Never in a million years did I ever think I would endorse the usage of credit cards. After all, for so long all I had been hearing is that they were magnets for trouble. Obscenely unfair interest rates and spawns of the devils were just some of the asinine things I was told.
For ages I stayed away from credit cards and wanted nothing to do them with them. The many real-life stories I heard from friends, families and financial gurus—as though credit cards were the worst thing since the series finale of Game of Thrones—didn’t help either. So I decided to get a credit card of my own to see for myself.
I did my research
I did my research and made an application to my local bank. Within a few weeks I received my shiny, new card and felt somewhat nervous before using it. Would I rack up these devilish interest rates I’ve heard so much about? Would someone spend all the credit on my card without me knowing? Or would I enter my pin incorrectly three times and my card permanently become unusable at Point of Sale terminals? The last of which actually happened but—ahem—that’s another story.
The true Power of Credit Cards
At first glance, there seems to be very little that’s special about a credit card. Well, besides it’s ability to quickly put you into debt if you are not careful. But being the occasional “over-thinker” that I am, I thought long and hard in advance how to accomplish two things: 1. How to never pay any interest rates on my card and 2. How to turn what many see as a liability into an asset. All in all, I discovered 3 “dirty but powerful little secrets” that allow you to make money from credit cards.
The Power of Rewards
Okay, so this one is not so much a big secret, but how to take full advantage of it is. Every credit card comes with different types of rewards; these rewards are generally dependent on the financial institution that issues the credit card. But what many don’t do with these rewards is calculate in advance how they can use them to reap profits.
Case in point: If a credit card costs you an annual fee of $200 but offers you points as rewards that you can ultimately redeem for cash, then you can make a profit. Let’s say you receive 1 point for every $5 spent and every point is worth 20 cents; for every $2500 you spend you will receive $100 back in cash. So to make back the cost of the annual fee you will simply have to charge $5000 per year to the card. Any spend over $5000 means you will only receive pure profit from then on.
This can quickly add up to be a few hundreds extra per year in profit based on your spending habits. To determine how much you would need to spend per year to make a profit use the following formula. Cash Back you would like to receive DIVIDED by Cash Value of 1 point MULTIPLIED by Amount you need to spend to receive 1 point.
The Power of Friends
For every person you meet who understands finance and embraces the true value of credit cards you may probably meet five people who would rather just avoid them altogether. If you want to make more money using credit cards then make these people your friends. Most likely they will have monthly bills to pay. And because they may prefer the hassle of not using credit cards you can easily use this to your advantage.
Ask them if they would be willing to have you pay their bills for them. This way you can accumulate more points; just ensure that they pay you in advance! This strategy can help you improve your credit rating and limit. And once managed properly it can also significantly amplify the returns you receive based on your credit card rewards. Plus you can use your credit card to pay the bills of all your card-less family members too! The more bills you pay, the more money you get.
The Power of Grace
One of the most known things about using credit cards is the grace period that comes attached with them. A grace period is the time during which you are allowed to pay your credit card bill without having to pay interest. Most people who complain about credit cards being a liability do so mainly because of this one rule. They never pay off their credit card debt in full. Instead they rely heavily on the grace period to buy them some time. Then they pay off only the minimum or part that is due.
Therefore each month they have outstanding payments from the previous month they couldn’t afford to make. But they also have to pay these back with interest. They can become trapped in an endless cycle of debt all thanks to playing defensive and misusing the grace period.
On the other hand, there’s a way to use the commonly misunderstood grace period to your advantage. What if it was possible to exist a month in the future as a wealthier individual than you are in the present? Well you can, with your credit card’s grace period. It’s a more offensive strategy that those who understand the true power of compound interest will surely appreciate.
The Power of Grace: part 2
Take this example: You have $100,000 in a savings account that gives you an annual interest of 5%. Each month your net salary of $10,000 is sent to that account and for the subsequent month you pay $3000 in bills using your credit card. In April you receive your regular salary and there’s now $110,000 in your account. If you immediately withdraw $3000 to pay all your bills and leave the $107,000 in the account at the end of the next month the calculation of your interest rate per annum will be $5350.
Had you left the the $110,000 in your account then paid your $3000 in bills at the end of the month the interest would equate to $5500. Now this may seem like pocket change with all things considered as that $150 extra will be paid over the course of a year but let’s think a little bigger. What if an entrepreneur had $1,000,000 in that account and received $800,000 in net profit each month but had monthly salaries of $300,000 to pay out.
If he used the aforementioned strategy this will be the result: By paying out salaries first (and not using credit card) he would have 1,500,000 sitting in bank, which would generate an annual interest rate of $75,000. Had he left the total of $1,800,000 in the bank then paid the $300,000 in salaries at the end of the month the value of annual interest would have been $90,000. That’s $15,000 extra in interest.
If this strategy is repeated long and consistent enough, with income constantly coming in to the account you would also continually benefit from compound interest, which would amplify interest generated over time. This is all possible using the grace period on your credit because it allows you to delay payments (without paying interest) for several weeks or months depending on the card you hold.
Avoid the Negative Nancies
Now many negative Nancies will review all of the above and still come to the same conclusion. They will say that none of the strategies will work and that credit cards are still the devil. But I can ensure you that they will indeed work, providing you have obtained two things long in advance. You need resolved discipline and the ability to budget.
If anyone tries the above and they don’t work it’s because they are not implementing one or both traits. What I’ve definitely come to realize is that credit cards are not bad—just like money isn’t. People’s spending habits are instead. If you easily give in to temptation then it may be in your best interest to avoid credits cards. For those who can properly manage finances you can ignore what those against credit cards tell you. Having a credit card can literally be a stepping stone to better financial freedom.
Unlock the greatest power yourself
The potential for “making money” aside there are many other benefits to be had when using credit cards. You can get increased safety, insurance of cash, discounts, specials, free trips, premium services, purchase and price protection on items. Plus the ability to freely shop in almost every country in the world plus speed and convenience. It’s very much worth it to have all of these things. To obtain them all at little cost, you’ll only need to learn how to manage the “Power of your Will.”
