Since this is the new year, one of my resolutions was to cut my third credit card. Yup, I used to have three credit cards. In fact I had a fourth one but I already stopped using it a long time ago.
I decided to cut my third one because, like you, I want to grow financially. My other two cards are already practical to use so having a third one became a liability more than anything else.
So this lead me to think about credit cards and how useful (or not?) they are in my life.
I got my very first credit card during my first year of work and like many first time users, I was buried with debt after some time. I wasn’t able to control my spending. I wasn’t able to pay my monthly dues even the minimum amount so the interest incurred on the principal amount increased exponentially!
The original balance was only P20,000.00 (USD445) but it doubled in a matter of months! So I had no choice but to pay for it.
It was a very difficult phase because I was only earning enough that time.
Looking back, I made the right decision to talk to my creditors and sought their easy, pay-out scheme. It wasn’t easy at all but I was able to pay everything in full after some time.
From then on, I stopped using credit card and paid everything in cash.
I liked that “cash only” phase in my life because I can detect my cash flow. When my cash flow is getting slim, I forced myself to stop from spending and wait for cash to come in.
But having to pay everything in cash has its disadvantages for me.
One disadvantage was security. Having to carry a huge amount whenever I need to pay for bills most specially insurance dues makes my security at risk. Thank God nothing untoward happened to me. The worst experience was when our helper ran away with my money when I asked her to pay for bills.
After that, I applied again for my second credit card but I was still financially immature and I was buried again with debt.
Being buried in debt for the second time at a young age is no laughing matter. History has a way of repeating itself as they say. Same is true in my case.
But I never allowed myself to focus on my “debt” problem and instead think of solutions.
From then on, I was determined to become financially mature with credit cards. After paying my second mountain of credit card debt with my bonuses and 13th month, I finally succeeded.
Falling down for the second time lead me to the determination to control my credit card usage.
Right now, I pay all my credit card bills in full because I realized that although credit cards are convenient to use, they charge us enormous fees if we don’t pay our dues in full. Even if we pay the minimum amount, the same enormous fees still apply.
Imagine this, monthly charges are 3.5% as finance charge and at least 3% as late charge. Charges depend on the credit card company. They charge us those interests MONTHLY.
Annual charges could reach as high as 30%. 30% interest rate per annum! Savings account in banks only offer 1% interest rate per annum less tax. So do the math.
Over the past 5 years, I have accumulated four credit cards with good credit standing but for 2011, I want to stick to two.
The third one became a liability in a sense that it adds to my list of billing due dates. I seldom use it so might as well stop using it.
I want to eliminate clutter in my life and this is just one of the ways.
P.S. What lessons have you learned from your credit card horror stories?
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