Credit card – what you need to know about it? 6 secrets
It happens that we plan to go with friends or family to a restaurant or have some other fun. And the money left in stock is, well, quite a bit, and the salary is not soon. What to do? How not to fall into the mud face?
A credit card with a grace period can help in this matter. What is a credit card in simple words? How do I use a credit card with a grace period of 50 days or more?
We propose to deal with this issue.
Credit cards have become a part of our everyday life. And regarding the use of credit cards, there are two opposing approaches or opinions.
Some believe that you should not use credit cards, as they drive a person into debt and are afraid of them like fire. Therefore, they try to never use them.
Others believe that it is worth using a credit card, as it allows you to enjoy life and get everything at once. These are very active users of credit cards, sometimes even to the detriment of common sense.
We will consider an alternative approach to using a credit card – rational or financially literate person approach.
Credit card – what is it in simple words
A credit card is the bank’s money that it lends to us at a certain percentage. Moreover, it must be remembered that this percentage is usually higher than the interest on consumer loans.
What is a credit card
The difference between credit cards and consumer loans is that borrowed money can be used for a certain period of time without paying interest on the loan. This period is called grace period.
The grace period is the time during which you do not pay interest to the bank for using credit money. If you pay the debt to the bank in a timely manner during the grace period, then this period will be renewed.
Thus, a credit card allows you to make daily purchases without using your own money. Currently, all credit cards are offered with a grace period of 50 days or more. There are even cards with a 100-day grace period or more.
What you need to know about credit cards
Consider how the grace period on a credit card works. This is the main parameter of a credit card that allows you to earn on it.
There are several options for how banks consider the grace period. Some countdown of the grace period starts from the 1st day of the month, others – from the moment of the first purchase. Some consider the expenses on the card within 30 days and give additional days to pay off the debt. Others consider expenses during the entire grace period and must pay off the debt before the end of the grace period.
Be sure to understand how the grace period works before ordering and using a credit card. Since the strategy of using a credit card is based on this.
Let’s look at the features of each of these methods for calculating the grace period and what it can give us.
Option 1 – Expenses are calculated within 30 days.
Typically this option is used for cards with a 50+ day grace period. The peculiarity of this option is that the card will usually have two grace periods. At least for some period of time.
The grace period starts on the 1st of the month.
The due date is fixed, but may change if it falls on a weekend.
Keep in mind that funds that we spend on the 30th of the month will have a grace period of only 20 days.
How it works: during the first month we make purchases. The first grace period begins. After that, we are given 20 days in the second month to pay off the resulting debt. At the same time, from the 1st day of the second month, the second grace period begins to operate. That is, we make purchases with the bank’s money and do not pay interest for it. At the end of the second month, we are given another 20 days in the third month to pay off the resulting debt. This scenario continues. The main thing is to pay off the debt in a timely manner.
When paying off the debt with the minimum payment, you will pay the bank interest on the money used. Avoid it. Completely close grace period debt.
Option 2 – expenses are considered during the entire grace period.
Typically, this option is used for cards with a 100+ day grace period. The peculiarity of this option is that on the card, usually, there will be only one grace period. And also the fact that during the grace period it will be necessary to make minimum payments.
The grace period starts from the date of the 1st purchase.
The date of payment of the debt depends on the date of the beginning of the grace period.
Keep in mind that the closer to the end of the grace period we make a purchase with the card, the shorter the actual grace period will be. For example, we make a purchase on the 95th day from the start of the grace period, then the grace period for this purchase will be only 5 days.
How it works: within 100+ days we make purchases with the money of the bank. At the end of this period, we repay the debt. After that, as soon as we make a new purchase, a new grace period begins.
While we are spending bank money, our own money should work for us and generate income. How to organize this will be discussed later in the article.
6 tips for choosing a card
Invariably, before you start using a credit card, a dilemma arises: is this card really necessary? Everyone must answer this question for himself. But before you make a final decision, read this article carefully and think about its content. After all, using a credit card can be beneficial and useful from a financial point of view, both for personal and family budgets.
There is no best credit card. Her choice can be compared with the choice of a mobile operator. Each user has his own requirements and preferences, which he is guided by when choosing a cellular connection. Only cellular operators have been nothing lately. But there are significantly more banks offering credit cards. Therefore, we will talk about the main selection criteria, but the final choice and decision is yours.
The process of selecting a credit card or several cards is best carried out in several stages. At the first stage, we determine which bank cards are suitable for us. Basic parameters for choosing a credit card:
- Grace period – both the duration of the grace period and the method of calculating it are important. Since the strategy for using the card will depend on this.
- Annual Card Maintenance – Whether there is a fee for using the card will ultimately affect the amount of income we can earn from it.
- Card expenses – for example, a fee for SMS informing. Although many banks have switched to push notifications, so the need for SMS informing has disappeared.
- Is there a cashback program? – this is the main source of income on the map.
- In what, how and for what cashback is paid? – it will depend on how quickly we get the money.
- Special requirements for use – some banks impose additional requirements, such as the minimum amount of purchases during the month, the minimum balance of funds in the accounts, there may be other requirements. Compliance with these requirements may affect the size of the annual card maintenance, as well as the possibility of receiving cashback.
It will be necessary to take into account all these parameters when choosing a card and forming the final strategy for using a credit card.
At the next stage, we leave only those cards for which there are loyalty or cashback programs. Since we want to earn on cards, and not just make purchases. To do this, we need to define the following:
- For what expenditure items of our family or personal budget will we use a credit card. Read more about how to keep a family budget in the article (link will open in a new window).
- Which map and for which articles will we use. After all, different banks offer different% cashback for different categories.
- We develop a usage strategy for each credit card. That is, how much we spend on each card during the month. After all, banks limit the amount of cashback that can be paid out within a month.
Next, you need to determine the credit limit on the card. For this:
- Let’s sum up the size of all expenditure items of our budget for which we plan to use a credit card. Multiply the resulting amount by 2.5. In the case of a grace period of 50 days, so that there is a small margin for unforeseen situations.
- When using several credit cards, we determine the credit limit for each of them.
Tip: we recommend that you control credit limits for all credit cards. If there are cards that you do not use, then it is better to close them. Since credit card limits are taken into account by banks when calculating your marginal debt load or, in a simple way, debt load. And this can lead to a refusal to receive any loan in case of urgent need. For example, to create a source of passive income.
When using a credit card, it is important to observe the following rules:
- You use it only for those expenses for which money is allocated in the family budget.
- The amount of spending corresponds to or less than the allocated money in the family budget.
- You pay off your credit card debt on time before the end of the grace period.
In most banks, you can apply for a credit card through the website. The main thing is to carefully study the conditions for issuing a card and the requirements for the applicant. Some banks may charge a fee for issuing a card, so studying the conditions for using a credit card and cashback program is critical and will help you make an informed decision about the need and appropriateness of obtaining a particular credit card.
Pay due attention to the conditions of the cashback program. Since some banks may not charge rewards if you make purchases only in categories with increased cashback.
Secrets of using credit cards
A credit card, like any loan, expense or income, can be both good and bad. It all depends not on the conditions for it, but on the way it is used.
A bad credit card is a card that takes money from its owner due to its irrational use. This is expressed as a % for the use of bank credit funds, in case of payment of minimum payments, or annual card maintenance. In principle, this is not news, because credit cards were conceived so that banks could earn on them, or rather on the financial illiteracy of people.
How to use a credit card
As strange as it sounds, there is also a good credit card. That is, it is a card that brings money to its owners. This is expressed in the form of cashback and additional payments on a savings account or deposit. Therefore, it is important to approach the issue of choosing a card responsibly, discussed earlier in the article, and the strategy for using it will be discussed later in the article.
Savings accounts and credit cards
We suggest considering the issue of choosing a savings account, as it is also part of the strategy for making money on a credit card.
Savings account or deposit can be in any bank. Not necessarily in the same bank that will issue or issued the card to us. The main thing is to immediately foresee how we will pay off credit card debt. Basically, you need to strive to avoid paying interest on the transfer.
When choosing a savings account or deposit, we recommend using the following criteria:
- Interest on the account must be accrued monthly;
- It should be possible to replenish the account at any time;
- It should be possible to withdraw funds from the account without losing interest;
- It is desirable that there is no commission for transferring money to a third-party bank;
- It is desirable that interest is accrued for each day the funds are in the account.
Tip: it is better to open an account online, as in this case, banks usually offer a higher percentage.
By applying these recommendations, we will be able to receive additional income from the funds that will later be used to pay off card debt.
For example, our credit card spending amounted to 50K per month. The interest rate on the savings account is 6% (depending on the bank). Additionally, 250 🪙 will be credited to the account.
The calculation is indicative, since it is necessary to study the accrual conditions in each particular bank. Some accrue interest on the minimum account balance, others on the average balance, and still others take into account the daily account balance when accruing for the month.
Credit card principles
Below are the main approaches to using credit cards that will allow you to earn money on cards:
- Don’t overstay your cards.
- Choose cards without annual maintenance.
- Choose cards with a cashback program. Thus, you will increase the profitability of earnings on a credit card.
- Pay for purchases in cashback services with a cashback credit card. This will double or even triple your returns.
- Make credit card purchases only within your family or personal budget.
- Set a reminder on your calendar about the due date of your payment within the grace period. We recommend that you set a reminder the day before the end of the grace period so that you have time to transfer money if it is in another bank.
- At the beginning of each month, check the end date of the grace period in the bank or mobile application. Since the payment date may be shifted if the end of the grace period falls on a weekend.
- At the beginning of each month, check in the bank or mobile application the full amount of debt for the grace period. This will avoid delay and save the grace period.
- Track minimum credit card requirements, if any.
How to make money on a credit card
Let’s take a closer look at how credit cards allow you to earn on them.
Everything is clear with cashback, we hope. We spend credit funds and a certain% of the amount of expenses is returned to us. Usually, these funds are credited in the next month, following the month of the purchase, and go towards paying off the debt on the card. As a result, we need to pay less on card debt.
There are banks that pay real money through the cashback program, even with credit cards. So you need to constantly study the offers of the market.
When we use credit card funds, our own funds at that moment must be in a savings account and a certain% will be charged on them. The main thing is to choose the right savings account or deposit.
Credit Card Strategies
Applying the credit card strategies below requires a high level of financial discipline on the part of credit card holders to pay their debts on time within the grace period! This is a must!
For cards with debt fixation every month.
This strategy is suitable for all cards with a grace period of 50-60 days and for which the use of parallel grace periods is provided (this was described in the article above).
There are banks that apply parallel grace periods for cards and with a larger grace period.
This is the simplest strategy. You make daily purchases for those expenditure items that you identified at the stage of choosing a credit card.
Your money at this time is on a deposit or savings account and interest is charged on them. When the payment date comes up, you transfer the necessary amount to the credit card account.
This algorithm is repeated from month to month.
For cards with debt fixation during the grace period.
Basically, credit cards with such a debt accounting scheme are issued with a long grace period of 100 days or more. And grace periods come one after another. Although there are exceptions, for example, MTS Bank credit cards.
These cards are best used at the beginning of the grace period. For example, you can pay for your vacation or a major purchase. This is how you get the most out of your card.
When choosing such a card, pay attention to when the grace period begins to count. From the 1st of the month or date of the first purchase.
For your funds, which will be used to pay off debt on this card in the future, it is better to choose a savings account or a deposit with a maximum rate. Since your funds will be on the account for 3 or more months, the issue of the interest rate on the account will not be unimportant.
When the payment date comes up, you transfer the necessary amount to the credit card account.
When using cards with a long grace period, it is important to plan your personal or family budget, as this will make it easier to understand what transactions should be carried out on this card.
Is the game worth the candle?
It may seem to many that the amount of accruals on savings accounts will be small. And they will ask the question: is the game worth the candle? We can say with confidence that it is worth it!
Firstly, this is how we develop our financial skills. Secondly, we improve our personal qualities, such as self-control, and also develop memory. After all, we need to remember which card and for which purchases we need to use. This is a great memory trainer and absolutely free. True, with financial punishment for forgetfulness in the form of a reduced cashback payment when paying for a purchase with the wrong card. Thirdly, we create a source of passive income. Let it slowly, but it fills our piggy bank and increases our capital. In other words, the rate of capital accumulation increases.
A financially literate person will never miss a chance to make money, and even on other people’s money, and at the same time for free.
Close the map
The issue of closing a credit card is also important. There is a situation when you need to close a credit card, for one reason or another. For example, a card came out with more attractive conditions, or you need to reduce your creditor burden in order to get a loan.
In most cases, you cannot do without visiting the bank office, since only card blocking is available in the mobile application. At the bank, you will need to write an application to close your credit card and account. Be sure to close the account so that it does not appear anywhere.
Before making a visit to the bank, make sure that you have paid off all the debt on the card.
Please note that the credit card and account will be closed within 45 days, usually. This means that you will see the card in your personal account and mobile application throughout this period. Also, information on these credit cards, that they are active, will be displayed in your credit history until they are actually closed.
We recommend that you remove this card from all payment applications to avoid accidental payments with this card. In case of payment, the card will become active again and you will have to repeat the whole procedure again.
Banks may leave the card itself with you, so the physical destruction of the card will fall on your shoulders. It is enough to cut it into thin strips along the entire length or width of the card.
An example of using maps
So, let’s look at how you can use these cards to your advantage.
Paying for purchases with a credit card
For example, let’s take an ordinary family of 3 people. Suppose their total monthly expenses are 60’000.00 🪙. The table shows family expenses by category.
As you know, depending on the category, banks pay different cashback. The table below summarizes all expenses by category and bank cards, indicating the percentage of cashback.
Let’s calculate the income that the family will receive from the use of cards. By paying utility bills with a card from Vostochny Bank, the family will earn 300 points, with which they will later compensate for the expenses incurred. That is, it will turn them into real money.
Paying with the MTS Bank card in grocery stores and gas stations, the family will accumulate points that will be used to pay for mobile communications next month, but only MTS. Thus, next month the family will convert the points into real money, since the funds included in the family communication budget will not be spent.
And so on for each item of expenditure. For simplicity, all possible earnings are presented in the table below.
Thus, the family will receive an additional 2’192.00 points and 575.00 🪙 within a month. Points will later be converted into real money.
Plus, do not forget about the interest that the family will receive for finding money in a savings account. 60’000.00 at 5% per annum gives 250 🪙 per month.
The result is 3’017.00 🪙. And this is the passive income of the family, which she receives for her usual expenses. And all you need to do is start keeping a family budget and manage your expenses.
Discover the world of finance for yourself
There are other equally interesting credit cards from other banks. We did not set ourselves the goal of reviewing them all. We suggest you do it yourself, according to the tasks that you want to solve with their help.
With a family budget and the right approach to choosing a credit card, you can easily determine those cards that are right for you and for your purposes.
Correctly and competently using credit cards, you can not only increase the rate of growth of your capital, but also live a full life without limiting yourself, have fun with your family and relatives.
We examined what a credit card is in simple words. And now, you know how to use a credit card with a grace period of 50 days and make money on it.