Monday, February 20, 2012

Finance Charges are a B*tch

The facts that I'm always (a bit) late for everything and that I (almost) always resort to cramming do not remain true when it comes to paying my credit card bill. Every time my bill comes, admittedly, it becomes a struggle for me to pay it, because I always push for paying the whole outstanding balance. For me, it's better to be (temporarily) un-liquid, than be charged additionally of fees for being late.

Late fees and finance charges. I learned the difference between a late fee and finance charge the hard way. The first time I missed my payment due date, I believed that, come the next bill, I will be paying only the interest of the overdue amount. Lo and behold, aside from being charged 3.40% on such overdue balance, I was also made to pay a late fee of P750 for being, well, obviously, late. I paid over P2,000 for those charges. Since then, I promised myself to never be duped by these unnecessary expenses ever again.

Minimum amount due. I know that I don't have to pay for the whole balance each and every time. I know that all I have to pay is the bare minimum to escape being charged a late fee. All I have to pay in case I fail to settle the amount in excess of the minimum will be the finance charges or the monthly interest of 3.40%. But not wanting to be "duped" ever again has forced me to pay the full balance month after month, at whatever cost.

Dilemma. It's been a year, I think, that I haven't been charged anything. I even had my annual fee waived. Just last week, however, I realized that I am in danger of breaking my winning streak. My problem started when I realized that my payroll account did not have enough to settle my current credit card balance. I usually settle my bills online and if I max out my payroll account, I'd have no other choice but go and pay for the balance via an over-the-counter transaction, which I don't have any time for. I paid most of my credit card balance due, but I was P850 shy. Having paid beyond the minimum already, I know I won't have to pay the late fee anymore. All I have to pay is the interest on the unpaid balance. But I thought to myself, "Is it really just 3.40% of P850?" That's too good to be true. My experience with bank charges has given me intuition. I had a funny feeling that my punishment for being late in paying that measly P850 will be more than a few hundred pesos.

Finance charge calculator. I wanted to compute exactly how much I will be charged if I postpone paying the P850. So, I went to the BPI website to find out how I could compute how much exactly the extra damage would be. The mere mention of average daily balance and the number of days balance is unchanged forced my brain to be unreceptive of learning. Feeling lucky, I googled "how to compute credit card finance charges" and I stumbled upon a blog post:

I downloaded the *.xls file available on the site and used it to calculate exactly how much interest I have to pay:

P476.67 for being late in paying P850? That's over 50% of my deficiency. NOT JUST 3.40%. See? I was right. Good thing I checked. I guess it's off to the bank tomorrow to keep my winning streak.

Ma. Eliza Christine Gomez, Entry #9

Previous posts: #1, #2, #3, #4, #5, #6, #7, #8

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