Getting the basic financial management knowledge and practice right from the start is critical in working your way to achieving ‘Financial Freedom’. In SMART Financing dictionary, ‘invest’ means to make, or grow your money in a meaningful way via OPM (other people’s money). Banks offers various types of credit facility for customers, and this can be leveraged to grow our wealth, should it be wisely managed. In this article, we would like to share some tips on the commonly used credit facility; the credit cards.
Are credit cards boon, or bane? Depending on how your planning is, it can go one from another. For all we know, you can be using it willy-nally and ended up paying the interest more than you know it. Us, however, consider this piece of rectangular plastic as a boon, as we know how to use the credit facilities towards our own benefits. The followings are examples on how you can leverage on a credit card.
1. Sign-up bonuses
Often banks offer lucrative deals just for a credit card application. Typically, there are 3 stages where you can benefit from this:
a) Signing up: At this stage, normally you will receive a small-valued premium gift just by signing up. This can be in a form of vouchers or an item.
b) Upon approval: Banks want you to start using your credit cards as soon as possible. They never intended to hand you over that rectangular-shaped plastic to just be another decor in your wallet or be grouped together with your fancy bills in your letterbox. Depending on which bank you applied, some rewards are offered during activation, while other rewards you over the first usage, or in the commonly used term, swipe.
c) After activation: Banks run their business by having you using your credit card in a recurrence, and are often done via frequent management plan; to get you to spend more. Considered as a high valued reward and is mostly offered, is cash back. It is frequently offered when you meet a certain spending quota.
2. Earn up to 59 days of interest free period by using your credit card
When you purchase using your credit card, you are given a period of interest free from 20 to 59 days, depending on the date of spent. By choosing to make more purchases with your credit card, your cash money stays in your savings or fixed deposit account, and that grants you the benefits of earning interest. In another word, you are earning interest on money you've already spent which you cannot do so with cash!
This is especially beneficial when you need to make frequent, large transactions such as paying the down payments for a property or even a car. This is a timing game. If you time your large transaction upon the start of the statement, that can help you in gaining interest of the money spent.
3. 0% Instalment Plans
Some retail shops allow you to charge your purchases and convert them into 0% instalments plan for up to 3 years. This means you can split your purchases into equal monthly instalments over a period of time and pay zero interest for that purchase. This is done from the moment of purchase.
Normally, you will need to look out for any promotional signage on the payment counter, or simply ask the cashier. Ask, don't be afraid to! Take note that different retailers allow the plan for different bank's credit card as well as the duration of the tenure, and most of the time, they have a minimum transaction amount as to enjoy the benefit.
What you need to do after the said large transaction is to save that same amount of money into your fixed deposit or savings account. With this, the interest earned at the end of the tenure is your profit.
4. How to make money from credit card debt consolidation?
Here are some simple money making tips from such debt consolidation, commonly known as Balance Transfers.
If you have some outstanding credit card balances in other banks, this is a great opportunity to consolidate the various credit card balances you have into a 0% interest rate instalment loan up to 12 months or longer under a balance transfer plan. The money that you have can be kept in the saving account longer and earn some interest.
5 Making money via Credit Card Reward Points
Most credit cards offer reward points upon spending. The accumulated reward points can be converted to cash value that you can use it for your subsequent spend.
Some banks offer fast-track reward points, which basically give you between 3 to 10 times more rewards if you spend in those categories. While redeeming normal cash back or vouchers normally have you spending RM 20,000 to get 20,000, fast-track reward points redemption may only need you to spend RM 4,000 to get the same 20,000 points, if you meet the requirements.
6 Cash Back on credit card
Are you thinking, “All the above are a hassle to me because I am forgetful”? Then, a simpler but less lucrative way to make free money from credit card is by using the cash back offering from a credit card, and paying the usage off in full every month. Different cards offer different cashback rates. Some offer a high introductory rate that reduces over time, while others offer higher rates of cashback on certain forms of spending. So, make sure you get the card that best matches your shopping habits.
7. Merchant discount on selected retailers.
Banks are very competitive among each other. In order to make their credit cards more appealing to the consumer, banks often offer merchant discount. This is to say, if you use their credit card in selected stores, you can get extra rewards points; be it upfront discount or end of bill discount. For example, say you are catching a movie in a cinema. Some cards may offer you cash back, other offers a free ticket upon a number of ticket purchase, and some other may offer you immediate discount. You won’t be able to do so with. Cash is king? Not this time!
Avoid the following!
1. Do not revolve on your credit card as you may be charged up to 18% interest rate per year!
2. Do not withdraw cash over the counter or through your ATM.
3. Do not go over your credit card limit.
Most cards charge a penalty if you breach your credit limit. It will affect your application / bureau score when you apply for a new facility in the future. This is also another reason why an applicant’s got their loans rejected; because they have gone over limit even if it’s a single card with zero utilisation on other cards. All in all, a credit card is a double-edged sword. You stand to gain from it if you manage it wisely, or you may become slave for money instead of getting closer to financial freedom.