Short Answers to Unanswered Questions: Preferred Shares and Other Things

DEAR INVESTOR JUAN

Dear Investor Juan,

Am a regular reader of your blog and while you have some articles there regarding preferred shares, I would like to ask the following regarding the dividend rates that goes with the issuance of these shares:

• How does one company determine the dividend rates for these preferred shares? 
• What do they use as basis for the dividend rates?
• Do public companies have different basis for the dividend rates being offered ("as sweetener") vs.private, non-listed companies (if they wish to issue preferred shares to existing stockholders)?

Would appreciate if you can share your insights on the above matter.

Thank you and more power,

Vic


Dear Vic,

Here are my answers to your questions.

Firms issue preferred stock to raise money to finance projects or other uses. It's like a more expensive alternative to borrowing. The dividend rate on preferred stock is primarily determined by the market: the dividend yield on outstanding preferred shares issued by companies of the same risk serves as a benchmark. The dividend rate also reflects how much return investors are demanding for lending out their funds.

I'm not so sure about my answer to your last question because I'm not very familiar with preferred stock issues by private companies (as I think they are quite rare), but these should have a higher dividend rate than preferred stock issued by a listed company in the same industry and of the same size because of the following reasons:

• An unlisted firm would be subject to less stringent reporting requirements, and would be less transparent, and thus riskier, in the eyes of investors.
• Preferred shares of an unlisted firm would not be tradable in exchanges, and this lack of liquidity would prompt investors to demand a higher return.

***

Dear Investor Juan,

I would like some advise on investing in BDO UITFs. I am currently a college student and really interested in investing at an early age. I am willing to invest about more than 10K in a BDO UITF product. Could you please explain to me the ff.:

1) The fees/charges I have to pay in investing in BDO's UITF.
2) Do you recommend this EIP Program by BDO?
3) Is 10K enough to start investing?

Thank you. 

Louie

Dear Louie,

I would only suggest investing in an equity fund if you don't have any debt, you already have an emergency fund, and you can afford to invest long-term. So if all these conditions are met, then here are my answers to your questions:

1) You don't have to pay anything. All fees and taxes are automatically deducted and paid from the fund's assets and are already reflected by the fund's NAVPU.
2) I'm okay with enrolling in an automatic investment scheme. Deciding which bank you would buy a UITF from is all up to you.
3) Yes.

Good luck!


***

Dear Investor Juan,

Got any good recommendations for a first credit card? I really need to get one soon.

Marvin


Dear Marvin,

Local bank credit cards have lower interest than foreign bank credit cards, so I suggest that you just get one from a local bank that you already have an account with.

Frontline: Secret History of the Credit Card

Here's another "must watch" from Frontline on PBS. "Things I Learned..." next week. Have a great weekend, everybody!

Chapter 1

Chapter 2

Chapter 3

Chapter 4

Chapter 5

Refinancing Credit Card Debt

DEAR INVESTOR JUAN

Dear Investor Juan,

I recently made a major purchase which I charged to my credit card. I have the money to pay for the full amount charged. But I came across an offer of BPI that I can do a balance transfer at 0.59% and would be pay roughly Php2800.00 for 18 months where I would end up paying an interest of around Php4800.00.

I am leaning toward on transferring the balance to BPI and just invest my money on a UITF. Is this a good idea? Thinking that I would not be losing any money and would end up earning the interest I paid for or earn even more for 18 months.

Thank you in advance.

Anonymous


Dear Investor Juan,

Anonymous inquiry made me think as well. Hope to here from you soon on your take on this. Because I will also spend a large amount next month and if this is a wise choice to take.

Having a quick look at BDO's Balance Fund performance for the last 18 months an 80K investment yielded more than 20K. If I do a balance transfer I would be paying a total interest of around 8500 and will be paying roughly 5k a month. It seems a wise choice a first glance but would really like an experts advise.

Follow up on my inquiry above. Below is the computation for the balance transfer:

Php 80000/18months = Php 4444.45

Php 80000 x .0059 = Php 472.00
--------------------------------
Total Monthly Amort. Php 4916.45

Total to be paid for 18 months
Php 4916.45 x 18 = Php 88496.10

Total Interest for 18 months.
Php 88496.10 - Php 80000.00 = Php 8496.10

Anthony


Dear Anonymous and Anthony,

So basically, the issue is whether to accept BPI's offer to "refinance" your credit card debt or just stick with your default credit card. To make a sound decision, you would have to compare the costs of the two alternatives: at first glance, BPI's offer seems to be the better choice, hands down, because 0.59% is significantly lower than the 3 to 3.5% monthly interest credit cards usually charge. But from from Anthony's example, the quoted 0.59% refinancing charge is actually a monthly add-on interest rate, which if you recall this past post about the topic, can lead to bad and costly decisions if interpreted and used incorrectly.

To make a "correct" comparison, we can convert the add on rate into a monthly compounded (or "effective") rate, which we can then compare to the rate often quoted by credit card companies. Using the same procedure described in the "Add On Interest" post, the monthly compounded equivalent of BPI's offer is 1.08%, which is still lower than the usual monthly financial charge of credit cards.

So there, it's pretty clear that BPI's offer is actually a good one--at least better that what your credit card would otherwise charge.

When is "Zero Interest" Not Zero Interest?

DEAR INVESTOR JUAN

Dear Investor Juan,

I'm planning on getting a credit card just for the purpose of getting a highly needed device (and I mean highly) using a 24-month zero interest installment plan. I don't really know much about this but is there always a catch to this thing? I'm sure I can pay the necessary monthly amount but I just wanna make sure that I will only pay for the device with a true zero interest and no other random fees added. Thanks.

Marvin


Dear Marvin,

"Zero interest" payment plans work this way. Say you want to buy something with a sticker price of 120,000 pesos. Then the a store sales representative approaches you and tells you that the item is available at zero interest for 24 monthly installments. This means exactly what it seems it means: you use your credit card to pay for the item, and you will be charged 120,000/24 = 5,000 pesos per month, without any additional charges. In this sense, the offer is "zero interest".

However, the monthly installment for this item becomes part of the minimum amount due as long as it is not completely paid. Which means that if your usual minimum amount due is 500 pesos, on the next billing statement after you purchase the item the minimum amount due will be 5,500 pesos. If you fail to pay this amount by the due date, then you will incur a significant financial charge and your purchase will not be zero interest anymore.

Also, and this is something that a lot of us are not even aware of, such schemes are zero interest only insofar as the "real price" of the item is the same as the sticker price. I know this may be confusing; it says 120,000 on the tag, how can that not be the real price? Well, ask the sales rep how much you would have to pay if you paid "cash" up front--meaning the full amount in one cash payment. The sales rep will consult someone or a record book, pause, and 9 out of 10 times quote you a price that is 5 to 10% lower than the sticker price. Don't believe me? Try it. I do it all the time when I shop for gadgets and other similar stuff, both in the Philippines and here in Hong Kong.

If the cash price is lower--say by 10%--than the sticker price, then paying 5,000 for 24 months for it would not really be zero interest since you would essentially be borrowing money at approximately 10% per year (I'll leave it up to you to compute the exact implied monthly/annual interest using this example). Does this mean you shouldn't avail of the installment plan anymore? Of course not. Maybe you don't have enough cash at the moment to pay up front and you badly need the item, and/or maybe borrowing at 10% per year is acceptable to you. What's important is that you know that you have options. You'll lose nothing by asking, right?

First Credit Card Regret

FINANCIAL TUMBLR-ISM

via Reddit

Credit Card Numbers Game

Have you ever wondered what the sixteen numbers on your credit card stand for? While it's helpful (albeit understandably troublesome) to memorize these numbers, knowing what they stand for will give you some useful information about a credit card, not the least of which is whether the card is fake or not.

How Credit Card Companies Make Money

Credit card users may be classified into two major types: revolvers who usually only make minimum monthly payments, and transactors who always pay the total amount due. Revolvers are at the heart of the credit card business and are the favorite customers of credit card companies, who make a bundle by charging around 3% interest per month on unpaid balances (and new transactions, read the fine print). In contrast, by paying the total balance every time, transactors avoid paying interest and benefit from the use of "free credit."

As consumers become more and more financially informed and savvy, more and more credit card users shift from being revolvers to transactors. Does this spell the end for the credit card industry, as we know it? Do credit card companies really get nothing out of these free-riding transactors? See the infographic below to find out.

From CreditScore.net

The Price of Free Stuff

A GUEST POST by Hap

Did some groceries a while ago, and hadn't noticed that I picked up a heck of a lot of peanuts until I plopped the contents of my basket down in front of the cashier. 6 bags of peanuts? Really?

So I feigned surprise and discarded the other 2 bags. Didn't have to though, as cashiers tend to not get surprised at how eccentric people's grocery lists can be. Take the lady behind me, for instance, buying both cat, dog and bird food. Does she own a small zoo or something? Or the old guy buying several packs of condoms... wait, is that my dad?!

*****

Got a new watch today, came by mail. Apparently, my credit cards love me so much that they decided I deserved a new watch. I didn't deserve an expensive one, though, but I'll take it just the same. I tried filling up the warranty but it expired last year. So it's a cheap, old watch, with a battery life of anywhere from 3-6 months. But then again, it's free so I can't really complain, can I? I'll just wait till it's batteries conk out and replace them. Hopefully by then the credit card company would realize their mistake and send me a new battery. (fingers crossed)

So that particular watch now adds to that long-list of freebies that I keep getting from less-than-well-meaning marketing campaigns. 2 watches, 2 dozen or so coupons for a free fast-food meal, a leather-bound notebook, an air freshener, a bag full of computer doodads, a drip coffee-maker, a gym bag, a set of coasters, a flashlight, countless pens, a buffet dinner, and free one-day trials at a gym. I'm sure there's more, but that's all I can recall for now.

Working on the premise of a world where nothing is truly free, what have I had to suffer for 'freebies'? An almost insurmountable amount of credit card debt, years of subscription to magazines I have no time to read, countless afternoons wasted listening to a presentation by some sales rep, and filling up various surveys that I really don't care for anyway.

But was it worth it? After years on reflecting on this question, my answer is: it depends. You must think I'm pretty useless (and gullible), huh? You're probably right.

Take this new subscription I'm contemplating on, for instance. It offers a 3-piece luggage set upon signing in. I like that magazine, and despite probably not having enough time to read it religiously, I will get a few moments or so of good reading done. Now, as it so happens, I've sold the luggage set in advance to an officemate for the same value as that subscription, thus, I get a free subscription for something I will read probably once a month. Not too bad, I should say. On the flipside, there's this real estate company that promises a free dinner and overnight stay in a hotel if I show up for a viewing of their project. Seems pretty neat, doesn't it? But beware, because the buffet really isn't as good as you've imagined it to be, and the overnight stay at the hotel means they'll give you the crummiest room they could find. The worst part is that you show up at their viewing, and find yourself trapped there for a whole day, just nodding your head at some numbers and words they keep showing over and over again,and you exhaust yourself trying to come up with excuses why you have to think their offer over first. I'm telling you, it's not worth the trouble.

Going back to my new watch, is it worth it? Yes, only because it came as a reward for previous purchases by my credit card.

Anyway, if any sales reps are reading this, I'll be needing a new belt (brown, preferably), a new mobile phone, a stove-top espresso machine, or a pair of running shorts. Cash is always welcome, too.


For this and his other (mis)adventures, read Hap's blog, "A lot of nothing to say."

201,000 Reasons

A GUEST POST by Hap

Image from The English Spot

There are 201,000 reasons I should be scared shitless.

A couple of weeks ago, after arriving home from another domestic trip, I swapped credit cards that I kept in my wallet. I usually carry only two cards, depending on the types of purchase that I would anticipate. I use one card with a higher credit limit and more bonus perks for travel, and another for gas purchases because of the higher rebates it offers. I also always carry around yet another one for emergencies only.

So as I was replacing the cards, I noticed that one of them had a tear right along the magnetic strip. I haven't really noticed it until then, I haven't had to use it for months anyway. But just the same, I wondered if I could have it replaced.

I promptly called up the card company, and they said they'd be sending me my replacement in a week. Great, I thought. There wasn't any hurry, but I looked forward to it just the same.

So it came today, along with a notice that they have decided to up my credit limit. Crap!

*****

Just yesterday, I learned that one of my loans had already been paid off. A week ago, I had the balance of one of my cards transferred to another for a magnificent rate of 0.50% per month interest. A month ago, I've successfully been able to get a stay on my annual dues for yet another card. For the past 4 months, I've been able to keep true to my promise of not using any other card except for the one I use for gas purchases. 6 months ago, I paid off the total balance of still another card and promptly cut it into itty-bitty little pieces. (They still claim I've some dues to pay, though. Good thing I've got emailed evidence to the contrary)

So you can see, I've been such a financially responsible kid for half a year. The trouble is, they're on to me.

*****

Besides today, last week a telemarketer told me I was one of the lucky cardholders that could avail of an outright loan from them at only 1% interest per month. Last month, I got a letter that I only needed to use my credit card 5 times in a month to avail of a free watch. 4 months ago, I got a pre-approved credit card in the mail with a free dinner on my first use.

So far, I've been holding out fairly well. But there's only so much a man like me could take.

Just yesterday, I stopped by an appliance and electronics store while waiting for a meeting. There it was, a shiny new LCD television set with a free home entertainment system at a rock-bottom price. And if I use my credit card, I could have it paid in 12 installments at 0% interest. But wait, there's more... for an additional amount, I could get an mp3 player thrown into the mix as well. Last month or so, as my phone was getting noticeably wonky, I passed by another electronics store and saw a nifty mobile phone also available in 0% installments. And did you know that a leather seatcover set for my car could also be paid for by plastic?

Really now, why is the world conspiring against my financial health?

*****

I put the notice and the card back in its envelope, and hid it underneath my underwear drawer. I also tucked just the one credit card for gas in my wallet. I've come so far down this road that I can't afford the risk of being sidelined and back in the hole, so to speak.

"Just when I thought I was out... they pull me back in!" - Michael Corleone, The Godfather III


For this and his other (mis)adventures, read Hap's blog, "A lot of nothing to say."

Citibank Charge Slips Can Now Be Used as Cash (Almost!)

Image from Citibank Philippines

All of us have had our fair share of movies subsidized by 1,500-peso charge slips with Citibank's "Free Movie Ticket" promo (we all know it ain't completely free), which has been going on since last year. While this promo has been a boon to movie lovers like you and I, the very limited life of the "Free Movie Tickets" (one month) has resulted in several wasted opportunities for some of us. Also, the reward loses some, if not most, of its value when we are "forced" to use it to watch a movie that we would not otherwise watch had it not been for the ticket subsidy.

So imagine my pleasant surprise when I got this text message from Citibank a few days ago:

"Your rewards, your choice! Get P100 off at Mercury Drugstore, Rustans Dept Store & Supermarket, Shell, Shopwise, SSI stores or get a P100 movie pass. Submit valid single-receipt charge slip worth at least P1,500 at partner merchants to redeem."

Wow. With this promo, we don't have to force ourselves to watch shitty movies like Eclipse and The Last Airbender anymore just to avail of the reward.

I took a quick look at the website of Citibank Philippines to get the promo details, and this is what I got:

"Have the freedom to choose how you want to be rewarded.

Just spend at least P1,500 on your Citi Card and exchange your charge slip for a movie pass worth P100 at partner cinemas or P100 off at participating Shell stations, Rustan's Supermarkets, Shopwise, Mercury Drug branches, Rustan's Department Stores or at Stores Specialists, Inc. (SSI) stores. You may exchange up to 2 charge slips per day."

Now that we can use our credit card charge slips for more practical items like groceries, gas, and medicine, the true value of the reward moves closer to its monetary equivalent. In other words, the reward now practically becomes an outright 6.67% discount on purchases; well, that is if you make sure your credit card purchases are in denominations of 1,500 pesos. I bought something from Rustan's department store earlier for 5,000 pesos and the cashier lady refused to split the bill into several charge slips. I was able to do it in Landmark Trinoma though. :)

Kudos to Citibank for this consumer-friendly reward promotion.

By the way, I'm not in any way related to Citibank. I'm just an ordinary credit card user trying to get the most of what the system allows.

See the promo terms and conditions here. Unfortunately, it only runs up to October 31, 2010. But I'm sure those fellows will extend this thing, if they know what's good for them (and us!).

7 Ways of Recession-Proofing Your Life (Part 2)

Image from roystonrobertson.co.uk

4. Invest and exploit poor market conditions.

Perhaps the best way to turn a situation as shitty as a recession into gold is to exploit it. A recession provides enterprising investors with a rare opportunity to beef up their investment portfolio: remember that stock prices fall to all-time lows during market crashes. So if you take the stock investment mantra, “buy low, sell high,” to heart, you should realize that a recession is the perfect time to buy stocks. The problem is that buying stocks whose prices have fallen considerably and while everyone else is desperately selling is counter-intuitive; doing something that’s the exact opposite of what the rest of the herd is doing simply goes against basic human nature.

One of the keys to being a successful investor is to have enough will and testicular fortitude (figuratively, of course) to go against the tide and buy when everyone else is selling (and in other situations, sell when everybody else is buying). A lot of people have lost money during the financial crisis of 2008 precisely because they buckled under the pressure of “cutting their losses” and subsequently sold their stocks at prices way below the purchase price; you need to understand that this is the only way you’ll actually lose money during a market crash and that the second best way of dealing with the situation (the best being to buy more shares) is to do nothing at all and just incur “paper losses” that really don’t mean anything and that will go away once the market eventually gets back on its feet.

5. Diversify.

The thing about a recession is that it affects various industries or firms differently: some are less negatively affected than others, while some even thrive during economic downturns (see “Join a recession-proof industry” in #6). The challenge lies in identifying which stocks will perform better than others in a recession, a task best left in the hands of so-called professional fund managers

For us mortals, the best way to go would be to diversify and spread our investment across various firms, industries, and securities that behave differently to minimize risk and possible losses from a downturn. Diversification does not just involve investing in different stocks: for diversification to be more effective, you’ll have to put your money in various asset classes as well. For example, investing in real estate and savings deposits will ensure that a part of your holdings will remain intact during a recession, even when you lose some value with your other investments.

6. Join a recession-proof industry.

As we discussed in #5, some industries are less affected by a recession than others, and others, more. To protect your earning power, your best move would be to enter and pursue a career in an industry that is not (completely) susceptible to the negative effects of a market crash. Think about products and services that are considered essential and which are not entirely dependent on the spending power of individuals: industries like education, energy and utilities, telecommunications, and health care would come to mind, just to name a few.

During the crisis two years ago, applications to the university I’m working for has continued to grow, showing that parents don’t skimp on their children’s education even when they are forced to cut back spending and proving that education is, indeed, a recession-proof industry.

7. Cut back on the mochas.

Mochas taste good, especially if you buy them from Seattle’s Best or Coffee Bean and Tea Leaf. But at 150 pesos a cup, too many mochas will cost you an arm and a leg in the long run (see #22 of this list), money that could have gone to your emergency instead. But it’s not really just about coffee, it’s about living within your means and leaning more towards saving than consuming. That cup of Joe is just the tip of the iceberg: you start with not caring enough to pay 150 pesos for a cup of coffee and soon enough you’ll see yourself max out your credit card for a new high-tech gadget that you don’t need. Cutting back on the mochas means avoiding the credit pit-trap and getting into a frame of mind where every peso matters; because during a recession, every peso does matter, even to those of us who think it doesn’t.

So will it happen? Will the stock market crash this year? I’m not really sure; I guess no one can ever really be sure. The best thing for us to do in the face of all the uncertainty is to brace ourselves and be as prepared as we possibly can. This list should hopefully serve as an adequate first step to becoming recession-proof; the next step is all up to you.


Click here for Part 1. 

7 Ways of Recession-Proofing Your Life (Part 1)

Image from Morris Creative

Have you ever noticed how more and more difficult it has become to find empty tables at popular cafes around the metro? My friend and I experienced this as we were having coffee in one of the more popular cafés in Trinoma last week. We talked about how these places seem to be always filled to the rafters, which is a surprising sign that we Filipinos are not as hard up as we think we are.

But what if the forecast of some analysts about a stock market crash materializes and reaches our economic shores? What can you do to protect yourself from a financial crisis? Here is a list of ways to “recession-proof” your life.

1. Do “sideline” work and earn extra income.

My real life hero when it comes to managing personal and family finances is my mom, who was able to support a family with five children almost single-handedly. I still remember how she did sideline work like buying and selling jewelry, providing tutorial services, and accepting odd catering jobs to supplement her meager income as a pre-school teacher. The best way to protect yourself and your family from a financial downturn is by increasing your disposable income by exploiting every opportunity that comes your way; unfortunately the problem usually isn’t the dearth of such opportunities, but a combination of our laziness and our disgustingly low standard for contentment. If you need extra cash, for example, and you have a decent grasp of the English language, give me a buzz and I’ll hook you up with a friend who employs part-time writers for his search engine optimization business.

2. Build an emergency fund. 

Perhaps the most important thing that you should prepare for in a recession is the possibility of being laid-off or demoted. An emergency fund will ensure that you’ll have enough money for daily expenses until you get back on your feet. One popular rule of thumb for the fund amount is six months worth of your net income, invested in a principal-protected, liquid vehicle like bank deposits that are insured by the Philippine Deposit Insurance Corporation for up to 500,000 pesos.

3. Be debt-free.

High interest charges on some kinds of debt like credit card balances will only put additional strain on your already stretched finances. For example, a credit card balance of 100,000 pesos will cost you 3,500 pesos on interest alone; even if you pay the minimum required amount due religiously, it will take years or even decades to lower your balance to more manageable levels. The best way to avoid this credit card trap is to suck it in while it’s still early and pay significantly more than the minimum amount due.

Also avoid other kinds of debt, like car or housing loans, during a recession. Even if interest rates for these kinds of debt are significantly less (around 10% annual percentage rate or APR) than those for credit cards (around 42% APR), the significantly higher loan amounts translate to equally higher monthly payments. For example, if you decide to buy a brand new Honda City worth 750,000 pesos and borrow the amount for 5 years with a down payment of 20%, you’ll have to cough up close to 14,000 per month. Coincidentally, you’ll have to pay almost the same amount if you decide to buy a condominium worth 1.5 million pesos by getting a 30-year housing loan from Pag-Ibig. 14,000 pesos is a lot of money for most of us, high enough that having to pay the sum every month in a recession is tantamount to committing financial suicide.

Ya gotta love that new Honda City

Click here for Part 2.

5 Ways to Get the Most Out of Your Credit Card

Credit cards are the most convenient source of financing available to almost everyone. With credit cards, you won’t need to carry a lot of cash for both planned and unanticipated purchases. And as Internet commerce continues to flourish, credit cards have also become essential to people who frequently buy and sell stuff online.

Unfortunately, this convenience may come at a very steep price: apart from the annual membership fee which ranges from 1,000 to 1,600 pesos, credit card debt also comes with very high (effective) interest rates, oftentimes as high as 51% per year! That means if you buy something worth 10,000 pesos today using your credit card, your debt may balloon up to 15,000 pesos in one year; that is, if you don’t play your cards right.

There are many ways of maximizing the benefits of credit card use and avoiding repressively high financial charges. Here are a few tips that will ensure that you get the most out of your credit card (and not the other way around).

1. Take advantage of the free stuff.

Do you know that you don't have pay the annual fee even once? Just call your credit card company and ask that your annual fee be waived; you'll be surprised how accommodating they can be to your request. Mine came with a condition, though: they requested that I sign up for SMS alerts that don't cost anything. Who was I to refuse?

Don't forget that you earn points for your purchases, points that can be converted to air travel miles, gadgets, food, and other freebies. Don't even complain if you just earn a 500 pesos Jollibee GC after a year of using your credit card: 500 pesos is infinitely better than nothing.

2. Get a free ride.

Most personal finance blogs or guides would advise you to always use cash whenever you can and avoid using your credit card to avoid financial charges. But remember, you’ll only have to pay interest on your credit card if you don’t fully pay your Total Amount Due before each monthly Payment Due Date. Paying off your credit card bills completely each month (not just the Minimum Amount Due) has the same effect as getting a short-term loan at zero percent interest; you’ll never find a sweeter deal anywhere else! By doing this, you avoid thousands of pesos in interest payments and accumulate very high savings in the long run.

3. Avoid being in debt (virtually) forever.

If you only pay the Minimum Amount Due, which is around 5% of the total amount, month after month, you’ll soon find yourself in a very deep financial hole that is almost impossible to get out of. For example, if you owe a credit card company 20,000 pesos and you only pay the minimum amount (let’s assume 5% of the total) every month, it will take you more than 16 years to bring down the debt balance to under 1,000 pesos and you will have paid a total of more than 40,000 pesos in interest charges! This happens because credit card payments go to interest first; by paying only the minimum amount, all your payments go to interest charges, leaving the principal almost untouched.

4. Pay more than the minimum.

If getting a totally “free ride” and paying the entire credit card balance every month is unrealistic for you, then just increase your monthly payment to a level that is significantly above the Minimum Amount Due and bite significant chunks off the principal every month. Taking another look at the above example, if you pay Php 1,200 religiously every month, it will now only take you a little over two years to completely pay off your 20,000 peso debt ; compare that to the 16-plus years it will take you if you only pay the minimum amount!

5. Don’t bite off more than you can chew.

The only reason why you’ll find it hard to pay off the entire Total Amount Due of your credit card bill is if you continuously spend more than what you earn. Because credit cards give the illusion of enhanced spending power, it is important to know what your true spending limit is and try your best to avoid going beyond this amount.

In the end, it all just boils down to using your credit cards sensibly and responsibly. By following the above tips, you can avoid being a slave to credit card companies and make your credit card work for you instead.