Put yourself at ease by protecting those you love
25 May 2022
A credit card is a powerful financial tool that can help you build credit... or sink you further into debt. There are many factors that affect whether you will use a credit card wisely, so make sure you consider them before getting one.
There comes a time in your life when you'll have to answer difficult questions. For example: do I need a credit card? While this question sounds a bit pedestrian, it is, in fact, a major decision that can impact your financial health.
The result of getting a credit card could go either of two ways:
1. You maximize the practicality of your credit card and get the most of the deals and promos offered by your bank provider and vendors; or
2. You get mired in debt you can't afford to pay.
Lest you fall prey to the latter scenario, before agreeing to have your name embossed on a credit card, please consider these factors first.
Be conscious of your motivations. Why are you interested in getting a credit card? If it's for convenience in paying for purchases, remember that you can do away with cash payments using a debit card too.
Maybe you're tempted by the discounts and rewards you can get. While this makes sense, take note that in the grander scheme of things, those rewards may not be a good trade-off with the amount you have to spend to get them.
If your reason for getting a credit card is to build your credit score, that too has a safer alternative. Paying your car, rent, and utility bills on time for straight years boosts your credit score.
The most obvious benefit of getting a credit card early is that you get to establish your credit score from a young age. A less obvious advantage is that you can learn how to manage your finances while you're barely out of your teenage years, so by the time you're in your late 20s or early 30s, you're already a pro.
However, that second situation can easily backfire. Younger people have a harder time saying no to temptations. For example, at 16, you'd probably rather go to a party and spend money you don't have than pay your outstanding credit card bill.
Those things considered; age is a vital factor. While there's no clear-cut rule on how to approach the matter, it's best to give yourself time to hone your financial acuity first before having one of those shiny plastic cards in your wallet.
Read more: Five Useful Resources on Personal Finance
3. Source of Income
Getting a credit card when your source of income is unstable is a big no-no. You'll be tempted to spend money you have no means of paying. Say yes to a credit card offer if, and only if, you have consistent receivables you can funnel into your credit card account to avoid compounded debt.
4. Credit Standing
A credit report will include your personal details and credit history, which should give you a hint at whether to get a credit card or not. A healthy credit score is encouraging. With the opposite, it's best to stay away from a credit card in the meantime.
If you want to access your credit score, you may request a credit report from the Credit Information Corporation (CIC).
5. Number of Loans
Having active loans at the same time can get overwhelming, especially when it comes to keeping track of due dates and deciding which loans to pay first. Chances are you'll be using your credit card to pay your existing loans, but this is a bad move since you're incurring debt to pay another debt. Unless you have a solid plan, it's best to avoid credit cards when you have existing loans.
6. Money Personality
Self-awareness is key. Your decision to either say yes or no to a credit card should depend on your knowledge of your money management style. If you're confident with how you handle your finances, by all means, go ahead. If it's the opposite, perhaps you need more time to learn how to manage money matters more efficiently.
You may take BPI AIA's quiz to learn about your money management style.
A Credit Card Should Help Achieve Your Financial Goals
Ideally, you'll reach a point in your life when you deal with your finances in earnest—the earlier that happens, the better. Even a decision as seemingly simple as getting a credit card should be pondered upon with keen attention to detail. Weigh the pros and cons and consider your unique financial situation.
Remember that your financial health is vital to your quality of life. If you want to live comfortably while providing for your family, you need to get your finances in order as soon as you can. If you have minimal debts and a savings plan, you're on the right track.
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