Saturday, 2 August 2014

4 Steps to Choosing the Best Credit Card

  If you have read my post on the 5 Reasons Why Credit Cards Are A Hassle, you will understand why I finally decided that enough was enough - it was time for my credit cards and I to part ways!

  From a total of 12 credit cards, 3 debit cards and 3 ATM cards, I now have 11 cards. While that's still more cards than card slots I have in my wallet and far more than I am willing to carry when I go out...I would say it's a start.

  So, how do you choose the best credit cards to cut/keep?

Step 1:  Consider your Lifestyle

  What do you do in your free time? What are your large expenses? Do you have a car? The credit cards out there seem to fall into a few categories - reward cards, miles cards and cash back cards. Depending on your lifestyle and spending habits, choose the type of card that offers the most.

  For example, a family will mainly incur grocery and petrol expenses, which are spending categories expressly targeted by cash back cards. Those who prefer fine dining and shopping may prefer reward cards, which offer points that can be redeemed for retail vouchers (more spending!).

  Think about what kind of lifestyle you lead and only keep the cards you need.

Step 2:  Consider the Credit Card Benefits

  Be it a rewards card or a cash back card, the features are invariably similar. Take some time to look through the type of rewards, redemption points required for rewards, spending tiers and cash back amounts offered by each card - which is most rewarding given the amount you spend each month?

  For example, I may choose to have 3 cash back cards for petrol expenses, grocery spending and infrequent big ticket items after considering cash back rates by different cards for different categories of expenses and spending tiers imposed by each card. 
Assuming I spend $300-$350 on petrol and $400 on groceries
Card X gives me a $30 cash back each quarter for spending $300-$799 each month. While a $30 cash back on my petrol expense over 3 months translates to a 2.8% to 3.33% rebate. Instead of using Card X for my grocery expenses, which will not increase the amount of cash back I receive for the quarter (next tier of $800 has not been met), I choose to charge grocery expenses to Card Y.
 Card Y offers me a 5% cash back on grocery spending in all supermarkets, with a minimum monthly spending of $400. In total, I will have cash back of $50 (6.6%) on my expenses of $750.
I reserve large purchases or spending e.g. renovation works for Card Z, which offers up to 3% cash back capped at $200 each quarter on high spending and imposes no restriction on the nature of spending. Such expense types invariably only qualify for cash backs of 0.5% to 1%.

Step 3:  Consider the Benefits to Supplementary Card Holders

  You may choose to keep reward and cash back cards not suited to your lifestyle or spending habits, yet are suited to your supplementary card holders e.g. parents, spouse who may be doing the grocery shopping for the family, or who may enjoy the credit card discounts on petrol.

Step 4:  Ease of Annual Fee Waiver

  Ultimately, whether or not you use the cards, credit card companies start charging annual fees - which can be waived upon request. However, the process of putting through such requests vary between the companies. Personally I prefer credit card companies that offer an option for fee waiver in their phone menu, instead of having a call center personnel taking down my request and submitting it through the system to another team for processing - the less hassle the better.
  Alternatively, I've heard that certain companies can set it up such that annual fees are waived for good - upon specific request/threats only.

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