Everybody cautions users about plastic money and debt traps, but if used intelligently, you could reap many benefits
When they picked London as the destination for their summer holiday this year, Nina and Rajiv Malhotra had a plan in mind. They wanted to fly business class, stay in luxury hotels and have a blast in London, but they also were sure about keeping the trip a low budget affair.
“It was a grand plan, but with meticulous planning it all fell into place,” says Rajiv, “most vacation plans start with saving months in advance, but ours started with spending. This might sound crazy but really what worked for us was transferring all our everyday expenses to our credit cards. This gave us enough reward points to convert them into Asia miles and get free tickets to London!”
All expenses paid:
Almost eight months in advance, they started using their credit card for everything, right from groceries, electricity bills, phone bills, insurance premiums, petrol bills and even donation to charities. Rajiv, who owns a furniture business, also used his card to pay his business expenses like procurement of material and company rent. In addition they planned their outings and eat outs after looking at the partner schemes their card company offered.
“We used to eat at only those hotels that had a tie up with our bank. This way our reward points got doubled. Similarly, for all our domestic travel we stuck to the online booking sites that our bank had a tie up with, this bumped up our points in a big way,” says Rajiv.
The most important part of the plan, however, was to instantly write a cheque to the bank for all the money spent, thus avoiding the debt trap. “This way, we were spending exactly what we would have spent in our daily lives, except that by making sure we used only plastic to pay, we piled up enough reward points to get free tickets,” says Rajiv.
The Malhotras’ case is an interesting example which only goes to prove that contrary to popular belief that ‘plastic is a source of all evil for the household economy’, if used wisely and with diligence, a credit card can in fact fetch you handsome rewards.
Look for tie-ups:
Subtleties are important, however. For instance, if you have an airline’s frequent flier privilege card, then go with a credit card that has a tie up with that airline. This way, each purchase will work toward your free ticket. Santosh Sawant, a software professional in Mumbai, uses his personal card for all his official travel, and then claims reimbursement from the company. “This way, it’s double gain for me. I stock up my reward points for the money I don’t even have to pay.”
Looking out for partners is indeed an intelligent way to double up your reward points. In fact, you can even combine your credit card reward points with loyalty points that the merchant establishments offer and quadruple your money like Radhika Raina from Mumbai did.
Shopper’s Stop has a tie-up with Citibank that offers bonus reward points if you pay for your shopping using Citi card. In addition, Shopper’s Stop also runs a separate loyalty card offer of their own. What Raina did was simply: she redeemed her reward points to get Shoppers Stop vouchers, which she combined with her loyalty points, thus quadrupling her money.
Cash prize:
If you don’t want to get into the hassle of having to claim the reward points, there are cards that offer you cash instead. Several banks offer cash back schemes that could get you up to 5% cash back on every purchase.
Divya Kapoor, a Mumbai resident, manages to pay off her credit card bills every few months simply by using the cash back offer on her card. “I find it very convenient to be able to adjust my bills against my cash back,” she says.
Time the billing cycle:
But financial planner Kartik Jhaveri, director of Transent Consulting India, has a better idea to get an extra bonus to rewards from your cards. “In addition to reward points, your card can make you good amount of money if you manage your billing cycles right,” he says. All cards come with a free credit period that usually ranges from 30 to 55 days, depending on the type of credit card and the issuing bank. In effect, this free credit period means that you can actually utilise other people’s money free of cost.
“This works best when you do large purchases and time them really well,” says Jhaveri. So, for instance, if you are buying an expensive LCD, make sure that you buy it right at the beginning of a new billing cycle. This way you can use that much money for almost 55 days, invest it in some liquid funds and make a decent profit.
Transferring your balance to another card, if you own one, just before the billing date to avail of a higher free credit period or lower interest rate on the second card, is a good idea too. Because this way you can earn good reward points as well as save on high interest charges.
Some caveats:
But all is not hunky-dory in the world of reward points, there are plenty of loopholes too says Suresh Sadagopan, chief planner, Ladder 7 Financial. For example, when using the bill pay facility, one should also look for any hidden charges, as banks have different rules governing their credit card services. Pay attention to the fine print when you sign up for perks such as addon insurance policies, says Sadagopan. “There are some funny clauses there. For instance, for many banks, to claim a travel accident insurance, you’d have to prove that you bought the tickets using that particular credit card.” Also, some people get lured by the reward points and spend money recklessly. “So you might make a few points, but remember, you still have to pay the bank what you spent in the first place,” he adds.
Of course, if you are not an organized person, simply avoid using plastic. Because if you don’t pay the dues within the free credit period, you will be charged interest as high as 2.95% per month for the outstanding amount. This adds up to a whopping 35.4% per annum, which doesn’t even hold a candle to the money you make using the reward points or investment planning!
When they picked London as the destination for their summer holiday this year, Nina and Rajiv Malhotra had a plan in mind. They wanted to fly business class, stay in luxury hotels and have a blast in London, but they also were sure about keeping the trip a low budget affair.
“It was a grand plan, but with meticulous planning it all fell into place,” says Rajiv, “most vacation plans start with saving months in advance, but ours started with spending. This might sound crazy but really what worked for us was transferring all our everyday expenses to our credit cards. This gave us enough reward points to convert them into Asia miles and get free tickets to London!”
All expenses paid:
Almost eight months in advance, they started using their credit card for everything, right from groceries, electricity bills, phone bills, insurance premiums, petrol bills and even donation to charities. Rajiv, who owns a furniture business, also used his card to pay his business expenses like procurement of material and company rent. In addition they planned their outings and eat outs after looking at the partner schemes their card company offered.
“We used to eat at only those hotels that had a tie up with our bank. This way our reward points got doubled. Similarly, for all our domestic travel we stuck to the online booking sites that our bank had a tie up with, this bumped up our points in a big way,” says Rajiv.
The most important part of the plan, however, was to instantly write a cheque to the bank for all the money spent, thus avoiding the debt trap. “This way, we were spending exactly what we would have spent in our daily lives, except that by making sure we used only plastic to pay, we piled up enough reward points to get free tickets,” says Rajiv.
The Malhotras’ case is an interesting example which only goes to prove that contrary to popular belief that ‘plastic is a source of all evil for the household economy’, if used wisely and with diligence, a credit card can in fact fetch you handsome rewards.
Look for tie-ups:
Subtleties are important, however. For instance, if you have an airline’s frequent flier privilege card, then go with a credit card that has a tie up with that airline. This way, each purchase will work toward your free ticket. Santosh Sawant, a software professional in Mumbai, uses his personal card for all his official travel, and then claims reimbursement from the company. “This way, it’s double gain for me. I stock up my reward points for the money I don’t even have to pay.”
Looking out for partners is indeed an intelligent way to double up your reward points. In fact, you can even combine your credit card reward points with loyalty points that the merchant establishments offer and quadruple your money like Radhika Raina from Mumbai did.
Shopper’s Stop has a tie-up with Citibank that offers bonus reward points if you pay for your shopping using Citi card. In addition, Shopper’s Stop also runs a separate loyalty card offer of their own. What Raina did was simply: she redeemed her reward points to get Shoppers Stop vouchers, which she combined with her loyalty points, thus quadrupling her money.
Cash prize:
If you don’t want to get into the hassle of having to claim the reward points, there are cards that offer you cash instead. Several banks offer cash back schemes that could get you up to 5% cash back on every purchase.
Divya Kapoor, a Mumbai resident, manages to pay off her credit card bills every few months simply by using the cash back offer on her card. “I find it very convenient to be able to adjust my bills against my cash back,” she says.
Time the billing cycle:
But financial planner Kartik Jhaveri, director of Transent Consulting India, has a better idea to get an extra bonus to rewards from your cards. “In addition to reward points, your card can make you good amount of money if you manage your billing cycles right,” he says. All cards come with a free credit period that usually ranges from 30 to 55 days, depending on the type of credit card and the issuing bank. In effect, this free credit period means that you can actually utilise other people’s money free of cost.
“This works best when you do large purchases and time them really well,” says Jhaveri. So, for instance, if you are buying an expensive LCD, make sure that you buy it right at the beginning of a new billing cycle. This way you can use that much money for almost 55 days, invest it in some liquid funds and make a decent profit.
Transferring your balance to another card, if you own one, just before the billing date to avail of a higher free credit period or lower interest rate on the second card, is a good idea too. Because this way you can earn good reward points as well as save on high interest charges.
Some caveats:
But all is not hunky-dory in the world of reward points, there are plenty of loopholes too says Suresh Sadagopan, chief planner, Ladder 7 Financial. For example, when using the bill pay facility, one should also look for any hidden charges, as banks have different rules governing their credit card services. Pay attention to the fine print when you sign up for perks such as addon insurance policies, says Sadagopan. “There are some funny clauses there. For instance, for many banks, to claim a travel accident insurance, you’d have to prove that you bought the tickets using that particular credit card.” Also, some people get lured by the reward points and spend money recklessly. “So you might make a few points, but remember, you still have to pay the bank what you spent in the first place,” he adds.
Of course, if you are not an organized person, simply avoid using plastic. Because if you don’t pay the dues within the free credit period, you will be charged interest as high as 2.95% per month for the outstanding amount. This adds up to a whopping 35.4% per annum, which doesn’t even hold a candle to the money you make using the reward points or investment planning!
