Is your credit card an asset or a liability?
Let me try that again.
Is your credit card an asset or a liability? In simple accounting terms, an asset is something of value with the potential to create income, while a liability is an obligation that creates expenses.
So, does you credit card cost you money? Do you use it to spend more than you earn, resulting in outrageous interest charges? Is it helping you to dig a hole deeper into debt each month? Then it is definitely a liability.
If you have a problem controlling your expenses with a credit card in your wallet, you should get rid of it and pay off the balance as quickly as you can. This is truly an emergency financial situation of the highest level! Credit cards should only be used for responsible spending, and should be paid off in full each month to avoid finance charges of up to 36%. Would you pay that on your mortgage? Then why do you pay it for unnecessary consumer goods? This article is for those who use credit cards for convenience, not as a means of over-consumption.
Now, if your credit card pays you for using it, it is an income producing asset.
And I love getting paid by my credit card! In fact, it is paying for my flight on the nice little trip I am currently planning.
We put almost everything we purchase on our card, resulting in a free flight worth about $800 each year.
And you know by reading this blog that we aren’t big spenders!
Ways to Make Your Credit Card Pay You
The variety of credit card rewards that banks offer will depend on where you live in the world. Here is what we currently get with our card:
- Air Miles for every purchase we make. This is the most useful benefit for our lifestyle.
- Free lounge access in several airports around the world, including our home airport. Is it ever wonderful to walk into the lounge with your family before the flight and have a free meal in a nice atmosphere. As I am a keen amateur sociologist, I also find it really interesting watching the people who can’t resist free alcohol loading up at 8 am. I prefer the free cappuccino for breakfast myself 😉
- Free valet parking at the airport and a number of other locations around town.
- Free airport transfers if we use the card to book our trip through the bank’s preferred travel agent.
- Free travel insurance.
- Free extended warranty.
- Free purchase protection against accidental damage or theft.
All the above are nice benefits, but the biggest benefit is hidden, and most people never really think about it:
If you pay your balance in full every month, you get up to 55 days free money!
You are using their money and keeping yours either in your bank account (making a pittance in interest, but better than nothing) or, better yet, in your investment account earning a nice long-term return of 7% or so.
What About Signing Bonuses & Cashback Cards?
In some countries, most notably the US, banks offer signing bonuses of up to $400 and cash back of 5% or more on your purchases.
This is free money! However, be very, very wary when someone offers free money. Read the fine print first and compare the benefits to your spending habits to see if the card is right for you.
And remember, the type of benefits you have on your card should not make you spend more!
You should be looking for the card with the best benefits for the lifestyle that you already have. Contrary to what some people might believe, spending money just to get the benefits is NOT saving money! 😕
For example, as part of my research for this article, I surveyed the cards available in the UAE and compared them to the card I already use.
Some offered cash back, some free green fees at nice golf courses, some points on certain airlines, etc.
I compared the benefits of the cashback cards to the amount of Air Miles that we currently earn with our purchases to see if a cashback card would be more lucrative. It turns out there wasn’t enough difference to merit changing cards at this point.
Don’t Pay the Bank for the Privilege of Using Their Card
The beauty of all the benefits that we get with our card is that we do not pay a cent for them. Due to our relationship with our bank, our credit card is free for life.
And yours should be too, even if your bank states on their website or in their literature that the card has an annual fee.
The banking industry is very competitive in most parts of the world, so if you have done your research and identified a card with benefits that suit your lifestyle, then approach the bank and ask for it for free. Be sure to mention other banks that you are currently looking at. You would be surprised at what they will do to get your business!
The only time that you might want to pay for a credit card is if the card offers benefits that far outweigh the annual fee.
For instance, there are cards here in the UAE that offer free green fees at certain golf courses. If you are an avid golfer already, the card might save you a lot of money over the course of a year.
Go Get It!
There is nothing tricky about making your credit card pay you. Just follow these steps:
- Do your online research and identify the card with the benefits you want.
- Read the fine print on the fees and charges.
- Ask the bank for the card.
- Set up an auto payment to pay 100% of the bill each month to avoid nasty credit charges.
Then sit back and enjoy making your credit card work for you, not the bank!
How about you? You do have any tips or tricks for making your credit card pay you? Share your wisdom with our community by posting your advice in the comment box below.