Saturday, 7 January 2017

How to maximize your returns with credit card?

Most of us have many credit cards today
Most of us have various credit cards today, each for different purposes such as cashback, air miles, dining and etc. 

There are many comparison sites available to compare the benefits of each credit card and which is the best in its category. With so many different credit cards available, do you know which one you should be making purchase with? 

For myself, I prioritize my card spending based on the following considerations (these considerations are only useful if you pay for your own credit card bills and you are a saver):

1. Minimum Spending Required for Bonus Interest

There are quite a number of banks that offer bonus interest on the first $50,000 (UOB, DBS, BOC and etc.) / $60,000 (OCBC). If you have sufficient deposits in your savings account to receive notable interests, you should be spending on the credit card with minimum spending to receive bonus interest from your savings account. The minimum spending required is usually $500 depending on the bank. 

Once you have hit the minimum spending, unless the same card offers discounts on your purchases or superior returns, it is time to divert your spending to another card to receive higher returns. 

2. Credit Cards with Cash Back 

Cash back credit cards usually offer great returns and is more hassle free compared with rewards or miles card (note: miles card do offer higher rebates if you are planning to redeem business/ first class tickets, find out more in next section). Normally, I try to use my AMEX Cashback card which offers 1.5% cash rebate on spending without having to fulfill any conditions. However, AMEX is not as widely accepted in Singapore. A few other excellent cash back credit cards include the OCBC 365 Card, SCB Manhattan Card, UOB One Card and Citi Cash Back Card. Although some of the above mentioned cash back cards offer high rebates, there are often a number of conditions to fulfill before you are eligible for the cash back. 

For example, the UOB One Card (which I am currently using as well), require you to have consistent spending over 3 consecutive months in a quarter to qualify for the 3.33% cash back (or 5% if your spending is $2,000 per month in the quarter). This condition is rather restricting and more often than not, your cash back percentage is usually lower due to inconsistent spending.

Once you have exceeded spending for your cash back cap (there will be a limit on the maximum cash back at $60-80 per month, so far I only know of AMEX True Cashback card that has no cap on cash rebates), it is once again time to divert your spending to other credit cards. 

3. Credit Cards with Air miles / Rewards

DBS Altitude Visa Signature
Maybank Horizon Visa Signature
These are the two credit cards I am using to earn air miles. 

Before I wrote this post, I had this perception that air miles and rewards are not as attractive as cash back. However, during my research on the value of air miles, I came across this article which did a valuation of Krisflyer miles. Turns out that if you spend a fairly large amount monthly and could use your miles to redeem business class flights and above, each mile could be worth $0.04-0.06 (miles used to redeem first class flights are worth $0.08). That is almost 12-18% returns if you utilize card that give you 3 miles per $1 spent and planning to redeem business class tickets! 

As summarized by the article, each mile is worth (in % rebate): 

If your miles expire = $0.00 (0%) 
If you redeem short haul economy = $0.006-0.007 (0.6%)
If you redeem medium/ long haul economy = $0.01 (1%)
If you redeem short haul business = $0.03 (3%)
If you redeem medium/ long haul business = $0.06 (6%)
If you redeem first class = $0.08 (8%)

Of course there is a catch, you will need 34,000 miles to redeem a short haul one way business flight to Bangkok. For a married man like me, I will probably need at least 68,000 miles for 2 pax, unless I let my wife fly business while I fly in economy :( ? That is almost $22,500 spending (based on 3 miles per $1 and provided the points earned do not expire), which is way above the amount I spend after meeting my minimum spending monthly. 

Despite the high rebates for redeeming business/ first class flights, I am the kind that do not mind taking a budget airline to Bangkok for $200, so business and first class flights are not extremely attractive to me. Furthermore, there are also expiry dates to watch out for which could potentially turn your rebate to 0%.

Summary

There is no one size fit all solution when it comes to maximizing returns on your credit cards. Low spenders should aim for fulfilling the minimum spending for bonus interest first and hassle free cash back while high spenders could consolidate all spending to their air miles card for higher returns. Do share with me if you have any other methods to obtain good rebates that are hassle free!


Best,
AT

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Financial freedom = Passive Income > Expenses. Always remember that there are two sides to the equation of financial freedom. Beside working on how to improve our passive income through investing, we should never neglect the expenses portion. By striving to improve both side of the equation, we can achieve our financial goals and win in the game of money.

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