Christmas 2021: what are the risks of buying indiscriminately using your credit card?

Without a doubt, the month of December not only brings with it the long-awaited celebration of Christmas Y New Year, purchases also increase and, consequently, expenses. For this reason, many times people do not measure their budget well and resort to the Credit cards, whose indiscriminate use can generate complications in our financial health.

First, let’s put ourselves in context. According to the Superintendency of Banking, Insurance and AFP (SBS), the credit card “It is a payment instrument through which you access a line of credit for a specified term.”

For Jorge Carrillo Acosta, teacher of Pacific Business School, the first problem that involves using a credit card indiscriminately is disorder, since “you do not have control of what you consume with the card and you end up buying more,” he said in dialogue with The Republic.

Then, What is the other alternative? The specialist reports that many people choose to perform the minimum payment or an amount greater than this. “But in that scenario the interest rate is very high”, clarifies. “It can be more than 50% a year, versus a personal loan that can have a rate below 20%,” he says.

Similarly, the expert does not recommend withdrawing cash from the card to make purchases, “since that rate can be above 80% without any problem. That is enormously expensive, ”he laments.

Is there a penalty for paying the minimum amount?

Carrillo Acosta states that there is no penalty. “No. The advantage of paying the minimum is that they do not charge you any surcharge beyond interest and also do not qualify you as a bad payer in the credit bureaus “. However, “the minimum is not a mortal sin as long as it is a temporary issue (…), it can save you from an emergency,” he said.

Increase in the benchmark rate: what is it and how does it affect the economy?

The Peruvian Institute of Economics defines the reference rate as “that established by the entity in charge of the monetary policy of each country (in the Peruvian case, the Central Reserve Bank), to influence the price of very short-term credit operations between different banking entities. In other words, it serves as a reference to the interbank interest rate ”, reads on its web portal.

While, Carrillo explains to this medium that “the reference rate means the amount that the BCR establishes to lend money to banks so that they in turn lend to natural and legal persons.” As its name implies, it is the benchmark rate also among banks, he points out.

But what happens if this rate becomes more expensive?

“Banks to get money will cost more expensive because the reference rate was 0.25% until a few months ago. Now, it is at 2% ”, he stressed. Similarly, “It will be more expensive for them to get that money, in turn, that extra cost will be passed on to the client”, he stated.

It should be noted that this is a measure carried out by the BCR to control inflation, “so that there is not so much money in the economy. This is the logic that is followed ”, he pointed out.

Most common mistakes when using a credit card

Lack of planning and control, so defines it Jorge Carrillo. The main mistake is not keeping track of what is being consumed. “In other words, if I earn 2,000 soles, then I am going to allocate 600 soles for Christmas shopping. For this, first I must first establish an amount (…) and at the end after each use of the card I should keep a record “, he pointed.

The professor argued that, as a result of not keeping a record, the amount becomes unpayable. “In the end, the month of December ends and you are surprised that you did not consume 600, but 1,000 soles. So that will become unpayable if you do not have the money at the end of the month, “he said.

What if I have a credit card and don’t use it?

Carrillo indicated to this wording that it does not recommend that a person have cards if they will not use them, for two reasons:

• Increase your potential debt: banks and / or finance companies when (…) they see that you have a credit card that you are not using, it still increases your risk (…) because that is called potential debt, so they can choose or not to offer you other loans and / or products.
• Membership charge: it is likely that, by not using this ‘plastic’, you will have to pay for membership, “which is a commission that charges you for being entitled to the benefits system,” he said.

In the latter case, most banking entities exempt their clients from this membership as long as they make any monthly consumption, with no minimum amount.

Recommendations to give a good use to your credit card

The teacher of Pacific Business School suggested using the method of direct credit or full payment, “in which you consume during the month, the payment date arrives and you leave it at zero; that is, you pay for everything “, he referred.

The advantage is that in any card you pay zero interest, you take advantage of the promotions and at the same time you earn miles / points and you can even get free days without interest. “That is the best way to use the card. Sure, as long as you can pay for everything, “he said.

Consequences of indebtedness

In addition to self-generating a poor credit record in the credit bureaus, the problem encompasses other equally important areas, which go beyond the fact of accessing or not accessing loans. So affirms it Jorge Carrillo Acosta, expert in financial matters.

• You can lose job opportunities, because many companies review this information and if you find yourself misreported in the credit bureaus, they could discard your application.
• If you want to rent a commercial space or a home, the owner will probably investigate your credit record to make the decision.