Walking away from the credit card trap

Ben L. Teehankee

3 January 2012

Managing For Society, The Manila Times

As 2011 closed, I completed my usual review of my family’s finances, especially our spending patterns given our income sources. What struck me was the increasing size of my credit card bills compared to those of previous years.

I always pay off my card bill each month. I view plastic as a substitute for cash that I actually have and not as a means of incurring debt while waiting for money to come in. And yet, I noted that I have been willing to use my card for ever higher amounts than before.

Like many people, I have begun treating larger credit purchases as all right. A credit card is a wonderful convenience after all. When I’m with my family here or abroad, I don’t worry about paying for our needs. To avoid bill shock, I’ve tried to stay within a limit of 20% of my monthly pay. I seal my card within its jacket to indicate that I’m over my limit. Last year, though, I hardly taped my card even though I was often over my limit.

Anyone following business news in the last five years knows that pruning debt has been a losing battle not just for individuals, as in the case of the US housing mortgage collapse, but also for countries. After helping member countries with their debts, the Eurozone faces challenging times that can balloon into a bigger problem for the global community.

What has caused this cavalier attitude towards debt? Time was when people had to earn credit -- and earning it was about having the character and the means to repay. While access to credit was good to have, it was clearly not for everybody.

Sadly, this is no longer true. Many banks that should know better give cards to practically everyone, even to those with the least ability to pay. I once discovered that one of my staff, a minimum wage earner, was buried in credit card debt to one of the biggest multinational banks. The same bank that had so eagerly offered him the card was chasing him at home and at work to pay up while charging him more than 30% per annum for what he owed.

I get irritating calls from banks offering pre-approved credit cards I had never applied for. Setting aside the ethical question of how they had gotten my number to begin with, I think that these banks need to rethink this practice of pushing cards on people instead of allowing them to apply and be subjected to good credit screening.

Other influences to acquire more debt are everywhere. A friend has tried to convince me to “invest” in condominium property through bank financing. She is surprised at how I recoil at owing such a large amount as I turn 50 this year. “Easy financing” is meaningless if I don’t even need the purchased item.

Telling the difference between what we need and what we want is not as easy as it seems especially after the retailers, banks, and credit card companies brought us the mother of all attacks on cautious personal finance – the mouth-watering zero-interest loan. I confess that I have succumbed to this temptation enough times for my card bills to creep up. Happily, I’m usually able to snap out of promo-induced trances by asking: “Do I really need a new phone/TV/laptop when I have a fully functional one?” Thus, I’ve come to enjoy admiring “must have” gadgets at the store and then walking away with my wallet untouched. With my heart thumping the whole time, I’m sure the practice gives cardio-vascular benefits.

I hope that financial institutions will bring sanity back to how they award credit cards. Meanwhile, people will just have to learn to walk away from tempting, unnecessary purchases.

Dr. Benito Teehankee is the Chairman of the Management and Organization Department of De La Salle University. He may be emailed at benito.teehankee@dlsu.edu.ph.

The views expressed above are the author’s and do not necessarily reflect the official position of DLSU, its faculty, and its administration.