7 Ways to Maximize The Benefit of Credit Card

Credit card is a great product and extremely useful for day-to-day life activity. Nowadays,  I would not be able to imagine a world without credit card. But yet, I can find some people even in the modern country like Australia or US that try to avoid credit card as if it’s an evil or illegal product. Yes, it’s true that credit card could trap you into debt, but the same thing as knife analogy. Knife could kill, but it’s very useful, then people need to learn how to use and respect knife rightfully not avoiding it. How people can learn how to use credit card properly and squeeze out all the benefit of a credit card ? By financial education… Let’s start with these 7 items

1. Always choose credit card with ‘interest free period’.

The typical interest free period is usually 44 days or 55 days. Means, you can buy something and pay 44 days or 55 days later without any interest. Need to be noted here that the 44 days or 55 days is usually wrapped in monthly statement, means transaction from the 1st of the month up to 31st of the month will be in one statement (that’s 31 days) – (the date could be different for each institution e.g: from the 10th to the 09th next month), and then you have another 13 days (hence total 44 days) to pay that one off without incuring penalty. (additional 24 days for the one with 55 days interest free period). Hence, for something that you buy on 1st of that one will enjoy full 55 days period but the one that you buy on 31st of that month will only enjoy 13 days (or 24 days) interest free period.

If your credit card have no interest free period, forget it. Immediately close it and swap with the one with interest free period. Even if they offer lower interest rate, it’s not relevant at all. The reason for us to have a credit card is for its usage not for getting debt, then the interest rate is really not in the equation, we just need to know that it will be very high.

Also, make sure it’s a Visa or Master Card. Other card may give you slight disadvantage as it will not be accepted in any shop or if accepted you need to pay a fee (don’t do this)

2. Pay off the statement every month.

This is require much more discipline that you think. Your main motivation will be: the interest rate of credit card is very high, for example: when the mortgage rate is 5%, the credit card rate is 20%, then you pay 4 times the amount of money as interest and this is just a waste of your money. Always live within your means, don’t spends more than you earn.

3. Use it always anywhere you shop, I mean anywhere and anytime

Once you have your interest free credit car, always use it whenever you can. Buy $5 coffee? pay with credit card. Buy newspaper? Buy in store that can use credit card (or even better subscribe one with credit card – even cheaper), Buy Groceries? pay with credit card. School Fee? Pay with credit card. Never ever use any other mean (especially cash) if a credit card is an alternative.

You might want to manage a little fact that some of the shop require you to have minimum spend (maybe $5 or $10) before they allow you to pay with credit card (this is because the fee that incurred by credit card provider to the shop). So you need to combine some purchases to meet this minimum.

How about if my credit limit is too small to cater whole month shop?

That’s fine, no problem at all. What you need to do is just pay it.. For example: your credit limit is only $2000 , after paying due insurance and shopping for the first week you already use $1800 of the credit. Then what you do just pay this $1800 or even less to clear up for your other week shopping. Depends on the bank, sometime it takes a day or 2 before the money you paid transacted to your credit card account. But with the world of internet banking, most of the bank will have immediate update.

Do this one of 2 months and if you still have this hassle, just call your credit card provider to increase your credit limit. (With you use it heavily and always pay it off, the credit card provider will happily increase your credit limit). Ideally you need a credit limit just above double your monthly spend. Why? Remember, the purchase from this month only need to be paid 13 days (or 24 days) after the months finish but you need to still shop on the subsequent month, isn’t it ?

4. Choose card with reward program or loyalty program  (point for shop)

Since you do no (3) above, I am truly sure that you will reap more benefit if your card have a reward program or loyalti program. Even if this means you need to pay annual fee.! Why? First of all, usually you can pay your annual fee with the point you collect anyway.  For example:  Citibank Gold Card’s annual fee worth 16,000 points (they are not the most generous one, cheaper if not gold), but with every 1$ earns 1 point, normal houshold will surely spend more than $16,000 a year then the extra is your additional benefit.

This additional benefit can be maximized if you exchange your point with cash rebate (most have this option) or if not grab thos voucher that you can buy a grocery. Of course, you can indulge your self with variety of those ‘toys’ on the catalogue,  it’s totally up to you (remember it’s free extra)

Also not to forget, some time just being a card holder of certain brand of credit card make you eligible to got free travel insurance, or shop discount, or something else. Do use this extra benefit whenever suitable. It’s there for your service.

5. Keep the receipt until it’s correctly on the next statement

You need to keep your receipt of credit card transaction until it correctly appear on your next monthly statement. The main reason for this is to guard yourself against double charge or if there is any other dispute. Some transaction in the border line date, could be only shown on the statement after the next one. But all transaction should appear within 2 monthly statement. Otherwise, you MUST inquire them. If you need some kind of proof for your taxation purposes, use the invoice or shop receipt that the shop give to you together with the credit card receipt or if it’s not available the credit card statement is a valid document for it (no longer need the actual receipt).

Security Tips: Destroy the receipt with good shredder (well, you can do manually as well if you would). If you see the receipt, you should see that your credit card number should have been partially obscured, for example: only printed the last 4 digits (If you see the full number you have the right to COMPLAIN to the shop owner and the credit card provider), the problem is: that obscurity method is not standard, I can see some shop may display the last 6 digit. The other display the first 4 digit AND the last 4 digit, the anoother one display only the last 4 digit. Hence is someone gone through your garbage (it’s illegal but the risk is too high), he can easily pickup maybe half the number and make it easier somebody to do a credit card fraud to you. So, NEVER EVER PUT YOUR CREDIT CARD RECEIPT IN THE BIN WITHOUT DESTROYING IT FIRST.

6. Have 2 (two) credit cards of similar value

Yes, I recommended you to at least have 2 credit cards of similar value: similar credit limit, both have reward programs, both have interest free period. If possible 1 is a Visa, the other one is MasterCard. There are so many advantage of having 2 credit card or similar value, for example:

• Should there is a failure in processing one card, you have a backup of the other one: save the hassle and the embarrassment
• If you accidentally miss your payment date (late payroll transaction, overseas travel goes not as planned, or other occasion) then your credit card is no longer have ‘interest free’ means anything you buy this month with that credit card will be charged interest from the day you buy it. Well, if you have 2 credit cards, simply use the other one for shopping (which is still have interest free period) while you pay off the card you miss the payment. The next monthly cycle the interest free period will be resume as normal.
• If something bigger happen (emergency situation) that you need to use that extra amount of money on credit with the risk paying higher interest rate, you can immediately mitigate and minimize this risk if you have 2 credit card of similar value.

Read this article: “Benefit of having 2 (two) Credit Cards of Similar Value” for further information about how to use 2 credit card in smart way.

It’s up to you how you want to ‘roster’ the card,  maybe monthly (this one with this card, the next month the other card) or 6 monthly (preferable) – The key is only use 1 credit card as the active one at any time unless occasional ‘unexpected event’ as above. Remember you need to pay off both credit card every months.

7. When the credit card company offer additional credit, what to do ?

I always advocating self responsibility. For example: is someone trapped in debt blaming or even suing a credit card company because they offer this person more credit even if this person cannot afford it, that’s total rubbish. It’s your life, it’s your responsibility. Unless you are under influence of drug, no body else can decide anything for you unless you agree to it, then it become your decision nothing else. Your decision, your responsibility.

So, if the credit card provider offer you additional credit, look up your record, if the last 12 consecutive months, you have been not paying off the statement several times, then reject the offer. But if you can satisfy yourself, that you are a responsible discipline people: always pay off the statement, have steady income, no impulse buying, etc.. you may always accept the offer. After all, credit limit is purchasing power. And remember, in the situation of emergency, although carry high interest rate, the extra amount on your credit card could be a life saver. I would hope you never have to experience this kind of situation, but if you do be grateful if you have this extra credit ! (Folks, emergency – buying a car or TV is NOT an emergency)

Enjoy your credit card and reap all the benefit !

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• Benefit of having 2 (two) Credit Cards of Similar Value
• Credit Card Best Practices
• Credit Card Balance Transfer: Use It For Your Great Benefit
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• Part 2 – Credit Card Balance Transfer: Your Own Calculation