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  • Writer's pictureRevanno

Credit Card Tips & Tricks

Updated: Dec 3, 2021

All debt is not equal. I’m sure you may have heard this at some point. It’s a very true and multi-layered statement that should be examined. Whether due to personal experiences or listening to the experiences of others, many people fear debt. It doesn’t take much to imagine why.

Let’s examine the meaning of debt. To put it simply, Investopedia states “debt is money borrowed by one party from another” (Chen, 2021). Debt can come in various forms:

1) Consumer

2) Business/Investment

3) Residential

Credit cards are a form of consumer debt. Consumer debt generally involves lower sums of money borrowed under the conditions of higher interest rates when compared to other traditional forms of debt. The reason these rates tend to be higher is because consumer debt is unsecured, meaning no assets are put up as collateral in case of default. The interest rates on credit cards are what make them so valuable to banks. The average person is unable to pay their credit card bill in full each month, which means banks can make as high as a 20% annual interest rate on the outstanding bill. I repeat, depending on your credit card, you could be paying as much as 20% interest annually on an outstanding amount to the bank! To put that into perspective, if you were to invest into an index fund (e.g. S&P 500 index) your long-term return could be 10% (Speights 2021) whereas the bank is making double that on your overdue Amazon cart purchases!

But there is a way to game the system! Traditionally, you may have been taught to never use a credit card outside the case of an emergency. However, with the incentivized programs in place by various financial institutions, using your credit card in everyday life is a normality. So here are some things to consider:

1) Use your credit card as a debit card

- What I mean by that is, avoid using your credit card to the extent that you cannot afford to pay the bill in full. If you are buying gas, use your credit card and then transfer the money from your account to your card shortly thereafter via your online banking app.

- There are various benefits to this method:

a. Security & insurance – the money from a credit card is not your money, it is the bank’s money. That means there is a high level of cyber security and insurance to protect the bank’s interests. So, if the card is compromised you can relax knowing the bank will ensure this is sorted out. This becomes a bit more difficult as it relates to debit cards.

b. Helps to build your credit score/reputation with Bank – When it comes time for you to apply for a loan or any sort, the bank will want to examine your credibility. Do you have the means of paying back a loan? Are you of good character and won’t skip town once the funds are released to your account? As you use your credit card and pay your credit card bills in a timely manner, a bank will use this to develop your credit profile. Also note that spending more on your credit card than what you have available in your bank account can impact your credit score (depending on jurisdiction that can be amounts over 30% of your credit card limit).

2) Rewards & Loyalty Points and Air Miles – Many banks have incentivized programs in place with their credit cards as mentioned earlier. For each dollar that is spent, you can get up to 1 point or more back to go towards future benefits. I have personally used this to pay for vacations or even apply for cash back rewards.

3) Not all credit cards are created equal - Speak to various banks and learn the differences in what their credit card packages offer.

4) Become familiar with hidden fees

- Every credit card tends to have an annual service fee. You should find out the annual fees associated with a card before you apply for it.

- There is also a stamp duty charge associated with the use of credit cards in the Bahamas depending on if the transactions happen internationally.

- You want to ensure the benefits that come with the card exceed the fees associated with its use.

5) Make payments FREQUENTLY

- This is one of my favorite hacks when using a credit card.

- Interest is compounded daily when using a credit card. That means each day the interest is being calculated on the total outstanding balance (the original principal amount and the previously accrued interest). Hence, if you only make the minimum payment at the end of each month, your remaining balance may be higher than you expected.

- For example, if your credit card bill is $100 for the month, break that $100 payment up into multiple payments. It can be $25 each week for four weeks ($25 x 4 = $100) and it will lower your balance quicker than if you waited for the fourth week to pay the $100 at once.

6) Take advantage of 30-day window

- There is a “float” period that is afforded to every credit card user.

- If there is a cash flow timing issue, during which a big purchase needs to be made but you don’t have the cash on hand to pay the CC bill immediately, you can utilize the 30-day window to your advantage.

- For example, it’s September 29th and you’ve utilized all your cash, but you have a

big purchase that you need to make in a week. Wait until the beginning of your new CC billing cycle. In this example, this is October 1st. That means if the purchase is made on October 1st, you have until October 30th to make the payment in full. You can also apply small payments each week as mentioned in part 5 to ensure your interest accrued is as low as possible.

7) Pay MORE than the required minimum

- ALWAYS ALWAYS ALWAYS pay more than the required minimum. Even if just $20

more. This will put a dent on the outstanding balance as the additional amount will

be applied to the principal of the debt. This helps to reduce the time it will take for

you to pay off your credit card in full.

These are a few principles to apply to your credit card usage. Again, every credit card is different. But there are some foundational similarities that can be utilized effectively for your benefit.

Note: This blog reflects my opinions and is for informational and/or entertainment purposes only. This blog does not reflect the opinions of any organisations with whom I am affiliated. This blog is not intended to serve as a substitute to professional financial advice and guidance. As such, if the reader places any reliance on this blog, he/she alone accepts all risks and damages. Although I am a licensed accountant, please schedule a formal meeting with a financial professional before taking any actions. I reserve the right to change the focus or content of this blog at any time.

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