There are literally hundreds of credit cards to choose from. How does one go about selecting them and more importantly, what should we think about when using a credit card. Here are some key things you need to be aware of.
1. The Credit is Expensive – Don’t Rollover!
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Credit Cards allow us to have the convenience of paying without cash and only paying usually 1 month later. This 1 month is the credit offered to us at no cost since the bank and VISA or AMEX will earn a percentage of our transactions made.
However, don’t make the mistake of not paying in full each month. The effective rate is ranges from 13% to 24%. This is very high compared to a normal personal loan rate of 8%.
Also do note, that both Singapore and Malaysia has a credit bureau. So if you become late in your payments for a consistent period, your credit rating could be compromised and you will have problems taking on loans in future.
2. Fees are Negotiable
Credit Cards come with late fees and annual fees. Usually these fees are just charged into your statement without anyone calling you. So do check your statement carefully each month. By and large, if you call nicely and ask the bank to waive these fees, they will usually oblige if you have a good customer record. A good customer spends a fair amount and pays on time. There are some cards which do not allow negotiation but these are usually high end prestige cards.
3. Credit Cards as a Tracking Tool
In my previous article, I wrote about the need to track by categories what you spend on a monthly basis. Only by tracking can you figure out whether you are on budget for the month and to then make adjustments as needed next month. Once you consolidate your spending onto your credit cards, you will receive monthly statements which can then be easily keyed into your spreadsheet or finance tracking software.
4. Know your Rewards
Almost all credit cards have rewards programmes. Some offer tie-ups with retail or F&B merchants, some offer tie-ups with airlines and some give cash back on spending. What you pick really depends on what you value. Many practical people like the cashback cards which give anything from 1% to 3% on certain purchases. Others pick cards based on the perks like Dining 1-for-1 etc.
In terms of most bang for dollar and if you fly regularly, the best bet is to take up cards that exchange for frequent flyer miles. There are numerous sites that compare these cards, but on average we are talking about a 3 -10% cash rebate on flying. It goes up to 8% for flying on business and using saver miles. For example, an economy ticket to London from Singapore is about $2400 about 60,000 frequent flier miles on SQ. So each mile is worth 4 cents. A good credit card will pay about 1 to 1.6 miles per dollar spend. So that is about 4% to 6.4% cash rebate on your spending. For business class flights, the percentage goes up about 1.5 times better or 6 -10%.
It is quite possible for the average consumer who spends $40K a year on credit card to accumulate enough points for a free flight to London!
5. Use the Concierge
Some credit cards nowadays offer services where you can call a concierge and they will help you arrange anything ranging from restaurant bookings, theatre bookings to even hotel rooms. There is no extra charge for this service and very frequently, the concierge is able to get a better rate or get a vacancy even on a busy night. You save both time and get a better deal!