP) Legazpi Branch. This event was held in celebration of Credit Consciousness Week, with the theme: “Smart Borrowing Culture for a Better Future.”

“From our discussion, I learned that I’m what they call a ‘transactor’—someone who pays off their credit card balance in full and on time. This is a must for me to avoid worrying about late fees,” Raya explained.

Paulette Gay Menguilla, BSP South Luzon Bank Officer IV, highlighted that many cardholders fall into debt due to accumulating late payment fees.

“Late fees are one of the most common reasons why cardholders become ‘lubog sa utang’ (buried in debt),” she said.

“In addition to late payment fees, if the outstanding balance is not paid in full, it will accrue additional interest,” she added.

Late payment charges can reach as high as 7 percent of the overdue amount and may compound if balances are not paid in full.

Menguilla warned about the dangers of being a “revolver,” which refers to a credit card user who only pays the minimum due each month. This often leads to mounting interest and prolonged repayment periods.

Credit cards provide convenience, rewards, cash back, and flexible payment options, but they also carry risks, especially the potential for overspending and high-interest fees.

Saying “smart debt management is the path to a progressive tomorrow,” Menguilla offered some important tips for responsible usage.

Dos:

• Read and understand the terms and conditions of your credit card contract.

• Keep purchases within your budget and ability to pay.

• Regularly check your statement for unauthorized transactions.

• Pay your full outstanding balance on or before the due date.

Don’ts:

• Don’t spend money you don’t have.

• Don’t make unnecessary purchases just to earn points or rebates.

• Don’t ignore alerts and communication from your credit card issuer.

• Don’t hide from creditors if you’re facing financial difficulty.

For more information on credit awareness and financial literacy, visit the Credit Information Corporation Facebook page or contact them at (632) 8236-5900. (PIA5/Albay)