4 Things You Should Never Charge To Your Credit Card
Credit cards are fast becoming a fact of life for more and more people in the Philippines. An increasing number of establishments accept them, and with developments in the mobile payment sphere, soon enough even your neighborhood sari-sari store could be accepting credit card payments via their phones. Plastic makes payments so much easier and more convenient for Filipinos.
But credit cards can cause financial problems when you use them on the wrong things. Below, we’ve listed the four things you should never charge to your credit card. Stay savvy with your credit card usage and don’t whip out the plastic for the following:
Many schools and colleges now accept credit cards as a form of payment — but this doesn’t mean that you should pay for your child’s tuition with plastic. It’s better to set up a payment plan with the school at terms you can afford. For example, De La Salle University allows payments via installment basis for only a P200 fee per trimester. The installment plan sets an amount of 60% for the first payment, and the remaining 40% on the second payment, which are more manageable than payments with credit cards. This is because a charge on your card would be incurred entirely upfront and if you aren’t able to clear it in time, you’ll be hit with a pretty hefty interest charge.
If the school’s payment plans are still out of reach, you can take out a lower-interest loan instead. One semester at Ateneo is around P84,000, or P168,000 a year. If you charge that lump sum to your credit card, you’ll be paying 3.5% interest a month right away, which could mean 51.11% interest a year! Meanwhile, taking out a personal loan for P168,000 with 12 months to pay means you’ll pay a fixed amount of P15,848 a month, meaning you only pay 13.20% interest.
Solution: Find a low-interest loan whose monthly payments fit your budget if you can’t afford the school’s payment schedule. With our comparison tool, you can compare personal loan rates and benefits from multiple Philippine banks all at the same time, and pick the best one for you.
2. Cash advance
Even if you’re this broke, avoid cash advances.
If you’re desperate for cash and only have a credit card, you might consider taking out a cash advance. But you will definitely end up regretting this decision due to all the fees involved. For example, a cash advance from BPI would hit you with a 4% fee on the amount you withdrew OR P300, whichever is higher. If you decided to take out a cash advance of P2,000, you’d end up owing P2,300 — that’s effectively an interest rate of 15% with no grace period!
Before taking out a cash advance, make sure you absolutely need cash and that you can’t find another merchant that will accept credit cards. This way, you’ll avoid the hefty cash advance fees. Charging on a credit card instead of using a cash advance means that your interest rates and fees will be a lot lower.
Solution: Find a merchant that accepts credit cards before you resort to a cash advance. Or get cash from a friend by putting their purchase on your credit card and taking their cash payment for you to use for your emergency.
If you’ve truly got no alternatives but to take out a cash advance, make sure to repay it as soon as possible.
3. Gambling and gambling-related expenses
Ever thought about using your credit card for a few more turns at the slot machine or internet gambling? You might have second thoughts when you realize how much that could cost you. Many credit cards charge an extra fee on gambling — EastWest EveryDay MasterCard charges 5.0% on gambling-related transactions (starting May 20, 2015). Other banks may treat a gambling-related expense as a cash advance, meaning you’ll have to pay at least 4% on top of your charges — and that doesn’t include the 3.5% interest per month if you don’t pay off your whole bill. These extra fees can add up quickly, and can eat into whatever money you might win.
Plus, in a lot of promos, you don’t earn any points for any of your gambling spends. For BDO’s Visa Gold Double Credit Card Points promo, for example, transactions from casinos or from merchants engaged in any form of gambling or betting are not qualified. Thus, using your credit card for gambling transactions means you lose out on rewards.
Some cards go even further, considering gambling and games of chance “unacceptable transactions”. Using them for this purpose could lead to the outright cancellation of your card. Citibank is one bank that will do this. Read the terms and conditions of your credit card to find out if your card is one of these. Not sure what constitutes a gambling-related expense? Ask your credit card provider.
Beyond these problems, when you pay high interest rates on your gambling expenses, you might end up in a debt spiral that you’ll find it difficult to get out of. Basically, you should only gamble with money you can afford to lose in the first place!
Solution: Never gamble with borrowed money! If you’re going to go to a casino, leave your credit cards behind.
4. Medical bills
In times of a medical emergency, especially when the costs are high, you may be tempted to turn to your credit card for help paying your bills. Especially since the big hospitals, like St. Luke’s and Makati Med, accept credit cards as a form of payment.
But making this mistake could end up costing you a lot. According to NerdWallet, “you’ll want to use cash, non-retirement savings or a low-cost loan to pay your medical debt,” because paying 3.5% a month interest on a large P300,000 hospital bill can easily push you into the debt spiral.
Solution: Instead of whipping out your credit card and giving yourself a second heart attack at the high interest rates you’ll be paying, work out a payment plan with the hospital first. Cardiac surgery patients at St. Luke’s can get affordable and competitive surgery prices.
Our recommendation when it comes to this is always to ensure you’re insured. You can get a reprieve on your medical bills by getting the right health care coverage for yourself. There are plenty of options available in the market and to help you find the right one, you can compare health insurance providers in the Philippines using our own comparison tool.
Just because you can charge something to your credit card doesn’t mean you should. Be smart and know what to avoid so you can keep using your credit card to earn points and make payments easier without going into needless debt.