When Did You Get Your First Credit Card?
I personally have never used a credit card. Ever. I like paying the old-fashioned way, by handing over cold hard cash. It has worked well for me through the years by forcing me to live well within or more often, below my means.
I do realize that most working adults do not live this way. In fact, I am the only person on my office floor that does NOT have a credit card. Some may say this is an antiquated way of living, in this cashless world that rewards those who pay by plastic!* I have put off using a credit card all this time as I just don’t have the discipline to use it responsibly, especially when I shop!
Frugal husband (FH), however, does have a credit card but is not the typical baon sa utang (buried in debt) credit cardholder. How did he do it? Here are some insights from FH as told to dear old me.
What are credit cards
As its name suggests, a credit card is essentially, utang or a loan. It is not FREE cash. The earlier you disabuse yourself of the idea that it gives out free cash, the better.
Credit cards offer an alternative mode of payment to cash, debit card, or check. They are supposed to offer convenience and better security than debit cards as in case of credit card fraud, you have the option of just not paying your bill (unless you opted for auto-debit payment of your credit card from your bank account) until the perpetrator is found and criminally charged.
When is the ideal time to get one/start using a credit card (note the singular, haha)
Yes, FH advocates getting only ONE credit card, especially for the uninitiated like you and me. Note the singular. Hehe.
FH only started using credit cards at age 27, as a full-fledged working adult with the ability to pay his own bills, as he did, and with a fully-funded emergency fund (in the six figures). But really, financial literacy or independence cannot be pegged to a number. You are ready for a credit card, not when you get that first job out of college, but maybe in your second job out of college once you have that fully-funded emergency fund.
FH further advocates getting that card only after a work tenure of five (5) years and or after you accumulate three (3) years’ worth of your annual salary. This will be your cash buffer, just in case. This is certainly for the risk-averse. I personally feel that once you feel that you can take the full-on responsibility of paying your own credit card bill, without any help from mom or dad, you may be READY.
When are credit cards useful?
With such a large cash buffer, why use credit cards at all? FH uses his credit card maybe once, or twice a year, just to have his annual fee waived by the bank. Admittedly, credit cards are useful for online purchases that require them and when traveling abroad, in case your carry-on cash gets stolen (God forbid).
For an entry-level young professional in the city with no security blanket in the form of mom and dad, a credit card may be used in the event of an emergency, i.e. in case one gets admitted to the hospital and there is literally, no one to withdraw money from the bank for you.*** Define your emergency and stay within such parameters to keep yourself from making a Friday night out an “emergency.”
In case push comes to shove, FH advocates being forever vigilant about your credit card bill. ALWAYS pay on time. If no bill arrives, call your bank and ask for it! If the bill arrives to you late, YOU will still bear the cost of the finance charge (the interest, which is charged monthly, by the way!).
WHICH card to choose?
Now that you’re ready for your first credit card, it is now time to consider your options out there. FH advocates choosing a credit card with the lowest annual fee and interest rate.
iMoney Philippines has a rate comparison service which is a good place to start. iMoney allows you to choose which credit card offers you the best bang for your buck by showing the interest rates and annual fees per credit card, all in one webpage. It is very convenient.
Go for the card with the LOWEST credit limit. This way, you remove all temptation to keep swiping beyond your monthly salary. It forces you to spend within your wage.
Your preference for your credit limit is all relative, of course, depending on the purpose of your credit card. If you are traveling abroad and using one should a theft occur, a larger credit limit should be enough to get you by while staying in a foreign country.
FH offers the alternative view that credit cards are not evil but may be useful in certain circumstances for certain people in certain life stages. As a credit cardholder, be always vigilant about your finances so you don’t get on that hamster wheel of just working today, only to pay off your credit card bill from the previous month. Don’t spend your money before you have it, either in your wallet or your bank account. Pay off your credit card bill in full at the end of every month so you can just enjoy the rewards and perks without worry! As for your annual fee, you may ask your bank to waive it in return for just using your card occasionally.
When did you get your first credit card?
iMoney’s rate comparison service is not exclusive to credit cards. Personally, I’m certainly no stranger to iMoney Philippines, having used it in 2017 to compare car loan interest rates among banks, aside from manually dialing the phone to talk to our preferred banks’ loan department to get an interest rate quote. iMoney’s online car loan rate comparison page seems to be the only one of its kind in the Philippines.** It is free and comprehensive, giving a list of banks with their corresponding interest rate and estimated monthly loan payment.
This article is contributed by George. She is a forever 20-something female public interest lawyer living and working in Cebu City, Philippines. She writes about her financial literacy advocacy, adventures with money and travel during her spare time on her blog at forever20somethinglawyer.