Recent graduate? Offered a credit card? Credit Card = toxic medicine.

[EwwThat'sNasty]

Just last week HSBC bank pulled out of America and I say "good riddance to them."

I have a friend in Davao who upon graduation with a BS a few years ago was offered a credit card. She took it. Why not, "job prospects ahead," she thought.

But over time the 5,000 peso balance has grown to 30,000. She missed a payment, and then another, so her interest rate grew to 3.5% per month (52.5%/year) . There is a 1200 peso annual fee she was not aware of. There is an 800 peso late fee. She can no longer make reliable payments. Eventually she will go over limit and she will find that there is an additional 800 peso monthly over limit fee.

In short, even if she starves herself and lives in the poorest of surroundings the debt continues to grow. HSBC's minimum payments if she could make them continuously will see the debt paid off when she is about sixty. More than likely her balance will double almost once a year.

Recently she told me about HSBC's refinance offer of 0% with what appeared to her to be quite wonderful. So I asked and she sent me a copy.

She thought that HSBC offered her a year at 0% interest and then the rest at a reasonable rate of interest.

But upon reading the fine print I found these negative attributes:

The interest is "add-on" interest. This peculiar method of charging interest has the effect of doubling the interest rate that is often perceived. "Add-on" interest is not allowei in America to my knowledge.

The interest is "front-loaded" which means that if you opt for a four year repayment agreement the entire interest for the entire period is added on to the debt at the beginning. This means that when interest accrues after the one year "free" period the interest is accruing on both the original debt plus the front-loaded interest. She would be paying interest upon interest.

If she tried to pay it all off early there was a 5% penalty.

The minimum amount of debt to attain the free interest period did not apply to her. She would not have gotten it. She would have found that the 0% did not apply to her set of conditions.

HSBC reserved the right to refinance only a portion. So she could end up holding two cards, with two annual fees, and eventually two over limit monthly fees.

She thought that the payment was less than her current payment but in reality it would be more. She cannot make timely payments now to pay the debt off by the time she is sixty, well, she surely cannot make timely payments to pay it off in four or even seven years. Her payments would have been larger, to her surprise.

Many of these terms, I believe, in America would be forbidden. They are allowed in RP.

It is not within her mindset being a good Christian Filipina to default and stop paying. It is in her mindset to starve slowly and quietly to death in the hands of the vulture like HSBC. (And probably other cc companies)

There are psychological reasons why especially young people rack up credit card debt. See:

http://road.uww.edu/road/peltierj/College%20Credit%20Card/Money%20attitudes,%20credit%20card%20use,%20and%20compulsive%20buying%20among%20american%20college%20students.pdf

In short she can never pay it back, no matter how hard she will try. Nor will the millions of others in RP who owe such impossible debts, though the good people will try and try until they die of stress, ulcers or disease related to malnutrition. Then the debt collectors will try to go after her relatives.

A bit of advice: If you accept a credit card never, ever use it to pay for something that you cannot pay in entirety that same month. The terms that appear to be available in RP are in a word: "deadly."

Beware that that nice dress that you think you can pay back in a few months that cost 940 peso could eventually cost you 2000 peso a month for life. This is what has happened to my friend.

She could declare insolvency but she cannot afford a lawyer. She is embarrassed, and is truly slowly starving herself, unable to see that she can never, ever pay this ever increasing debt off.

Do not ever, ever co-sign. Do not ever, ever have a relative with any property co-sign or they may well take the farm. Do not make the mistake in believing that the credit card companies are human, they are not, they are a machine.

Don't let this happen to you. Either say "no" to debt especially credit card debt, or be absolutely meticulous and know that your jeepney fares will always rise, your food, rent, water and electric bill will rise, but for the next five years your income probably will not.

Know that you are a target, a sheep to be fleeced. Outsmart this fox in sheep's clothing and walk away.

[barbara789]

Thanks for the Information.....I agree with the above thought. Nice conversation is going on and I am very happy to be the part of this discussion.

Barbara

Edited by traumarus - please don't include advertising in your posts.

[lenjoy03, RN]

yah... you can have credit card but be practical on what your spending. Credit cards are helpful if you know how to handle to properly.

[marknight]

hi i too am using a credit card as of now this was given to me and i gladly accepted it. i just keep it in my wallet for emergency purposes but i never ever use it if i don;t have too... it really is very troubling, with credit on hand temptations abound so the word to remember is CONTROL...