As with all things in life, credit cards have their own Pros and Cons. These little pieces of plastic are one of, if not, the best alternative to cash. That being said, credit cards in the Philippines can also lead to some ugly situations. Here’s a list of PROS and CONS for everyone that wants to use a credit card.
Buy Now, Pay Later
A lot of people get credit cards just because it enables them to pay for whatever they’re buying on a later date. Credit cards let people bypass not having cash on hand to buy things that they need.
Another benefit of using credit cards is that some stores and banks let you pay in installments without applying the usual interests that credit cards impose on your balance. Installments let you pay the amount within a designated number of months, sometimes even years.
Many stores that sell expensive items would usually give them the option of paying for them in full, or in 6-month or year-long installment plans.
If you’re lucky, you might even find one that has 0% interest.
This is incredibly useful for times when you really need to buy something but don’t have the funds at the moment.
Proper and responsible use of credit cards also leads to efficient improvements of your credit score. Bear in mind that in order for you to build up your credit, you have to use credit.
When you have a good credit score, you’ll be open to many more opportunities—These include better rates for mortgages, enhanced options for auto loans, and even better choices for credit cards.
A good credit score basically means you are a trustworthy individual that pays their dues on time. You can say that it’s a metric that financial institutions use to gauge whether or not they should lend you their money.
Some credit cards provide you with rewards upon signing up and using their cards.
The rewards you earn can benefit you in many ways, the three most popular ones include cashback, shopping points, and airline miles.
You can earn these in a variety of ways—but all of them revolve around using your credit card.
Credit card rewards programs can be very broad with where you can use their reward points. Often, there are even credit cards with specific niches for their reward programs.
For example, PNB-PAL’s Mabuhay Miles World Mastercard is designed to be the go-to credit card for people who are avid fans and users of Philippine Airlines and their frequent flyer program, Mabuhay Miles.
Credit cards have your payment information in them. With that data, you can make purchases in almost every store under your name. These should be something that you protect. Or else be vulnerable to credit card fraud.
When your credit card is stolen, or you lost it, but It’s still being used by someone—you can easily block the card by reporting the loss of you card.
Any purchases made by them will not be credited to you. It will be the credit card company’s job to solve this problem—without even affecting your credit or credit score.
Basically, the card owner won’t be responsible for any unauthorized charges.
When compared to debit cards, credit cards offer a lot more protection from frauds and scams.
Depending on when you report that your debit card is missing, you might still be liable for a large amount of money.
Additionally, credit card companies usually monitor your credit card in case they see suspicious activity happening.
Often, when they see something inconsistent with your spending behavior, they notify you immediately.
Credit card companies automatically provide a detailed report on your purchases—this includes how much, when, and where the purchase was done.
With that in mind, you can say that using credit cards instead of cash can help make budgeting easier.
A detailed report of your transaction history shows all kinds of information, for most people, this will help make understanding your spending patterns easier. It can also be used as a basis to change up your spending behavior when it shows you spend a little bit too much.
This is also a lot more convenient when compared to writing all of your expenses down on your own ledger.
Perks and Bonuses
Aside from the rewards that you can get, most credit cards also come with a number of incentives when you get them.
These perks may come in the form of discounts, exclusive access to places, and even better services from the banks themselves.
In the Philippines, some credit cards provide you free access to some airline lounges, and discounted rates in a few hotels.
Depending on the broadness of the credit card company’s partners, you might also enjoy discounts at malls, gas stations, restaurants, and so much more.
Unlike the usual myths about credit cards, the real core of why credit cards can be found in the things below.
“With great power comes great responsibility” – Uncle Ben from Spiderman.
The same idea can be used with credit cards. To a lot of people, credit cards might seem like an unlimited source of money.
Treating it as such will inevitably lead to serious spending—resulting in even more serious debt.
Aside from the credit limit that is imposed by your credit card, there’s nothing really stopping you from spending other than yourself.
To prevent overspending, you should keep track of your expenses and only spend what you can realistically payback.
Fees and Interests
Overspending can lead to you accumulating a balance with credit card companies. when ignored, these can lead to a few fees and charges outside of your original budget.
Bear in mind that credit cards usually have very high interest rates. In the Philippines, credit cards would usually have monthly percentage rates of around 3% which yearly, would be around 42%.
Accumulating interest and fees can increase your balance to the point where a cardholder can no longer pay for it.
Not to mention a number of different fees for a few other concerns such as late payment fees, card replacements, etc.
Apart from the usual Annual fee, that most cards have, all the other fees are easily avoidable—all by disciplined and responsible use of your credit card. This means, knowing your limits, paying what you owe on time, and always keeping track of your expenditure.
A person who chooses to ignore their credit limit and use their credit card in every which way they want to, may end up with huge amounts of debt.
In fact, a lot of people who don’t understand how credit cards work are victims to this.
This sudden debt usually happens when people don’t pay their monthly dues on time, or just overspend so much that it accumulates.
It can be hard getting out of this debt. Those who are already in it will find it hard to cope.
However, as easy as it is to get into debt, it’s a lot easier avoiding it.
All you have to do is be wise with your expenditures. Everyone will have a budget that they should abide to. Monitor your spending and know where each peso is going. This way, you’ll know something is wrong when you’re starting to exceed your allotted budget for certain things.
Lower Credit Score
You can consider credit cards as a double-edged sword. They’re great for building up credit. However, they’re also very likely to lower it.
Again, all of this starts from the moment that a card holder begins to overspend.
Overspending can lead to larger balances. Along with interest, fees, and months of not paying in full, the balance can snowball into something that the cardholder can no longer control this would further result in not paying the balance and the cycle continues.
When this happens, your credit score is severely affected. Every time that you make a late payment, miss a payment, or exceed your credit limit, your credit score will lower.
This will make it harder for you to get approved for things such as mortgages, and a lot of other types of loans.
In summary, the only con of credit cards is that there is a chance where you can get into debt because of overspending.
However, if you’re smart about how you use your credit card, you won’t even experience any of the disadvatages mentioned.
In the Philippines, credit cards can lead to wonders when you use them properly. That said, as long as you’re responsible and disciplined enough to pay the monthly dues on time and to steer away from overspending, then having a credit card is nothing but a benefit for you!