I have almost all the premium credit cards from all the banks.
But being a Baniya, I calculate the ROI of holding a number of credit cards, the same way I invest in my business.
Because all the premium credit cards come with an annual fee of around Rs 5000 per annum.
I calculate the ROI for the benefits I get in the form of
- Direct cashback
- Welcome gift
- Milestone benefits
- Free airport lounge access
- Special shopping benefits from time to time
- Less foreign currency conversion charges on my business transactions
I saved more than 1 lakh rupees from my credit cards in 2018 alone.
In this email I am going to share how you can get the maximum ROI from the credit cards.
Know your spending pattern
First you should know where you spend the most. Your monthly spending pattern could be like
Grocery - Rs 5000
Fuel - 3000
Movies - 1500
Travel - 10,000
Online shopping - 5000
Utility bill payment - 4000
Restaurants - 3000
Other small spends - 3000
Now you need to group various spends into following major categories
- Travel spends on air tickets
- Fuel
- Movies
- Online shopping
- Grocery shopping from supermarkets
- Other spends
Identify which type of credit card you need
Based on your spending pattern, you need to identify the type of credit cards.
Whether you need an all rounder credit card which offer small benefits on all the spends
or specific credit card for getting higher benefits in any particular category.
For example
If you spend monthly Rs 5000 on grocery in supermarkets then you can have a specific grocery shopping card.
In case you are a frequent air traveller, then a travel credit card is a must one in your pocket.
Or
If you spend monthly 1000-2000 on each category , then you can go with an all round credit card.
Tip - Apply for a basic credit card like Standard chartered platinum card or ICICI platinum credit card with easy approval if you are applying for the first time.
Find the best credit card in a specific category
The next step is to decide the one credit card between two or three similar cards. You can analyse the different credit card in the same category based on their
- Saving ratio per Rs 100 (higher is better)
- Annual fee (lower is better)
- Other benefits like welcome gift, bonus gift, milestone benefits
- Easy approval rate
For your help, I am sharing my favorite credit card in each category
- Allround premium credit card - Standard chartered ultimate credit card
- Grocery spends - Standard chartered manhattan credit card
- Travel credit card - American express travel platinum credit card
- Online/wallet/paytm - American express membership rewards credit cards
- First time applicant - Standard chartered platinum / ICICI platinum credit card
- Amazon - ICICI Amazon pay credit card/ SBI simply click credit card
- Unlimited airport lounge access - HDFC diners black credit card
You can check the list of best credit cards in different categories here.
Pay credit card bill on time
Use the credit card with responsibility.
You can get positive ROI only if you pay the credit card bills on time. Otherwise you can ruin your finances by paying a high interest rate up to 48% on the outstanding amount.
One advice - If you cannot pay the credit card bills on time then don't apply for any credit card.
Avoid Credit Card Companies Trap
Pay just 5% minimum payment on credit card bill and carry forward the remaining balance.
Shop for Rs 1 Lakh and pay just Rs 5000 to bank and carry forward the balance to next month
Next month repeat the same thing.
How cool this is.
Isn't it?
Pay minimum due and carry forward the balance is an overwhelming trap that can ruin your finances.
Banks charge upto 48% p.a interest on the credit card balance with compounding effect.
Let's take an example
You have a credit card bill of 1,05,500. You pay 5500 as minimum due and carry forward the rest of the Rs 1 lakh.
Bank charge 4000 as interest charges on the balance in the next credit card statement (assuming 4% per month).
Next month's statement will be 104000.
Now on the balance carry forward you will pay the interest on the previous month interest amount as well.
On calculation a bill of 1,00,000 if carried forward every month, your total liability would be around Rs 160103.
Around 60% interest rate.
You cannot expect a healthy financial life while paying 60% interest charges.
If you already get trapped in such a situation, pay the credit card bill ASAP no matter from where you arrange the funds.
You can check my video on How to pay credit card bill if you don't have a balance in your bank account.
Pay Credit card bill from
- Your current saving account or salary account balance
- Having FD or RD
- Arrange funds from other investments like mutual funds, stocks
- Ask from family members or friends
- Sold assets like gold
- Take personal loan (if possible)
In my next email, I will share with you how to manage multiple credit cards
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