3 Ways to Use your Credit Card Wisely and Not Drown in Debt

Is Credit Card good or bad?

Others will say that it is good since you can buy things with rebate and pay in installments.

On the other hand, others say it’s evil because credit card is the reason why they are drowning in debt.

Credit cards are not good or bad, they are neutral. It depends on how the person uses it.

Good Debt vs. Bad Debt

Robert Kiyosaki in his book “Rich Dad, Poor Dad” says that there are two kinds of debt: Good Debt and Bad Debt.

Good Debts are debts used for business such as credit line or mortgage for a rental property. You acquire assets that pay for that debt.

The interest you are earning should be higher than the interest you are paying for the debt. But make sure that your debt to equity ratio is healthy.

Bad Debts are consumer debts such as credit cards and personal loans used for consumption (food, travel, clothing, gadgets, etc.) and they don’t have any returns on investments.

For example: Is buying a car through bank loan a good debt or a bad debt?

The answer: It depends!

If you are in the rent-a-car business or has a company wherein a car is a tool of trade, then it is a good debt.

But if it is for the purpose of “consumption”, to appear cool and that you’ve made it even if you can’t afford it, then it is bad debt.

CommonCentsPH’s 3 Ways to Use your Credit Card Wisely and Not Drown to Debt

No. 1: Treat your Credit Card like a Debit Card

There is a saying, “If you can’t pay in cash, you can’t afford it.

Credit Cards are made to make life more convenient and safe. You don’t need to bring a lot of cash while traveling so you can avoid being robbed.

You should treat it like a debit card. It’s main advantage with debit cards is it has special promos, rebates, and points you can use in the future.

What I do is every time I use my credit card is I open my online banking app and pay it ASAP.

With this, I make sure that I don’t miss paying it and will not spend more than I can afford.

It takes away the psychological illusion that my “credit limit” is my available cash because I see in the app that my cash balance has been reduced.

When it comes to installments, my rule of thumb is 3 months max. Make sure it is 0% interest and is within your 70% living expense budget (see STEP 4 of “Achieve your Financial Goals without giving up your Favorite Frappe“).

6 months to 1 year is very long. You don’t know what may happen to the economy or to your life. With 3 months, it can be shouldered by your Emergency Fund just in case there is an emergency.

This will also avoid the piling up of debt. There might be instances that you had a 6 months installment and after 3 months you got another 6 months.

You thought you can afford paying it but then something happens and suddenly you are drowning in debt plus the interest and finance charges.

Better yet, I would suggest delayed gratification. Why not save up for it for 3 months and pay it in cash?

No. 2: Enroll Bills to Maximize Points

Remember the points and rewards of your card?

If you pay the bills in cash, you don’t get anything. But with Credit Card, you get some points.

The trick here is you pay your bills (electric, water, phone, cable, etc.) through your credit card then pay your credit card in cash ASAP. You are using your credit card like a debit card.

Make sure that your bills plus living expenses is below 70% of your total income.

I know people who gets free travel because of the points from their credit cards.

BUT REMEMBER THIS: The credit card points are just rewards and bonuses. We don’t SPEND in order to get the freebies.

Meaning, if you need to spend P200,000 per month in order to get that travel incentive but your budget is just P50,000 per month, don’t spend more than P50,000!

We want to take control of the credit card and not the other way around!

No. 3: Waive your Annual Dues or else Cut the Card

Call your credit card company and ask them to waive your annual dues.

If they don’t agree then ask them to deactivate your account. (Most likely they will agree to waive your dues).

If you are doing numbers 1 and 2 as stated above, why pay P2,000-P3,0000 in annual fees if you can use your debit card for FREE.

Debit cards nowadays provides rebates too but not as cool as credit card points though.

You can also look for credit cards that have Free Lifetime Annual Dues! I have one myself!

And again, we want to take advantage of the credit card and not us being taken advantage of.

Always Keep This in Mind

To end, when you are about to pay using your credit card, ask the following questions:

  1. Do I need this?
  2. Is it within my budget?
  3. Can I pay in cash?

Always remember, “If you can’t pay in cash, your can’t afford it!

Your Millennial Wealth Planner,

Harold Q. Gardon, CWP, CEPP


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