4 things you must never pay with a credit card

 

For more Filipinos Credit cards are fast becoming a way of paying for goods and services as an increasing number of establishments come to accept the plastic money as a form of payment.

 

With the developments in mobile payments, even your neighborhood sari-sari store could be accepting credit card payments via their cellphones. 

 

But financial problems are bound to crop up when you use a credit card to pay for the wrong things.

Below are four things you should never charge against your credit card. Be user savvy when it comes to your credit card. 

Tuition fees

Many schools and colleges now accept credit cards as a form of payment for tuition and other fees — but this doesn't mean that you should take them on. It’s better to set up a payment plan with the school at terms you can afford. 

For example, De La Salle University allows installment payments for a P200 fee per trimester. The installment plan breaks into 60 percent for the first payment, the remaining 40 percent on the second installment. This is more manageable than paying with your credit card. 

 

This is because the entire charge on your card payment would be incurred upfront. If you're unable to settle the dues in time, the bank or the credit card company will hit you with a hefty interest charge.

 

If the payment plan is still out of reach, you can take out a low-interest loan. One semester at Ateneo is around P84,000, or P168,000 a year. 

 

Charging that amount on your credit card you’ll be paying a 3.5-percent interest each month, which could mean 51.11 percent interest, plus charges, a year! 

 

On the other hand, taking out a personal loan of P168,000 payable in 12 months means you’ll pay a fixed amount of P15,848 a month or 13.20 percent for the duration of your debt.

 

Solution: Find a low-interest loan whose monthly payments fit your budget. You can compare loan rates from multiple Philippine banks all at the same time and pick the best one for you, with our comparison tool.
 

 

Cash advance

If you’re desperate for cash and considering a cash advance from your credit card, you will definitely regret this decision because of the various fees involved. For example, a cash advance from BPI would hit you with a 4 percent fee on the loan amount or P300, whichever is higher. If you decided to take out a cash advance of P2,000, you’d end up owing P2,300 — effectively an interest rate of 15 percent with no grace period!

 

Before taking out a cash advance, make sure you absolutely need cash and you can’t find another merchant accepts credit cards. This way, you’ll avoid the hefty cash advance fees. Charging your needs on a credit card instead of going for a cash advance means your interest rates and fees will be a lot lower.

 

Solution: Find a merchant that accepts credit cards before you resort to a cash advance. Or get cash from a friend by putting their purchase on your credit card and taking their cash payment for you to cover your emergency.

 

If you’ve got no real alternatives but to take out a cash advance, make sure you repay the debt as soon as possible.
 

 

 

Gambling and gambling-related expenses

 

Ever thought of using your credit card for a few more turns at the slot machine or internet gambling? You might have second thoughts when you realize how much that could cost you. Many credit cards charge an extra fee on gambling. EastWest EveryDay MasterCard charges 5.0 percent on gambling-related transactions (starting May 20, 2015). 

 

Other banks may treat gambling-related expense as cash advance, meaning you’ll have to pay at least 4 percent on top of the charges – and it doesn’t include the 3.5 percent monthly interest if you don’t pay off your bill in full. The extra fees can add up quickly, and take a slice off your winnings.

 

Plus, in a lot of promos, you don’t earn any points for any of your gambling spends. BDO’s Visa Gold Double Credit Card Points promo, for example, disqualifies transactions from casinos or from merchants engaged in any form of gambling or betting. Thus, using your credit card on gambling transactions means you lose out on rewards.

 

Some cards go even further, considering gambling and games of chance as “unacceptable transactions.” Such transactions could also lead to outright cancellation of your card. Citibank does this. Read the terms and conditions of your credit card to know if your card is one that does not honor gambling-related transactions. Not sure what constitutes a gambling-related expense? Ask your credit card provider.

 

Beyond these problems, paying high interest rates on your gambling expenses could place you in a debt spiral that may not be easy to leave behind. Basically, you should only gamble with money you can afford to lose!

 

Solution: Never gamble with borrowed money! If you’re going to go to a casino, leave your credit cards at home.
 

 

 

Medical bills

 

In times of medical emergencies, especially when costs are high, you may be tempted to turn to your credit card for help in paying your bills. Especially since the big hospitals like St. Luke’s and Makati Med accept credit cards.

 

According to NerdWallet, “you’ll want to use cash, non-retirement savings or a low-cost loan to pay your medical debt,” because paying 3.5 percent in monthly interest on a P300,000 hospital bill can easily push you into a debt spiral.

 

Solution: Instead of whipping out your credit card and giving yourself a second heart attack from the high interest rates, work out a payment plan with the hospital. Cardiac surgery patients at St. Luke’s can get affordable and competitive surgery prices.

 

Our recommendation is for you to ensure you’re insured! You can get a reprieve on your medical bills by getting the right health care coverage. Find one that suits your needs with our comparison tool.

 

Just because you can charge something to your credit card doesn’t mean you should. Be smart and know what to avoid so you can keep using your credit card to earn points and make payments easier without going into unnecessary debt.

 

For the five things you should always charge to your credit card, read this! 

 

4 things you must never pay with a credit card first appeared in slightly different form on iMoney.ph.