Costly mistake

Hi Salve, if your creditcard is issued by your bank, try online banking or switch to your bank's creditcard or vice versa. This way, you save time going to the bank and you just need to transfer payment when needed. I do all my bank transaction online.

Thanks Salve! I know what you exactly mean. Those costly balances...sigh.

hi. i am a new credit card user. but don't worry, i am very cautious. or maybe that's because i'm not "hooked" yet, which i hope would never happen.

i've been reading your blog and brushing up on my basic finance. this really got me:

"They add each day’s balance on your credit card and divide that by the number of days in your billing cycle. This means the more you use your card, the more expensive interest becomes. This is not the same as merely computing how much is 3.5 percent of P60,000."

can you please explain the computation? how can my interest become higher than 3.5%?

I got rid of my credit cards along time ago and now I am saving money because of it.

yes, i so know what you mean. i've been making this mistake every month for the past four years :(

i once left P46 on my balance after a bulk payment and got a whipping in late charges. sigh.

Credit cards should be used with caution. If you really NEED it then by all means use the plastic money but if you can put away some money every month for something you want rather than using your card its better for you. That way you avoid getting into the blackhole of credit card interests. Amazing thing Ive noticed with credit cards in the Philippines is that they seem to charge people with overwhelming interests! Here in the UK, consumer watchdogs keep a tab on credit card as well as bank charges. The charges has to be justified by the bank/card company to the last pence. You can also avail of balance transfers where you can transfer and consolidate your other balances from other cards to a different one which offer the best choice like 0% interest for 12 months then a further 0% to new purchases. The only catch is that you pay a balance transfer fee of 2.5-3% for ever transfer which if you think of it will just be a fraction of the interest which averages 15%APR (annual percentage rate) for most credit cards. Maybe the Philippine consumer watchdogs should learn from other countries on how to protect the people from these unscrupulous unjustified overcharging.

addendum: sorry folks, thats 0% for new purchases for three months.

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Quote:
When you pay in full, you have in effect free money for, say, 30 days. Some, even for 45 days.
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This 'free money' thinking is what puts a lot of people in trouble with their credit cards. It is NEVER valid to think that this is free money for 30 days.

The more appropriate approach is to 'spend only the money you have'. Even if it's a credit card, it should still be money in the bank (or somewhere).

Azi,

The funny thing is there are credit card companies which don't even know how they arrived at the interest fee they are charging. We experienced this once when we settled only the full amount a few days after the due date (we paid the minimum amount on the due date and the remaining balance 5 days after). Still the credit card company charged us an effective interest rate of 17%! Whew! So we called the credit card company immediately to ask for an explanation on how they computed for the amount. Believe me, they had a hard time explaining it. When we tried computing it using their formula, we even arrived at an amount that was lesser than what they were originally charging. Eventually, since they cannot give us the exact formula they've used, an agent just suggested to reverse the interest charge. We we're thankful to them. But how about those people who just accept and pay whatever amount is reflected in the bill? I suggest for those who have credit balances, start asking for a computation on how they arrived at the interest expenses they are charging, for all you know they might be charging too much!

I beg to disagree with some of you.

Credit card is a wonderful invention. I only have one credt card. I use it regularly for most purchase, always pay the bill in full and on time. This earns me a lot of miles from my favorite airlines.

I got my wife an extension card and she also uses it regularly. We also shop on the net where you can find a lot of bargains.

The thing is - always pay your bill in full and before the date and you're alright.

azi,

clauses are there when we are applying for credit cards, specifically on penalties. Even if we are given a fixed rate for a month but missed payment, the computation will not be the same because there will be this compounding interest, this is the interest on top of the interest and usually counted daily.

to azi: "how can my interest become higher than 3.5%?"

that is the rate per month. that is a whopping 42% per annum. apply that to something you need to pay for 12 months.

im so stressed with credit card bills especially now that my income is way below my expenses. i've missed two payments already and the interest charges have added up bigtime! what should I do if I can't pay for the monthly payments? can I ask the credit card issuer for some consideration like paying my total bill in a period of 12 mos? I would appreciate anyone's advice, tks

this is when keeping a good records with your credit card company can actually save you a lot of money.

if you have records that establish you as consistent good and prompt payer, you can actually just call the bank and request waiver of the penalty interest. they also want to keep good clients.

i have missed payments once in a while especially when am travelling overseas and I had been charged these interests but so far, I didn't have to pay any of them yet.

hi, salve! this is very timely again. i was thinking of paying half of my bills this time instead of full (which i have always done) because may to june was heavy with expenses due to renovation/repairs.

i would be plain stupid if i don't learn from your experience. i will pay full na lang this week.

thanks so much for being unselfish and helping us out. so sorry, you had to go thru this though just so we would learn..

have a good day!

thanks! a newbie needs all the info she can get. i still have no idea really. it's all confusing.

i think credit card users need to be better educated about the computations. credit card companies should be more transparent.

and coolbert, i'm surprised. that's scary! what do they do? pick a random number? so far i have had no overdue balance. i awlays paid full on time. (scared of charges!) but i'll be very vigilant.

with all those credit card woes, one advise is never ever use plastic money.

I beg to disagree Edgar, the key is use our plastic card intelligently and responsibly. Here in North America we use our credit card to build a good credit history and increase the credit score. The higher the credit score, the lower your interest rate on your next loan.

Azi,

Yes, it is as if they just picked the number randomly. Hehehe. But I hope not. We have a collections officer friend who once worked for a credit card company and she admitted that sometimes when they discover that they made a mistake in the computation of interest charges after sending the bill, they won't correct it until the customer complains. You're right, be vigilant. if, ever you incur a credit card balance, make sure you know how they computed the finance charge and try to compute it yourself.

I read with much interest the exchange on credit card finance charge computations. Cardholders should know that they can ask for a computation of these charges from their card companies. From coolbert's experience, we learn that they are not infallible! Thanks for sharing coolbert. This is very very useful for cardholders out there. And azi, keep on paying that balance in full every month!

Scud and Edgar, I dont think credit cards are evil or that "free money for 30 days" thinking is totally harmful. BUT I think credit cards are just like a beautiful set of sharp knives, you dont give them to infants who have no control over their limbs and fingers. But give them to a chef, it can be a thing of beauty and usefulness. Question is, which one would you like to be?

Some people who had been burned by credit card debt spurn plastic. I was, but I decided to learn my lesson. Last summer, my daughter was able to fly to Mindanao to see her great-grandparents courtesy of Mabuhay Miles through my credit card spending. Figured out that instead of letting the credit card company earn money from me, I would earn money from them! Responsibility is the key.

femaad: thanks! serves me right. i guess if I didnt lose that much money, i wouldnt pay attention haha.

so, how did your renovation and repair go? any tips on how to keep the cost down? :)

shykulasa, sel gave good advise. Its better to try talking to your credit card company and letting them know about your situation than keep missing your payments. I have it on good authority that certain card companies do allow restructuring of loans, but they don't go around saying that because they are afraid they would be swamped with requests!

hi allan, thats a really good deal. I agree..I hope the central bank will do something to urge the banks to lower their fees. As you know, the law does not allow the central bank to regulate interest rates. Former Bangko Sentral ng Pilipinas Gov. Rafael Buenaventura was trying to reform the sector to bring down interest rates on credit card debt.

I suspect that one of the things that keep the rates high is the absence of a personal credit score system. This system should make it easy for banks to target good payers and reduce default payments. As of December 2006, around P9.766 billion credit card debt were over 180 days past due. That's a lot of money, and good borrowers are actually penalized by it through high interest rates.

starter boy: what a relief to know i am not alone! :-)

jet, confessing and admitting to mistakes is a good step... hehe. you know what comes next! :-)

hi nina, you made me think about something i have been planning to do. any recommendation which bank has the best online platform?

I like the online platform of BPI. very easy to use. can do fund transfers to my current account in a click of a button, and your session expires when you became idle. very good security features indeed. I hope other banks can do such a good and user-friendly platform. They must take advantage of the internet technology. I also wonder why bancnet's online facility is far more superior than expressnet's? if you're a bancnet customer you can check your balance, transfer funds, and so on. That is what online banking should be. On the other hand, expressnet can only direct you to the website of their member banks. It's just really sad that my banks are with expressnet.

I'm doing my online payments and fund transfers through banco de oro. very easy and very efficient too.

In terms of on-line platform, they are similar with respect to basic features i.e., security features (session expires if you are idle after a few minutes), it shows the list of your account, you can do fund transfers between your enrolled accounts within the same bank at no cost. I guess what you need to find out is how to maximize the benefits of using on-line banking and your objectives for using it.

I have three local accounts in the Philippines and I have on-line banking for all of them (BPI, Equitable and Metrobank). My main objective for banking on-line are bill payments and account tracking. My parents used to send me money for household expenses and I don't want line-up in the ATMs just to check if the money was already credited or not. Also, before I left the Philippines, I still have some credit card dues, bills like insurance premiums which I need to continue paying regularly. On-line baking is very useful for this purpose especially if your salary or certain income is automatically tranferred to your account regularly.

Here are some thoughts on the unique features of my three accounts. This is not comprehensive but they are all based from experience.

BPI:
At bpiexpressonline, you can pay bpi credit card bills, bills from affiliated ayala companies and other bills on their list. If you are paying regular bills with fixed amount i.e. insurance premiums, you can set-up a recurring transfer option. If you have some excess funds, you can apply for a TD on-line. You can enroll third-party accounts for fund transfer e.g. you can enroll your kids' savings account so you can transfer money in their account when needed or if you wanted to.

If you forgot your password or made three wrong password entries, the account will be locked by the system. What I love with BPI is you can call their 24-hour hotline to unlocked your account. Some may find this feauture a security risk but I like this feature because I'm away from the country. The security questions are difficult to answer if you are not the account holder.

Bpiexpressonline will also show you all your accounts balances, including credit cards balance, minmum payment due, payment due date, etc.

EQUITABLE-PCI:
As I mentioned before, I use equitable for sending money in the Phils. The best thing about equitable is you can transfer funds to a third-party account even without enrolling that third-party account. Unlike BPI Equitable does not require enrollment. So when I send remittance, I send it to my account first then I transfer the amount needed for household expenses to my aunt's account in Equitable.

But unlike BPI, the online TD application is not available at Equitable PCI online-banking.

I'm not sure how to deal with forgotten passwords.

METROBANK:
I'm not using this very much right now. Before, I use it for credit card payments but now my card is paid and cancelled already so no more use for the on-line facility.

Before, I tried to enroll my Aunt's account so I can transfer funds when needed but they told me my Aunt should also enable fund transfer to her account. Too much hassle. I ended up asking my Aunt to open an account with Equitable instead.

From experince, Metrobank is the most difficult to deal with. Imagine when I opened my account - it was a CASH only account - meaning, I cannot deposit checks. How ridiculous! Btw, Equitable also does that. I wonder why?