Thursday, 21 January 2010

Credit Card Tips (1)

"Oh no! The credit card statement is here again! I couldn't pay it in full last month, and now, it seems that my bill hasn't gone down a bit at all!"

That's right! This exact situation has happened to a lot of people. One of the common reason is a family member gets sick and needs immediate medical attention. Fortunately you have a credit card on your name so your unwell relative can receive the needed treatment without delay.

The scary thing is, as can be guessed, THE BILL!! Nothing about medical treatment is cheap these days and not everyone (especially in countries like Indonesia) is covered by medical insurance. It is almost like a death trap.. if you don't pay, you don't get treatment, but if you pay, you might have to live in debt for the rest of your life..

Anyway, most people WILL and DO choose to live in debt rather than live with an illness for most people believe that money can be found easier when we are healthy.. that is true!

So, don't panic if you are forced to use your credit card (or even max it out) to help yourself or your family member in the case of medical emergency. The important points you need to keep in mind is:

1. Discuss the patient situation with the doctor
A thorough doctor analysis will help a lot in giving a good idea on the treatment needed by the patient and the budget needed.

2. Discuss it with someone else
Another family member or a friend to talk to will be able to give you a different opinion or complete your plan. The more options you have, the better decision you will make.

Some of the options worth considering are the hospital fees, specific treatments (might need transfers to another hospital), the number of specialists needed by the patient, routine medicines, etc.

The other thing to consider is, how many family members are prepared to help out with the bill, both short-term and long term.

3. Make a calculation
Once you have the complete information about the patient's treatment needs and the available budget, then you can set a rough payment plan to present to the other family members.

~~ In the case of long-term illness, points 1 to 3 should take place BEFORE the patient is taken to hospital. However, in the case of sudden illness, points 1 to 3 might take place AFTER your credit card is scanned for billing by the hospital, otherwise the hospital will not accept the patient for treatment. ~~

4. Following up with the payments
Whatever you decide to do, you will still have the billed amount by your credit card to pay. Some credit cards offer installments while others don't. In the case that your credit card doesn't offer installments, you need to be ready to pay some portion of the bill each month to make sure that the bill goes down (and NOT UP) the next month.

When you receive your credit card statement, you need to have a look at three things:
* Total of the bill
* Minimum payment
* Finance charge

Then, there are a few things you need to remember:

1. NEVER pay for minimum payment amount only, unless you are planning to pay the total bill in full BEFORE the bill due date!

2. ALWAYS pay before the bill due date

The reason for the first two tips is because any amount of the bill that is left unpaid after the bill due date WILL be charged an interest or finance charge in the next bill on top of your usage. These interest and charges will very quickly build up into your total bill amount.

3. You can USE THIS simple calculation to help you bring down your next bill (credit card interest in Indonesia is approximately 2.5%-3.5% per month, with cash withdrawal and late payment fees approximately 4%-6% per month):

First, add your minimum payment and finance charge (which most probably come up to around 15% of your total bill).

Second, add some portion of remaining bill to make up for an amount that is roughly around 20%-25% of your total bill (the more portion you can pay each time, the better).

Do this calculation for a few billing periods until you can see the downward pattern of your bill.

4. Try not to use your credit card until you have successfully brought down your total bill to a reasonable level (similar amounts to your regular bills -without the emergency case-). If you really have to use your credit card for some extra expenses, you need to be sure that you can pay these additional expense in full in the next bill (on top of the remaining bill).

These simple tips should help you from suffering a long-term and building up credit card bill as a result of an emergency spending.

I am not giving any tips in 'real' accounting calculations on purpose. I am only trying to share from past experience.. based on a little part of my education :-) .. In any case you would like a complete calculation or you need to set a payment schedule, you need to see a finance expert/finance manager to help you with it.

If you have any suggestions or advice to add, you are more than welcome to put it in the comment form..

Have a nice day!

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