Win-Win Benefit for All

Great Offer?

At first, it seems unreal. Imagine if you sell a TV and only receive payment 3.5 years later, do you want to do that business ? Maybe no. The same answer I would expect from companies, such “Harvey Norman” who regularly conduct this special offer.

So, if they also don’t want to be paid 3.5 year later, how does it work? The answer lies on the “joint venture” between the companies who promote the offer and some financial/credit provider company:

• The company who sell the goods, will be paid immediately by financial/credit provider company, as if it is a credit card purchase. (There will be usual commission for each sales, just like normal credit card purchase)
• The customer who purchase the goods need to open a new credit card account or personal loan account on the spot or online with the financial/credit provider company. This is subject to normal credit/lending criteria including credit check, income information, debt information, etc. Just exactly the same if you want to open/have a new credit card. (That’s why the term is “for approved customer only” and there is minimum amount of the purchase to make sure it’s worth doing).
• The “joint venture” aspect is that the company who sell the goods “introduces” their customer to the financial/credit provider company. The company who sell the good will have more sales, the financial/credit provider company will have new customer. Of course additionally the financial/credit provider will pay some “kickback” or commission as if the company who sell the good were their broker.
• The customer is also happy as they will have more buying power at the earliest time (now!)

For the credit provider, having somebody only pay 4 years later is what they do for business (Remember, mortgages span for 30 years) – so really no big deal for them to provide such credit facility.

The Hidden Temptation For Customer. Beware !

This is not really a trap or “gotcha” from this scheme, but more on “temptation” for the customer. How ?

1. The fact that you have additional buying power the same as you have additional money in your pocket will give you so much temptation not to “upgrade”. You know: want 40 inches plasma TV-  end up buying 52 inches one, want laptop with 120GB Harddisk/2 MB memory – end up with 160GB Harddisk/4MB memory, no plan to buy dishwasher – end up with not only dishwasher but also a small fridge.
   See, the problem is, this is really nobody fault except the customer. Only self-discipline will guard you from this, nothing else. The seller is on the business to sell more to you, that’s given. So, cannot really blame anyone except yourself if you buy more than planned.
2. When you open the new credit card/revolving credit, the company will give you more credit than the amount that you buy. For example: you buy $1000 computer using this scheme, open new credit card account, and the financial/credit card company may give you $5,000 credit. Yes, they block that $1000 no interest,  but you have $4000 credit ready to be used – and of course with that hefty interest at the order of 15%-20%. Yes, the company will explain to you that additional purchase will attract interest (if they did not explain to you then they miss their obligation) but along the way when the temptation come, there will be so much harder to resist that you have immediate $4,000 to spend.
3. Beware of  the “additional offer while you are on it“. For example: the computer you buy has 1 year warranty, how about buying 5 year extended warranty instead (or sometime they ask you as a requirement). Or since you buy this plasma TV, why don’t you add this HD set top box for additional $25?
   This kind of offer will not be limited while you are in store only, but it could be happening during the life of your “no interest” period.
4. At the end of interest free period,  there will be a temptation to keep it under credit (not paying it off) and then you start paying the high interest rate.

And final caution is beware the administrative fee / annual fee that will be imposed to the credit that they provide to you.

My Recommendation.

Remember, never ever buying consumer good with debt. But if you have the money already, and you qualify for this offer and can tolerate some hassles then, why not?! But remember to do the following:

• Put your money on high interest saving account (such online saving account or term deposit – don’t put it on your mortgage offset account as it will not “earn” that much). As example: $1500 purchase where the money can be put into 8% term deposit for 3 years will earn you almost $400. Not bad.
• Do not use the credit card or credit facility at all as you will possibly paying hefty interest from it.
• As soon as the “interest free” period ends, pay off the amount with the money that you have already and close the credit card/credit facility that you use.

Thus, as you can see… you really need self discipline more than anything to get the most of this mouth-watering offer!

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1. How Much You Spend For Xmas?

First thing first, you need to know how much you spend just for Christmas related expense: gifts, special donation, decoration, taxi for party, extra tip, etc. No need to be exact number, just roughly.. $500? $1000? or massive $5000 or more? I guess most of us, as long as we don’t leave the city will spend around $500 – $1000 for all those extra festivity expense.

Small Piggy Bank for Christmas

2. Little Help From Bank

Thanks to a little bit competition among banks, let us now open a new saving account – the one without monthly account keeping fee. No need ATM access, no need internet banking and not even need interest, if that help – as long as we can transfer (electronically via internet for convenience) from our existing account. It doesn’t have to be your normal bank, any bank or credit union that offer no-fee account. We will open a dedicated “XMAS account“.

The idea is old: piggy bank. But we make it more modern and fancy: a special bank account just for all Christmas related expenses. And since it does not have account keeping fee, it will not cost you a cent.

3. Contribute Throughout The Year.

If you have your salary weekly, how hard to contribute only $25 each time? Or make it $50 fortnightly? With this amount, suddenly you have extra $1300 cash for Christmas every year. Of course, you can add more if you can, but do not make it too high as it will come a burden and then make you stop. Even as little as $20 fortnightly will give you a handy cash just over $500 for Christmas shopping.

The trick is to make it automatic. Set up a periodical transfer with your internet banking  exactly the day you usually receive your salary. For example if you received your salary on your account every Wednesday fortnightly, set to auto pay every Wednesday fortnightly the amount that you want. Why exactly on the day? This is to do an illusion to the brain to not realizing that the amount has been deducted from your salary. After a while you will get used to it and maybe forget about it, only to find that extra $1000 on Christmas. Isn’t that nice ? (Note: just make sure your account does not go into negative if the transfer from your employer got a day delay or so – leave some buffer)

Again, don’t set the amount too high so that your budget will severely affected. This is just a little squeeze, if it is too much, you will alter it.

No Christmas Debt Next Year

So, yes, this year you may still have those xmas debts, but this year will be the last. Next year, you can be sure that there will be no debt anymore as your little piggy bank has started accumulating little by little – automatically.

Have a good new year, then !

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Credit card scares you ? Don't be....

The Ideal Case

First thing first, your credit card should have some interest free period (55 days or better would be nice). No matter how low the interest is, should your card provider doesn’t offer interest free period, close the account and get another one.

The idea of credit card is win-win. The customer can pay by credit card without having to have cash on hand but without additional surcharge, the retailer will have the opportunity to have more customer and more sales with credit card facility and the credit card company will get a decent cut from the proceed. Everybody happy.

But if there is no interest free period, then the customer is the one at lost. So no good. You credit card must have interest free period.

So the mechanism is: you shop throughout the month and at the end of the month a statement arrive and you just pay off the whole amount. No interest charged. The main convenient factors are: you don’t have to wait the cash (salary or otherwise), your cash is accumulating / earning interest for you in your saving account while waiting for the end of the month, you can also accumulate reward point (if there is one) and convenience shopping throughout internet and normal shop.

Fall into Debt, Get Out Soon

One day, due to forgetfulness or late salary payment from your employer or other reason, you then miss the due date to pay the whole amount mentioned on your statement. What to do now?

First of all, once you know you will not be able to pay the whole amount before the due date, pay the minimum amount (always mention in your statement, usually only around 2%-3% of the total or some minimum # whichever higher). Failed to pay the minimum, not only you will be slugged by late fee, but you will flag your account to be at risk for a default. A reminder later will come and then get nastier and nastier. So, just pay at least the minimum amount.

Once you only pay the minimum amount, the hefty interest rate will kick start. All the purchase that you made will have interest charge from the day of purchase and all new purchase will also carry a daily interest rate as soon as transacted.

Now that you have fallen into debt, then let’s try to get out from it. The first step is: do not stop using the credit card – but with special method below.

How to use credit card which is still in debt:

1. Use it as “prepaid card”. So, if you want to do grocery shopping of around $100, transfer $100 into your credit card account before the shopping.
2. Keep using it, do not stop. One of the common mistake if a credit card gone into a debt is to stop using it. Why? Because of the monthly minimum payment.

For example: You still owe $2000 and have to pay minimum of $80 per month. And your shopping is about $500 per month. Then if you complete stop using the credit card, you now have to pay $580 ($500 for the usual shopping with cash or other method and $80 for the minimum payment).

But, if you keep using it as describe in item (1), then that $100 per week is more than the minimum. So, at the end of the month, you only pay in total $500 (all your transfer into the account is counted toward the minimum payment, hence no extra $80 at the end). However, please note that your  interest will accrue accordingly (meaning you will have bigger balance due next month). But this is the price that you have to pay to give you time to recover from the fall.

In conclusion: keep transfering money into the credit card account as much as possible before using it but keep using it!. Try to back out from the debt the month after if possible.

Deeper Problem

Let see what happen if instead of going out from the debt, but you fall even deeper into the debt. Your balance is growing each month and getting near to the maximum credit limit each day. Here is some items that you could do:

1. Very important. You need to manage, whatever it takes, to pay that monthly minimum
2. It’s time to put a break on your expenses. (You do have budget, aren’t you ?) Make a drastic measure until you have comfortable space, only buy essential only, no eating out, no coffee, no daily newspaper, just tighten your belt as hard as possible
3. But still keep using it as per above. Stop using the credit card will cost you more in term of cash flow.
4. If you haven’t got one, draft a budget ! Talk to financial expert that want to help you without charge you for the fee. Or even just pay the expert to get you out from this potential problem.

Take control of your financial matter is  the key. Remember credit card interest is very very high. If you need to get some loan, there are many other loan that substantially cheaper than credit card debt.

Final Words

So… I hope you are not running into credit card debt problem. Try to get help from friends or professional before it’s too late. Don’t be shy and embarrassed. There must be someone that will help you.

On the other hand, if you have proven to yourself that you are good in managing your only credit card, Well done ! Remember that credit card is just a convenience tool in doing your day to day transaction. With this in mind, consider to have 2 credit cards with similar value. Only 2 (two) though… no more…!

Don’t leave home without it !

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A little trick at Money Changer they don’t tell you about…

Most of the money changer / foreign currency shop will display “No commission” and people falsely feel that they just change more than enough money for the trip and then the unused money can be changed back later. But this way carries a hidden cost. It’s from what’s called “spread”.

Currency Exchange

For example: I am in Sydney Airport and about to travel to Hawaii and I want to change my Aussie Dollar to US Dollar, this means I want to buy $US and the shop will sell the US$ to you. In the shop you will see something like this: US$ Buy1.160 Sell 1.237.  This means they will sell US$ 1  for A$1.215, but will only buy US$ 1 for A$1.160. So my A$10000 then become $10000 / 1.237 = US$8084.  Now, after the trip you did not actually use all of it, you just use half , so you still have $US4042 in your pocket and you want to change it back to $A. So US$4042 will bought at 1,160 rate and become 4042 x 1.160 = A$4,688. So, your half of your $10,000 is no longer A$5000. It  is now only $4688, thanks to “spread”. (The difference of $312 is the profit for that shop – that’s how they make money)

So, changing more money than you need is not a good idea as you will have to pay the spread to the money changer. (Of course, if during that holiday, say the $A become significantly weaker, then probably you pay very little spread, but on the other hand, if the $A become significantly stronger then you pay even more to change back to where you were)

Furthermore, carrying cash is probably very risky as it can get stolen quite easily.

Credit Card Cost

Let us see about credit card. Yes, even with credit card, you will need to pay the exchange rate – no one will escape from this if they want to change currency. But who will likely able to give you the best currency rate,  a local money changer with tens of thousands proceed a day or Master Card/Visa/American Express with billions of dollar a day ? I would say the chance are the one with big proceed will give better deal.  Of course, not always, you will probably find some local shop that is “on sale” and give you better deal, but it is unlikely as these local shop also get their supply of money from their banks who deals with these credit card companies on wholesale pricing.

On other note, there are “transaction cost” that usually being charged for international transaction. And 2 middle men charge this transaction fee: the credit card company and your bank/card issuer. But the total amount of fee will likely no more than 2-3% (although depend on the country and currency. But if they charge extra for certain currency/country, the chance are the local shop will charge even more expensive rate). Check your credit card fine print for more detail.

Recommendation For Overseas Travel – Money-wise

So, knowing both aspect above, here is the list of recommendation for your consideration for your next overseas trip

Prepaid the bulk cost of your trip: airfare, hotel, guide tour, car rental, etc before you depart. And yes, pay it with credit card as you will accumulate points (but don’t pay surcharge for this as it will defeat the purpose)

Bring only minimum cash of the foreign currency only to cover petty cash: pay tips, buy ice cream, small purchase, etc. Just exchange whatever amount that you think you would use it up. Don’t plan to have the money exchanged back.

Pay everything else with your credit card: souvenier, taxi, restaurant bill, theme park ticket, etc… Everything else. Just pay with your credit card.

Have online access to pay your credit card from internet. You need to be able to transfer some money from your saving account to your credit card account as your credit card limit is not supposed to be that high. Do this maybe once a week or so at your convenient

How about emergency fund ? If you can have debit card: “Debit Master Card” or “Debit Visa” this will be your best alternative as the money will not be touched until you withdraw them in emergency and the cost of withdrawal is very very small.
Other alternative is to prepare traveler’s cheque for your trip. They have better spread in case you want to convert back to original currency and you can split it for your convenience. Say you want to carry $10,000 emergency fund, then you can purchase 2 x $5000 traveler’s cheque. This way, if you only need to access only some of that emergency money , you don’t need to cash out all $10,000.
Otherwise, just spare some credit limit on your credit card for this emergency purposes. But withdrawing cash from credit card is quite expensive, not only it attract the interest rate straight away (regardless of free interest day period) it also attract cash advance fee at the time of withdrawal.

Final words

The actual cost using credit card for overseas travel is just that “transaction cost” around 2-3% that will be charge for each transaction. But avoiding this cost by carrying cash is becoming more expensive at the end. Not only the risk of cash being stolen but financially, you will pay “spread” cost to put the cash back into the original currency. This is a hidden cost that not many people realize it.  Just bring and exchange cash for petty expense and don’t expect to change it back to the original currency.

So, as final word: just use your credit card on your next trip: domestic or international !

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A Bit of Guideline

Before we answer that question, let us explorer first the common practical security guideline for online transaction. To help you have more confidence about transacting online with credit card, here are some steps that you can consider:

• If possible, only deal with the biggest name of online transaction merchant: Ebay, Amazon, PayPal, ClickBank, etc. Not that they cannot be broken, but if there is something wrong and you make a claim, at least they have more resources and tools to protect and find out what’s really happen.
• Check the secure certificate. For every secure web page, there will be what so called “secure certificate” this is basically a independent third party confirmation that the website is really the one they claim they are. For example: if the logo say “Ebay”, but the secure certificate did not confirm that it is Ebay, then better stay away from it. The secure certificate is really strict. Some time your browser will complain that the secure certificate has a problem, then you need to check the content of the certificate. If it’s only a mismatch of sub-domain, for example www.shoponline.com and secure.shoponline.com, it’s not a big deal. But if the certificate mentioning different company name, you should seek explanation or just bugger off.
• Transact only on secure web page. You need to make sure that on the page that you are going to enter your credit card detail you see “https and padlock” on your browser. “https” is “secure hyper text protocol”, this is the one which makes sure that the data transmission will be encrypted. the padlock is the visual confirmation that the connection is secured.
• After the transaction, sometimes the shop offer to email the receipt to you. You need to make sure that the ceredit card detail will be obscured, if not, then don’t do this as you don’t know how they are going to email your receipt. What you don’t want is they will reveal the whole credit card detail on email (see scenario two above) It’s better just print it out or screen capture your monitor.

Surprisingly, It’s Up To You

Money for Online Transaction

Yes, the answer whether is it safe or not to transact online is: up to you. You are the one who make any online credit card transaction as safe as it can get or as risky as you make it. In other word, if you don’t what are you doing, you are the one jeopardize the security of your credit card. Want example ?

For example: let say you buy new digital camera online with online shop that you never deal with before. And you want to pay with credit card. The shop even provide you with secure webpage to do this transaction. So up to now, everything is okay. Now thinking twice, you’re wondering is it safe to do this transaction as you never deal with this shop:

• Scenario one: You decide to call the phone, talk to real people and give the credit card over the phone
• Scenario two: You decide to call the phone, talk to real people and give the credit card via email
• Scenario three: You proceed with the web interface and conclude the transaction without talking to anybody

Which one of the three scenario is the safest and as secure as you can get ?

If you said scenario three is the safest, then you are correct. Let see why the other scenarios is a disaster to your credit card security:

• When you talk to the a person, do you know where exactly she/he record your credit card detail. The chances are: on a piece of paper the closest that she/he can get. Why? The shop is ready for the online transaction (hence the secure interface), but not necessarily ready and have establish procedure to handle over the phone transaction. At least the one you talk to might not have been fully trained to handle phone data. So, if it’s on a piece of paper then you are exposing your credit card security.
• Unless you use what so called “Secure email” using email to give your credit card transaction is a Big NO. That’s actually equal to go to in the middle of shopping mall and scream out your credit card number there. If any of the hacker or bad people just listening to the data transmission, they will easily capture your credit card detail. Also, while sitting on the Internet Service Provider, the admin who maintain the server can easily get a peek on the email content. Why? Because email is using plain text to communicate. Cannot be more plain that that. Everybody can see it.
• Now, by using the secure interface you give yourself the maximum chance of security. Anybody listen to the data transmission will not be able to see the content as it’s encrypted. What do I mean by encrypted ? Simply put: a word “John” probably transmitted as “ae62bef4589ade56219bc785d5ad45deaba54d17304bd6dbacc2c3c5c62746ba”. That’s how difficult it is. It is not it can not be broken, but it will take considerable amount of effort (months of tens of computer continuously working on it) just to break that word. And the additional problem for the hacker, they don’t know really know where the word start. So it might capture the wrong data. (But with email, it would display as clear as it can get). Furthermore, with established merchant system, the chances are that your credit card number is transacted without even a person looking at it.

So, with above illustration, I hope I convince you that the safety of your credit card is really up to you.

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The Real Reason of Having a Credit Card

Before I proceed, please always be reminded that:

• the real reason we have credit card is for convenience, not for the debt, not for the “extra money”.
• we will pay off the credit card bill at every monthly due date
• If credit card purchase become debt (because you did not pay it off), it will be very expensive debt (why pay 20% interest if you can get at least half of it by applying personal loan for example ? )

As long as we are all remember all of the above, then let’s proceed.

Need an Increase, Yes !

So, when we need to increase the credit limit?

• 

  Wallet Purchasing Power

  If your credit limit is below 2 x of your monthly spending. Your credit card need to have double of your monthly spending. For example: if your monthly budget is $2000, then you need a credit card that has at least $4000 credit limit. This is mainly because while waiting the due date of the monthly statement, you will need to keep on living with your next month budget. For further detail read: 7 Ways to Maximize The Benefit of Credit Card
  So, when the initial credit limit below 2 x of your monthly spending, if the company offer an increase. Take it.

• To match your other credit card (To achieve 2 credit cards of similar value)
• You need to increase your emergency buffer, for example you have a new born, then $2000 credit limit will not be enough for monthly shopping and emergency access. Remember using credit card as emergency fund is not recommended. You always need to have emergency cash on your saving account. However, you can use the credit card as the access to it (pay with credit card first and the before due date you will pay it off with the actual emergency fund).
• You will be traveling overseas. When travel overseas, credit card use will enhanced your convenience for any transaction  since you don’t need to worry about exchanging cash and carrying a lot of cash around. So, your main transaction weapon while overseas will be your credit card. Extra credit limit might be handy as the exchange rate is changing all the time and unexpected expenses is more likely while you’re abroad.

The Risk Of having Higher Limit

• If your credit card is misused (by fraud or negligence) you might be liable of that amount. Hence having higher credit limit means higher amount that could be at risk.
• The temptation of impulse buying. Imagine if you have extra $3000 purchasing power on your pocket and you are looking at the item that you always want to buy for so long. The temptation so buy will be higher if you don’t have that extra purchasing power induced by your credit card increased limit. So, if you’re impulsive buyer, beware !
• When you are applying a mortgage/homeloan, the credit card limit will reduce your borrowing capacity. For example: if you have a total of $20,000 credit limit, then the bank will lend you $20k less.

Upgrade to Gold Card or Platinum Card?

After certain credit limit (vary from each company), the credit card issuer may no longer can offer you increase the credit limit without upgrading your card to the higher level. This is where you need to be extra thoughtful.

Upgrading to higher level (Silver to Gold, Gold to Platinum, etc) will usually involve additional annual fee. Sometimes very big different. For example: $59 per year for your ‘normal’ card and $199 annual fee for Gold card.

Of course, the company will try to sell you this upgrade by pointing you to some ‘additional benefit’ but this additional benefit usually just pseudo benefit that you will hardly use. For example: say with Gold card you are offered to have free travel insurance if you buy ticket with the card, but you hardly go overseas. Or maybe some discount if staying on certain hotel chain, but that hotel chain is too expensive anyway even with discount.

So, this illusion of “benefit” have to be clearly considered. Remember also to check with the real reason you want to increase the credit limit. If you don’t get added value, don’t bother with the upgrade.

Conclusion

Never automatically agree for any increase of credit limit or upgrade of your card. Always do your reasoning and consider the guidelines above. If still in doubt, it’s better NOT to increase.

Hope this helps.

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Meaning of Credit Card For You

Credit Card Money

Remember, you should never think a credit card as source of debt. If you have some big debt you really want to take, you should take a personal loan instead. It will save you huge interest rate during the term of your loan.

So, a credit card should only mean mostly convenience. With its interest free period you can buy items and pay it altogether at the end of the month. Also remember, you need to pay off your credit card every month.

I also endorse for you to select credit card with reward/loyalty program. With this you will have additional benefit with the points that can be converted to some good even cash back.

One other benefit that you could argue that you have purchasing power that can be used,  i.e: for emergency purposes that will give you peace of mind (although will cost a lot, but in emergency situation additional cost is a given).

But you don’t have really a financial advantage of owning a credit card. In fact you will have slight financial disadvantage when you apply for mortgage / homeloan: your credit card limit (yes, full credit card limit, not only the one you use) will be used to reduce your borrowing capacity. Be careful with this, don’t always raise your credit limit – just have enough to cover your expenses and emergency.

Meaning of Credit Card for Credit Card Issuer

For credit card issuer, every credit card that they issue, they will generate some good money, let see:

1. For credit card with interest free period, usually they will charge “membership fee“. Maybe $50 per year up to a few hundreds dollar per year for gold or platinum card. Do not get a credit card without “interest free period”. They might tell you it’s free for the first year, but they surely do charge this every year afterwards.
2. For every purchase you made, they will get a cut. Well, you won’t feel this money, but the seller will. The amount is not that big, usually around 2% heavily depended on the seller sales, but this is the reason why for some purchases with credit card, the seller threaten to charge you extra: to recover this transaction fee. For example, if you buy $250 vacuum cleaner, the credit card issuer will enjoy $5 from this purchase.
3. If you did not pay off the credit card by the time they are due every month, the credit card issuer will slug you with the notorious credit card interest rate. The rate is very high up to around 20% per year. So, that $250 vacuum cleaner, if you “forget” to pay it off, will attract additional $4 per month that you have to pay.
4. Even worse, the credit card issuer is actually “double dip”. They have charged you with membership above to have a credit card, but they also charge the seller “merchant facility fee” for them to be able to use your credit card for purchase in their store.

Conclusion

Next time you apply for your credit card, bear in mind that you will give them income and they are not the one giving you favor. Yes, you can get some convenience from a credit card but every single cent you spent you need to pay it back.

Although you still need to be truthful in filling your form, if there is something that you don’t want to reveal or some difficult question, just try to leave it blank. If it is really important they will call you to ask more detail. But the chance is they just don’t bother to check everything, they just want to give you a credit card that you can use (so they reap all the income from it)

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Although you are already following the credit card best practices, sometimes – it will happen sooner or later, an event out of your control just happen. And as always, you are not to be upset about it (remember, it’s outside your control – nothing you can do about it) – especially since you have prepared yourself and have mitigate this risk.Because the 2 cards are interchangeable of each other, some of the following benefit may apply for you:

1. Say you always pay off the monthly statement, but this time your salary arrive late due to some technical problem and you missed the due date. Once the due date is passed, then the credit card is no longer have ‘interest free period’ means anything you buy with that card will be charged that hefty interest rate from day 1. Not only that, you need now to pay the other 44 days or 55 days of previous interest free period.The problem is: you will need to still shop and live normally this month, but of course you want to minimize the cost..If you have 2 credit cards of similar value, the problem can be solved easily. This month, instead of using the usual credit card, do all the shopping using the 2nd credit card (which still has the interest free period), so there will be no additional interest cost this month for your transaction.You only have to pay the interest from the last month plus pay off the statement that you cannot pay on time.  Then the other credit card will recover its ‘interest free period’ on the next cycle since you have paid it off.
2. The next level of scenario is: how if you have to have a urgent, very important but unpredictable big expense. Say: your immediate family overseas fall ill or need your presence immediately or other similar thing (no time to break those time deposit or sell those stock to cover the expense).Again, if you have 2 credit cards of similar value, the problem can be solved easily. Put this unexpected big expenses into the second credit card.  You may not be able to pay it off immediately, but because of interest free period,  for the next 44 or 55 days you don’t have to pay any interest. And there could be a chance within that period you find a way to pay it off. Even if you cannot pay it off, then just let it stay on this second credit card and you will pay it off in time. But the most important thing is your normal day to day transaction with the first credit card will not be affected at all.
3. If you have debt in the credit card (you did not pay it off) you can do balance transfer to make use of generous offer of interest free when doing balance transfer. This means you have relieve on paying the minimum amount per month, but also can give you a chance to pay off the principal instead of paying the interest. This cannot be happening if you don’t have 2 cards. Read: this article about balance transfer for further reading.
4. Simple benefit: the replacement of each other. Imagine you are in the big queue of supermarket, pay with credit card and get decline. Repeated and still rejected. You don’t have cash with you. What will be more valuable to have a backup credit card to save your face and the time ? – I would recommend that the 2 credit card that you have should have been of different brand, i.e: one is a Visa card, the other is Master Card. In this case, if the Visa processing center have problem, you have another chance that Master Card is still operational. Of course if the telephone line is the problem then no matter what your card is, there will be no immediate resolution.
5. And finally of course the simplest form of benefit: you have increased buying power induced by the additional credit limit. But beware that this benefit can bite on you and trap you into unnecessary debt. Furthermore, if you are not in the business, probably you will hardly see the benefit of having increased buying power.

What the negative factor of having 2 credit cards of similar value ?

1. There will be 2 membership fees that need to be paid, but if your transaction can get enough points to cover both, then it will be free anyway. Otherwise you need to consider this as small cost to have peace of mind that you are prepared if something unexpected happened.
2. If you cannot control yourself, then it’s very easy to overspend this credit limit into irresponsible buying. Buying “doodah”, Robert Kiyosaki said. (Example: those TV, set top box, game console, stereo, extra HDD, car, CD/DVD, new laptop, etc)

Conclusion

If you haven’t got your 2 (two) credit card of similar value, go start find and apply for it… But remember: be responsible. Your life, your responsibility! The debt trap is the risk.
And.. no!  No more than 2 (two) credit cards…

Related Posts

• Credit Card Best Practices
• 7 Ways to Maximize The Benefit of Credit Card
• Credit Card Balance Transfer: Use It For Your Great Benefit
• Corner Store
• Part 2 – Credit Card Balance Transfer: Your Own Calculation

1. You only need to have either Visa or MasterCard.
   Other brands (American Express, JCB, Diners Club, etc) are not widely accepted, have higher cost although give you exclusive sense.
2. Use credit card as transaction tool, not source of money
3. Always have credit card with ‘interest free period’
4. Follow a good ‘Reward Program / Loyalty Program’ and then avoid using cash for all the transaction and only use your credit card for any transaction as much as possible.
5. Aim to pay the membership fee with your reward program.
6. Pay off the monthly statement to avoid paying interest
7. Always remember:  credit card is DEBT. This temporary debt is perfectly okay since it’s interest free and you got benefit of reward program and you will pay it off every month anyway. But it’s a very expensive debt should you forget this.
8. Avoid using ‘advanced cash’ using credit card.
   Not only the interest rate is very high, but also usually you immediately forfeit the interest free period.
9. Check the monthly statement for any invalid transaction. Report and inquire immediately any suspicious entry for your own benefit.
   If you have internet banking access, check it on weekly timeframe
10. Keep the credit card receipt at least until it’s included in the statement.
11. The credit limit of your credit card need to cover at least 2 times your monthly expense.
12. Destroy the receipt before being put in the rubbish bin (A good shredder will do the job otherwise you need to do ‘manual destruction’)
13. If possible, have a saving account in the same bank of your credit card issuer.
    This will make the transaction between saving and credit card seamless. Internet Banking access betwen them would make it perfect !
14. If possible, own 2 credit cards of the same value for your maximum benefit
15. If you have 2 credit cards, make only 1 card actively used at any one time, don’t use the other one. But try to make even the usage maybe every half year.
16. Yes, you may consider a credit card as source of finance ONLY in the event of EMERGENCY.

Related Posts

• Benefit of having 2 (two) Credit Cards of Similar Value
• 7 Ways to Maximize The Benefit of Credit Card
• Credit Card Balance Transfer: Use It For Your Great Benefit
• Corner Store
• Part 2 – Credit Card Balance Transfer: Your Own Calculation

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 !

Related Posts

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