Yes we were warned, but bad news tends to hurt even more when confirmed: the Bangko Sentral ng Pilipinas (BSP) has given the green light for credit card companies to charge their customers a higher interest rate. And we are not talking about 10 percent, or 20 percent but 50 percent more, with a jump from 2 percent monthly add-on rate to as much as 3 percent.
You probably remember that at the height of the pandemic, when all our wallets were hurting, BSP set an interest cap of 2 percent for monthly add-on rate for all credit card companies. If you were only paying your minimum amount due or not the full balance in your credit card, you most likely saw the drop in your interest computation and payment.
That’s about to change, and in the worse direction. Any day now, expect your credit card company to inform you of the rate adjustment. If you want to make a guess-timate of how this will impact you, try to look at the last interest you paid. Take that amount and multiply it by 1.5 and that’s pretty much how it will hurt.
Consumers who pay their outstanding credit card balance in full won’t feel the pain. But in the event your cash flow tightens, and you cannot settle your bill in full, that 3 percent will not be welcome.
Consumers who pay less than their total bill, which credit card companies dub as revolvers, will be worse hit by the change. How can you minimize the impact? Here are 3 things you need to do right now.
#1 Stop using your credit card
A recent tweet by former Senator Francis Pangilinan on this subject came with a picture that is worth a thousand words I can possibly write about this: it was a credit card being cut in half. His tweet said: “Hello 36 percent, Goodbye credit card.”
It may seem harsh but the higher interest rate will hit revolvers the worst, and if you are a revolver, one way to contain the problem is to stop swiping your plastic that carries unpaid balance.
#2 Shop for lower and locked-in rates
Ever heard of balance transfer? Credit card companies offer this sweet deal of low rates so cardholders will move their unpaid balance from one card to a new card, this time by a different bank or issuer. Balance transfer will give you a better rate, around 1 percent based on my recent Google check, and locked in for 12 months to 24 months, depending on the offer. I say take it, take it.
But once you transfer your balance, do not use that card until you have made full payment. Otherwise, you will be back in the same 3 percent universe, or worse.
#3 Ask your credit card issuer for a lower rate and payment terms
Cardholders who signed up for balance transfer in the past were surprised to be given a “counter-offer” by their credit card issuer. Wanting to keep their business, the old card said they will match the rate plus the payment terms too. As a result, some of the cardholders decided to stay with their old card.
This is not a bad thing, and maybe you can explore this even before you go to all the trouble of applying for a balance transfer. But remember, if you stick with your old card, when you get a lower rate and payment terms, stop using it. Keep it in a drawer and lock it if possible. You cannot swipe what you don’t have. Cancel all subscription and bill enrolments too.
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You may ask – what can I pay with if I don’t use my credit card? Try cash or electronic wallets, which means you will feel the loss as soon as your money leaves your wallet, hands or electronic account. Not availing of any credit is also one way to purge unnecessary spending and learning to stick to a budget where you only spend what you have.
Credit card debt is one of the hardest to overcome, and many people stay indebted for years. It will be tough going for a while, but I guarantee that once you are free from credit card debt, you will never ever want to go back.