NO!! I am not a credit card sales man pestering people with free life-time cards or enticing them with special gifts to buy more cards, and send them down a debt spiral, while I mint my commissions on way to the bank!
I’m just another common man who swipes his card day-in and day-out, at the groceries, at the petrol stations, at the super markets, and nudges around to pay the bills!
Over a period, I’ve developed some habits (or in corporate parlance “Best Practices”) with my credit card usage, which have not only helped me avoid the debt spiral; but also make money out of it!! Read on to know how!
1. Avoid paying interest on your credits!
The first step towards earning extra money from credit cards is to avoid paying interest on your credits!
Too many cooks spoil the broth!
Too many cards spoil your growth!!
Have a strict limit on the number of credit cards you have; and your overall credit limit.
Your overall credit limit (inclusive of all cards) should not over shoot your monthly income; else, you will have trouble paying your next credit bill.
2. Avoid cash and debit card transactions to the maximum
The next time you buy a mobile phone or the monthly grocery at the store, avoid paying by cash, pay by credit card instead.
First it helps in avoiding black money to a teenee-tiny extent. Secondly, and more importantly, your money stays in your account until you make the credit card payment (not for debit cards though).
This gives you extra interest on your savings account balance. Sounds petty?! Not really!! Let me explain…
The recent RBI ruling on savings account interest rate has the following key takeaways:
- RBI has de-regulated the savings account interest rates; so, competition is heating up among the banks to increase the rates further (One bank has already raised the rate to 6 %!!!)
- The savings account interest rate is currently 4%
- The rate would be calculated at the end of each day, instead of the lowest balance of a month earlier (most of our account balances are low by the end of the month 🙁 )
Therefore, if I buy, say an iPhone for, Rs.30,000 on October 1 using my credit card, my credit statement would be generated by the end of the month.
So, this 30K bucks stays in my account, until I make the payment at the end of the month. At say 4% interest rate, this works out to close to Rs.100/- per month (@4%, each Rs.10, 000 earns an interest of Rs.1.01 EACH DAY!!!)
So, that’s extra money as interest from your purchase!!
Note: Before swiping, make sure the vendor doesn’t charge any service charges; most don’t; but it’s always safer to confirm.
While using for fuel, go for banks which have tie-up with your credit card company so that you don’t have to pay surcharges.
3. Delay paying your credit card bill until the last few days
This is the next vital step towards earning extra money – pay the bills at the RIGHT time!! Earlier, I used to settle my credit card bills soon after I make a purchase. But, as I realized how much I can earn with additional interest, I delay my payments until the last days. If my due date is 15th of a month, I don’t pay until 13th or 14th; so that I can earn savings account interest during the grace period as well. With net banking and mobile banking, payments are cleared in seconds, so there is no worry of cheques not clearing on time or national holidays!!
4. Negotiate increasing your credit payment cycle
By now you would have realized that longer the grace period, the more you can delay the payments; and more the interest you can accrue. So, negotiate with your bank and try to increase the grace period. Recently, I upgraded to a higher end card, and my grace period shot up by 10 days. Now, my half-yearly interest credits are growing more and more!!
5. Reward Points
Of course, there is always the delight of earning reward points for your purchase, and en-cashing them for exciting gifts!!
6. DISCIPLINE IS MANDATORY
A disciplined approach is of vital importance while using credit cards. Make sure, you set reminders on your handsets so that you don’t miss the payment dates! Better to pay your bills a couple of days before the due date, than rue missing the date and pay interests. Don’t be penny wise, pound foolish!!
And always keep a check on your spending. Having a credit card is no license to go on a shopping spree. The wealthiest are not those who earn more; but who spend less. Plan your monthly budget; and strive to stick to it. Avoid impulsive shopping – when you go shopping, do not buy anything beyond that you have planned for. Also, inculcating a savings habit would give great returns in the long run. Try these tips and your credit card will soon be making money for you!
This is a guest post by Arun K Krishnan – an IT Consultant, working with a multinational consulting company from Chennai. He’s an avid follower of TFL; and wanted to share his financial tips for the benefit of other readers. The views expressed herein are the author’s personal views.