Just recently, a colleague of mine endorsed me to his brother-in-law who happens to be a credit card agent. He called me and offers me a pre-approved credit card. He told me that they have a promo specifically on professionals and I only need to sign a few papers and submit a copy of my PRC ID without any other documentations. Once approved, it would only take days to get my card and all I have to do once I receive it is have it activated and once done, I’ll have a shiny piece of plastic with a PHP 20,000.00 buying power inside it.
This is interesting because why would a credit card company issue pre-approved credit cards to people without knowing the person’s financial capabilities? When does a PRC license became a basis for credit card qualification? When an individual who can’t handle credit wisely is sucked into getting this great deal, this becomes a financial time bomb that is set to explode when all things go dark. The problem is, there are a lot of these time bombs out there disguised as gift boxes waiting to be picked up at your doorstep.
A similar story can be derived using my mother as an example.
My mom who is out of work with no financial means to pay credit owns a credit card and owes around PHP 40,000.00 in it with a 3.5% interest. She only pays the interest of around PHP 1,400.00 and has been paying for the last 5 years using my dad’s Social Security pension.
How did this happen?
Well, years ago when typhoon “Ondoy” hit the Philippines on September 2009, much of our home appliances and furniture were destroyed. Since we haven’t saved enough for an emergency fund, my mom and sister decided to use the credit card to fund our calamity needs. That said, the card accumulated around PHP 40,000.00 in debts. My sister promised to pay off the debt but when she went out of job twice and faced her own financial difficulties, her payments where halted. My mom then decided to pay it off monthly using half of dad’s pension until now.
As you can see, the time bomb has been set and has been ticking ever since just waiting to explode.
This fiasco is what we call the credit card trap.
My mom and I had a discussion about it. I asked her if she can talk to the bank to consolidate it or somehow waive the interest rate so that I can help her pay it off let’s say in a year or two. Maybe there can be debt-repayment arrangements done since she is already a senior citizen with no Social Security pension or monthly income coming in. With dad’s monthly pension of around PHP 3,000.00, allotting half of it to pay off a stream of never ending interest payments for the rest of their lives isn’t a wise thing to do.
So what’s the best way to avoid a credit card trap?
Handle credit card responsibly.
How? by paying of credit card debts in full. By putting into mindset that credit cards are money that isn’t earned yet; Debt that needs to be paid in full every month. That’s how to handle credit responsibly. It’s that simple because there isn’t anything complicated to explain about it.
If you are now in a a credit card trap, how can you get out of it?
Formulate a repayment strategy.
Decrease spending, save money, increase cash flow and repay those debts aggressively.
Lastly, being financially aware of the pros and cons of credit cards can guide us to use it in our advantage and not to our disadvantage. Paying credit cards on time and using cash whenever possible can reduce the risk of turning it into a financial time bomb.