Thursday, February 5, 2009

I Love Credit Cards

There are a lot of people regarding credit cards as evil (poor credit cards tsk tsk). But is it really evil? The credit card per se is not an evil but a very hard to resist temptation though ;) The things that you are going to do with it are the real evil which will pull away your peace of mind and send you to work harder. This is because, credit cards give the illusion of power – a sudden power which is usually more than twice our purchasing power and before we know it, we already have spent our future away. But with the right use and proper control, credit cards can be your friend and you can take advantage of its power. It cannot control you if you won’t let it control you.

Now, why do I love credit cards?

Time leverage

Credit card and time are two great friends. The banks allow you to use their money for a while and return it to them when the bill comes at no extra cost. Just be sure of the amount you permit yourself to spend, that is, the amount you can pay when you’re using cash. I was able to take advantage of credit leverage when we set up our mini store. Start up capital for that was used in setting up the store and there’s little left for the inventory. So with half the stock paid in cash and the other half thru credit cards, the mini store is ready to sell. And by the end of the month before the bill goes out, there’s enough money to pay for the credit card charges without extra cost. Now, who made an investment to our store without an ROI? And besides, the bank offered longer credit time compared to the usual 10 to 15 days term when you buy on credit especially for grocery items. Now that’s really advantageous ;)

Bonus points or miles

Not only just it introduce you to time leverage, it will also reward you for taking advantage of it :) When you charge, you get extra points or air miles that when accumulated you get valuable items or free tickets to fly at zero cost when you of course pay off your debt in full and on time. When all you have ever done is give your money to them instead of giving it to the store cashier. Now, that’s really cool :D


This is what I truly love with credit cards; this gives me so much convenience. And your capacity to spend reach far and across the globe with just a few clicks. And mode of payment are convenient too with their online banking facilities. What else can I ask for :)

Inexpensive loan can be possible

You may ask how can a credit card provide for a loan when it is solely for goods and services and cash advances. Well you’re right, but you can transform it into a loan. I have tried that myself :D I’m currently maintaining 3 credit cards but I only pay one annual fee because the other 2 cards have conditions where you can apply for a waive in annual fee. I got one mastercard from HSBC and 2 visas from HSBC and Citibank my highest credit limit. They have different cut-off dates to be able to play with my friend cash flow. And so I made the best combination for me to do my little game. Say for example I need P50,000 immediately and if I apply for a loan, it will take long and interest would surely be high. So, I opted for a credit card cash advance. Every withdrawal will cost P300 or 3% of the amount withdrawn whichever is higher and a cumulative 3.5% percent interest per month. Now that’s really very high. But I’ve found a way to make it cheaper. I’m going to apply for a balance transfer on my other cards. And HSBC is the lowest so far in balance transfers. A typical loan cost you at least 1.5% and above per month but with balance transfer at HSBC, it will only cost me .70% per month. Now, that’s more than 50% off! :D And since I have good credit standing, there is a great possibility that my application will be approved. Let’s make a comparison then:

Typical loan P50,000 loan at 1.5% per mo., 2 years

Interest = 1.5% x 24 months
= 36%

Loan Payable = Principal + interest
= 50,000 x 1.36
= P68,000

Plus a P1,500 to P2,000 processing fee
And another for insurance at about P1,000

How much does it cost just to get 50,000 now?

Cost = Interest + Processing Fee + Insurance
= 18,000 + 1,500 + 1,000
= 20,500

HSBC Balance Transfer P50,000 loan at .70% per mo., 2 years

Interest = .70% x 24 months
= 16.8%

Loan Payable = Principal + interest
= 50,000 x 1.168
= P58,400

Plus 300 for every 10,000 withdrawal
(10,000 is the amount where 300 and 3%
of the withdrawal amount is equal)
And that is P300 x 5 withdrawal = P1,500 Plus a minimal processing fee of P150

How much does it cost just to get 50,000 now?

Cost = Interest + Processing Fee
= 8,400 + 1,500 + 150
= 10,050

How much do we save here?

P20,500 - 10,050 = P10,450 that's more than 50% off savings ;)


Now, this one’s really nice. I came across a credit card which offers a life insurance as long as you keep on using it. It doesn’t hurt to have multiple insurances ;) After all, this one is for free :)

There may be some other ways to take advantage of credit cards depends on your way of playing with time value of money, cash flow, the bank promos and your own needs. These are just some of what I’ve tried ;)

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