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Coming from millennial generation, the older generations always give us lectures about the disadvantages of owning Credit Card(s). The most common reason we may have heard of by holding that piece of plastic (well, some are in metals) is, one will be getting into huge debt and would lead to depression in live.
To be honest, that statement above is correct......but incorrect at the same time.
Credit card is a two edged sword. You could either obtain all the perks and benefits without spending extra cent or been killed by its' huge interest rates.
The key of getting the most out of credit cards is "To spend as you would normally spend". Self control is not the way, but the only way in order to keep perpetual in this ever lasting game.
Think from the point of view of the credit card issuers (banks) and payment channels (Visa, Mastercard), how could they gain profits while offering all the perks to you and me? Ever wonder where the money comes from for all our cash back, lounge access or promotional code for our coffee?
There is no surprise when some small shop owners putting up a huge signage of "CASH ONLY" or "No Credit Card accepted under 300 THB" or even "5% additional charge if pay with Credit Card". We, consumers typically pay the exact selling prices when purchases are made put on cards. In actual, the bank(s) and the payment channel(s) are gaining profits through all the swipes we have made. As the interchange fee from every transaction made is typically low (typically between 1.5%-4%), so the merchants do not take it from consumers in order to get the business done.
Side note: The rumour is that American Express charges more interchange fee, so a lot of merchants refuse to take it.
The interchange fees received would barely gain profits for credit card companies in order to deliver all the costly perks.
How do banks earn money then?
Having annual fee is a norm for high tier credit cards. Citi Bank charges 7,900+ THB (additional 553 THB for tax) for Citi Prestige Credit cards. Every card holder would pay 8,453 THB annually to keep that metal credit card
(Thanks god! it's metal instead of plastic)
This move is still far not enough to cover up the cost of perks offered.
Credit cards companies earn the most on interests from credit card users.
The interests consist late payment, miss payment and instalments made on credit cards.
There is no doubt that the ease of using credit cards and online shopping make us spend more money that we would normally do. This is the side effect of the modern world we are living in right now.
When everything moves so fast and having tons of "Hybe-beast" influencers out there, it is easy to be moved to purchase that all new yeezys or Off-White shirt. We don't even have to visit the store to do shopping anymore, all you have to do is few taps on your phone screen. A parcel would show up in front of your door the next day morning.
It is definitely not easy to "To spend as you would normally spend".
The interest rate of credit card is typically 15% per annum (plus a 3% Credit usage charge). It is definitely a legal shark loan in finance world.
This is a perfect example shows by Krungthai Bank:
To make it simpler, if the card holder missed the 2,000 THB's payment in September (The Royal River Hotel), he or she would have to pay for extra 24.65 THB.
And now, that's what we are talking about.
Some banks offer up to 10 months' instalment plan with SPECIAL interest rate. For example, Krungthai Bank offers 0.80%.
But that every extra cent should not be paid, if the user keeps his/ her self control.
Moreover, another type of additional charge that we, as consumers should never pay is "Cash Advance". The cash advance fee is normally 3% of the total cash advance amount. This 3% is only for withdrawing cash from the ATM machine. The interests are queuing to make the card holder(s) being in debt soon enough, if he/she do not pay it off on the closing day.
The additional charges that on top of cash advance is not the only problem. Cash advance normally won't offer points earning and banks will typically classify the users with "Cash Advance" habit in high risk category, as the banks would never know where the money goes. Is it for drug purchase or something else?
After sharing the dark sides of owning credit cards, now is the time for sharing the bright sides of owing them.
Many should have noticed in the types of date on "Calculation Example" (closing date, Payment due date and purchase date). It is neither lunar calendar nor lune-solar calendar. It is the Holy Gail in playing credit card games.
How is it so?
The closing date is typically drops in the middle of the month while the payment due date is on ending of the month (when people normally receive their pay check)
The tactic here is control the dependant variable- Purchase date. Having it to be on the sweet spot. Sweet spot is what I will call it.
As a simple example: On 10th May, I would like to buy myself a new watch, costs 70,000 THB as it has great discount ends in May. But, I had recently purchased my flight ticket to Europe for 60,000 THB. I would not want to add the extra 70,000 THB into my credit card statement.
The trick here is, I could simply purchase that watch on 19th May (Passing my credit card closing date). With so, the transaction will be showing up in my June's credit card statement. I could pay that off in June.
With a bit of self control before that impulse purchasing is made, I saved up myself one more month of time paying off that debt I gained.
On top of time saving, I would earned myself credit card points that would lead to free food and drinks or even free travel (redeem tons of points).
The question is: Will I buy that watch? Yes.
If this is a purchase that would have already been made, why not get the most out of it. To make it double or triple "worth it".
People will argue that this small tactic is not good enough in WOWing them.
Let me give you another example why this small move could actually save you.
When a purchase is made, it will be shown as "Pending Transaction" on your credit card app. Will be posted on your statement after few days of processing.
This is crucial, as fraud payments could be happening on any of us. If it is a Debit Card, the money will be deducted directly from the saving accounts, which is not good. Even if banks provide different protection policies, returning that stolen amount back to the account takes forever (definitely longer than credit cards do).
With the additional time frame, we could report to banks and legal departments for postponing or waiving the fraud payments made on our Credit Cards.
A common benefit that I would recommend people surrounding me to apply credit cards is the perks it come with. Complimentary airport lounge accesses is one of my favourite.
Earning points/ cash back is another huge benefit to be considered. Since we are spending money that we would have already spent, why not get some points for redemption or extra cash back?
Hint: In next next article, I would have compared Points vs Cash Back credit card.
Credit cards often offer discounts widely, not just from the issuers, but the payment channel. Eg movies, dining, car rental and gold course reservations.
Credit card companies also offer insurance for the cardholders. From Accident insurance to Travel Insurance. Some high tiers credit card offers Roadside assistance too. In case if the car is running out of gas somewhere, you could make a phone call to have the gas delivered.
Some high tier credit cards even offer perks in travelling. For instance, American Express Platinum (Well, it is a charge card) offers Hilton Honors and Marriott Gold status. Visa also offers Fast track for its' Signature and Infinite cardholders to receive Hilton Honors Gold status with just having 2 stays or 4 nights in any Hilton Properties within 90 days of application for the challenge in year 2019.
The page of promotion in Visa webpage had been removed.
Last but not least, credit cards would generate credit scores. Credit scores is evaluated by different factors: Payment history, Credit history, Credit utilisation, New credit and Credit mix. It is to reflect how responsible you are towards your personal finance. It would often lead to approval of loans with banks.
In the states, credit score is fundamental. It would determine the interest rate of loans one would get and even rental fee from his/her leaser.
In conclusion, credit card is a "should have" thing being as adult. Of course, one won't die with obtaining any credit card. But one would die if owning too much credit card debts.
For youngsters, don't be afraid of applying your first credit card out there.
A lot of banks ease the process of applications and offers lots of free gifts (luggage, duffle bags) to its' applicants.
Always remember to be a responsible adult and "To spend as you would normally spend".
The credit card companies would have hated me if they ever read my articles. But, it is our responsibility for telling our generations, our future generations what is not being taught in classroom.
At the end of the article, let me send you a warm welcome to the credit card game. It's time to get back what we meant to own.
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