Azi sent this comment on my previous post on Costly mistakes when using a credit card.
Can you please explain the computation (of finance charges)? How can my interest become higher than 3.5%?
Most Philippine credit card companies compute finance charges using the average daily balance method. Here is an actual example. Don’t ask me who owns this credit card 
:
The actual formula is:
ADB x 0.035 (Interest) x 12 (months) x Days in Cycle/366 (Days in a Year)
What this table tells us:
- Pay your credit card billing in full every month. Just do it. Period.
- If you are still in the process of paying down your credit card, the best strategy is credit substitution. Find a low-interest loan and pay down your balance in full and use your credit card wisely from now on. Examples of low-interest loans are loans from the Social Security System, loans from your friendly cooperatives, loans from relatives, among others. But make sure you have a plan how to pay those loans, too!
- If you decide to simply pay down your credit card monthly, don’t pay the minimum amount only. That’s just like handing over your money to the credit card company on a silver platter. The headache will never end. (see previous post on The dangers of paying the minimum amount due). Pay at least 10 percent of your credit limit instead.
- If you get a bonus from your company, pay down the balance or parts of it as soon as you can. As you can see from table, the finance charges go down significantly each day you move up your payment. Procrastinating will cost you dearly.
- If you need to swipe the card for an important purchase, delaying the purchase as much as you can will significantly reduce your finance charges. Know when your billing cycle begins and ends. The closer to the end of the billing cycle, the lesser the finance charges.
This month, I will make a P15,000 profit from a small business transaction and I didn’t have to shell out any money. I charged the cost to my credit card. I will collect my earnings and pay my balance in full this month. No capital needed on my part to earn P15,000.
(No, I have not just swindled somebody hahaha. The earnings should have been much more than P15,000, but I didn’t want to charge a friend more than what my conscience can handle. Sigh, I guess I will never be a shrewd business woman.)
Point is, make the credit card company work for you, not the other way around.
September 26th, 2007 at 12:04 pm
any idea where can i get reliable agent eastwestcard and metrobankcard? thanks lot.
September 2nd, 2007 at 8:41 am
[...] September 2nd, 2007 · No Comments Money Smarts » Demystifying finance charge computations on your credit card [...]
July 4th, 2007 at 9:30 pm
salve, just wondering…can credit card companies go after surviving members of family if the estate of the deceased cardholder has been transferred already to the heirs? i can just imagine the family will say cemetery as the forwarding address of the deceased cardholder.
July 4th, 2007 at 10:41 am
don2x, if I remember correctly, banks can go after the money you leave in your estate. In short, the spouse and the kids will have to pay the remaining balance.
hi angie, thanks for offering to help our readers. Unfortunately, it is editorial policy not to post personal email addresses or phone numbers — also for your protection. Just me email me off-list if you want more specific help from angie
zaldy, from what I gathered in this official computation from one of the biggest credit card companies in the country, April 20-April 23 is three days. If you look at the “No. of Days” column, it counts the number of days your balance was at a certain level, and adds them all up at the bottom. Hope this helps.
hi vanz, kudos to you for your discipline. Its really not that difficult to do, once you begin to be aware of how much you are really paying to the credit card companies in terms of interest.
femaad, since you have already purchased the item, pay the installment amount na lang, not the full amount of your purchase price. this way, you can still benefit from the slightly reduced monthly interest. Hope this helps.
clipmaster, thanks for sharing that. grabe..
azi, yey! as i said, its not really that hard once you become averse to paying finance charges.
nina, thanks for the tip!
July 3rd, 2007 at 3:25 pm
thank you salve for posting this! i printed it out and have yet to learn it. i’m determined to do so.