Credit Card - leverage it!

There are nine million credit card holders nationwide and this figure is counting. The most recent report about bankcruptcy in Malaysia reveals that 40% of them resulted from failure of paying back their credit card loans. Should you get a credit card ?

I must admit, back in year 2000, getting a credit card is a joy for me. A significant milestone for me as an income earner. Business world is always realistic, you don't want to buy your customer lunch with your seem-to-be unimpressive classic card (don't mean to insult any classic card holders here but sharing what business world perceives). This drives me a quick move to change from Classic to Gold and to Platinum. The joy of upgrading is always there but i only realise the true usage of credit card as a financial leveraging tool a few years back.

Let's talk about the bad points of credit card first. Credit card drives you to spend more. This is a known fact. The moment you swipe your card , you won't feel the pain until the payment dues. The adrenaline rush to get discounted deals always overcomes your calculation logic. Therefore, you have to be very discipline(financially) with a credit card. Besides that, credit card charges annual fees. Yes, i will talk about ways to get waiver later, :).

The good points now. You can leverage credit card as a cash flow tool. As we know, we have so many 0 % interest payment plans available now. How do you make use of them wisely? These perks are meant to drive you to spent on unnecessary stuffs(a.k.a luxury stuffs) . But , it would help you to save on interest if you know how to leverage on them. I will take a simple scenario, such as travelling. My wife & I had planned to go for honeymoon in New Zealand quite sometime ago before we got married. And, you need to save a lot of money for that, :). The trip costs about RM12K for two person. When I was making the payment through credit card, I was offered a 0 % interest payment plan by Standard Charted Bank. Guess how can I save money through this plan? I took their their plan for 12 months repayment and injected the 12K I have as a capital repayment for my house loan.(which charges me 7.03% per annum) . I have effectively saved RM 843.6 not taking in the interest compounding factor. You can actually practice this for necccesities that you needed. Direct Access credit card is also offering 0 % interest payment for 9 months for any purchases above RM500. You can always play around with the figures but just make sure you are discipline enough to repay the payments.

If you know about credit card well, they give you a 20 days interest free period. For any large payment you need to make through credit card, (eg. buying expensive furniture or electrical appliances ) you can choose to pay 1 day after the effective monthly cut-off date.(if you have a choice of when to make the payment). You can earn one month of interest from there. Let's say , your monthly credit card bill cut -off date falls on 17th of every month (all transactions after 17th will appear only on next months bill), your payment due date will be 20 days after 17th(which normally falls on 6th of next month). If you made a transaction on 18th, you will only need to make the payment 2 months later. This effectively gives you 50 days of interest for free. 50 days is almost 1/7 th of a calendar year. If your transaction amount is large, the effective interest you gain is quite substantial.

You might ask, what about annual fees ? The credit card industry is so competitive now that they will give you a waiver whenever you requested one.( I haven't been paying any annual fees since 2002) Or, simply just choose a card without annual fees. ( EON Bank, Direct Access, Ambank, Citibank)