If you make it a point to understand how credit cards work and exercise the right kind of restraint, you can save – or even earn – significant amounts of money in the long run.
cardholders enjoy free unlimited airport lounge access, with bonus nights at hotels worldwide, free limo transfers as well as golfing privileges. It also offers excellent rates, at 1.3 miles for every S$1 local spend, with a 25,000 bonus miles annually. However, the drawback would be that this card is designed for the more affluent spender, with high annual fees and annual income requirements.
Credit card companies pay for rewards with revenue from two main sources: you, and the merchants who accept their cards. You are likely aware of your contribution. Remember the annual fees and the high-interest rates if you default on your credit card debt? Yes, credit card companies earn their revenues through these.
But most consumers don’t know about the fees that retailers pay card issuers behind the scenes. These fees, called interchange fees, are set by credit cards processing networks like Visa and MasterCard to cover both the risk and cost of processing credit card payments.Interchange fees generate billions of dollars in revenue. For instance, American Express collected $6.6 billion in fees from merchants in the second quarter of 2019. In the same quarter, cardholder rewards cost the company just $2.
The bottom line is this: if you are not using a credit card for purchases, you are actually losing out by paying for people who do use credit cards. Compounded with the cashbacks and other benefits you might be getting, getting a credit card is indeed crucial in helping you save your finances when adulting.The word ‘credit’ lends a clue to the nature of credit cards: they are essentially pre-approved loans.
So are credit cards for everyone? If you are earning a stable income, prompt on your bills and want to accumulate savings and benefits as you spend, then go for it! Otherwise, it might be better to hold off until you are in a better financial position to do so.to learn more about loans, insurance and savings accounts.