Saturday, October 30, 2010

Credit cards can make money for you

Credit cards can make money for you

Use the bonus points that have accumulated on buying necessities (house hold appliances, clothes, groceries etc.) rather than using it on things (luxuries) that aren’t really important to you. Only if the bonus points are used practically, you are actually saving cash because had to now have the bonus points, you would have to anyways spend cash on buying the same.

Credit cards of late have a negative connotation, and are pronounced as complete no-no by many, because of the high interest rates that are charged on late payments/defaults. Don’t let this negativity cloud perception of the product. You would be surprised to know that, if you are judicious in using this product, you stand to benefit monetarily, and of course it eliminates the need for you to carry cash everywhere.

More often than not the problem is that people do not understand the product well and hence are not able to use it to their advantage.

The credit card company offers you a ‘free credit period’ of around 50-55 days. The misconception most people have is that this free credit period is from the date of purchase. It is actually from the date of billing. E.g. Mr. Anand billing cycle date is 28th of December to 27th of Jan and his credit free period is 50 days. If his purchase was on 22nd Jan, he would enjoy credit for 25 days. However if he made the same purchase on say 01st Jan, he would enjoy credit free period of 47 days.

So if you plan properly, you can enjoy maximum credit every month, which will help you manage your cash flows effectively, and will also help you earn the extra bit of interest on the cash that you have currently not spent on making the purchase.

In addition to the free credit period, every purchase made on your credit card, earns you reward points which when accumulated to a big amount can be exchanged for a range of items such as electrical appliances, flight tickets, home ware etc. These rewards will differ from company to company. Also credit card companies offer discounts, promotional offers with respect to shopping, entertainment etc. E.g If you buy petrol from a particular brand of petrol pumps, you get a small percentage of money credited back to your account after a certain number of days.

For the credit card to make money for you, two key things you need to keep in mind

Cost of Default:

The interest rate on defaults ranges from anywhere between 2%-3.5% per month. So in effect it is a whopping 24%-42% p.a. Also, the interest starts from the date of purchase and not the billing date i.e. you do not get any interest-free credit period and all future purchases also start attracting the interest charges from the date of purchase.

So use the credit card if and only if you’re sure of having the means to pay the bills in time. Also, don’t forget that your credit score will get impacted too which will impact your future borrowing.

Credit Limit:

Keep a tab on your credit limit. Overshooting your credit limit will also have dire consequences for you with respect to the interest charged and your credit score.

How do you ensure that your credit card makes money for you?
 Widen the usage of your credit card (small and big purchases): You might as well earn bonus points and interest on the cash that you have not currently used, to make the purchase. You can use the credit card to pay monthly rentals, grocery bills, utility bills, gift expenses, subscription expenses etc. So the cash that you have not used to make the purchase will earn interest for you or will be used for fulfilling other immediate needs. E.g. Maitali purchased an electrical appliance for Rs. 28,000 using the credit card she possessed.

The purchase was made such that she could enjoy a credit free period of 45 days. The cash that she would have used to purchase this appliance is now lying in her savings account which is earning her an interest of 3.5% p.a. So if she decides to pay the bill after enjoying 40 days of free credit, she earns an interest of Rs. 107 in her savings bank account. Not only that, she has also earned some reward points on the purchase. The other advantage of using the credit card is your payments are recorded which makes it easier for you to keep track of your expenses.

Appropriate use of bonus points:

Use the bonus points that have accumulated on buying necessities (house hold appliances, clothes, groceries etc.) rather than using it on using it on things (luxuries) that aren’t really important to you. Only if the bonus points are used practically, you are actually saving cash because had to now have the bonus points, you would have to anyways spend cash on buying the same.


Credit cards if used prudently will help you in managing your cash flow better, and at the same time, will provide you monetary benefits. That’s because you get interest free money for some period of time and you also earn reward/bonus points on the same.
But if you use it without deliberation, it can prove to be disastrous as interest rates charged on payment delays are very high. Also, your credit rating will take a beating, as banks report these things to the credit rating agencies, which in turn will include it as part of your credit report.

Don’t forget that credit score will not only determine whether you will get a loan but will also determine at what interest. Let not easy availability of credit and attractive rewards offered fool you into making impulsive purchases. It will prove to be rather costly.

The Two Choices We Face

The Two Choices We Face

Each of us has two distinct choices to make about what we will do with our lives. The first choice we can make is to be less than we have the capacity to be. To earn less. To have less. To read less and think less. To try less and discipline ourselves less. These are the choices that lead to an empty life. These are the choices that, once made, lead to a life of constant apprehension instead of a life of wondrous anticipation.

And the second choice? To do it all! To become all that we can possibly be. To read every book that we possibly can. To earn as much as we possibly can. To give and share as much as we possibly can. To strive and produce and accomplish as much as we possibly can. All of us have the choice.

To do or not to do. To be or not to be. To be all or to be less or to be nothing at all.

Like the tree, it would be a worthy challenge for us all to stretch upward and outward to the full measure of our capabilities. Why not do all that we can, every moment that we can, the best that we can, for as long as we can?

Our ultimate life objective should be to create as much as our talent and ability and desire will permit. To settle for doing less than we could do is to fail in this worthiest of undertakings.

Results are the best measurement of human progress. Not conversation. Not explanation. Not justification. Results! And if our results are less than our potential suggests that they should be, then we must strive to become more today than we were the day before. The greatest rewards are always reserved for those who bring great value to themselves and the world around them as a result of who and what they have become.

Super-rich investors buy gold by tonne

The world's wealthiest people have responded to economic worries by buying gold by the bar -- and sometimes by the tonne -- and by moving assets out of the financial system, bankers catering to the very rich said on Monday.

Fears of a double-dip downturn have boosted the appetite for physical bullion as well as for mining company shares and exchange-traded funds, UBS executive Josef Stadler told the Reuters Global Private Banking Summit. "They don't only buy ETFs or futures; they buy physical gold," said Stadler, who runs the Swiss bank's services for clients with assets of at least $50 million to invest.

UBS is recommending top-tier clients hold 7-10 percent of their assets in precious metals like gold, which is on course for its tenth consecutive yearly gain and traded at around $1,314.50 an ounce on Monday, near the record level reached last week. "We had a clear example of a couple buying over a tonne of gold ... and carrying it to another place," Stadler said. At today's prices, that shipment would be worth about $42 million.

Julius Baer's chief investment officer for Asia is also recommending that wealthy investors park some of their assets in gold as a defensive stance following a string of lackluster U.S. data and amid concerns about currency weakness. "I see gold as an insurance," Van Anantha-Nageswaran said. "I recommend 10 percent as minimum in portfolios and anything more than that to be used for trading purposes, to respond to short-term over-bought or over-sold signals."

Ultimate Bubble?

Billionaire financier George Soros, echoing comments from investment guru Warren Buffett, last month described gold as the "ultimate bubble" because it is costly to dig up and has no real value except its market price. But a rising price for the precious metal has in itself generated more and more demand from investors looking for a way to hedge against a fresh recession. Gold bears no yield and is uncompetitive in an environment of rising interest rates.

The uneasy outlook for inflation, hard currencies and global growth has triggered a five-fold increase in a physical gold fund launched by Pictet one year ago, the Swiss private bank said.  UBS's Stadler said the precious metal has become a staple of investors' portfolios, despite questions about whether it makes for a smart long-term investment. "If you talk to ultra-high net worth individuals, that level of uncertainty has never been higher in the last two, three, four years," he said. "If they ask me, 'Is inflation going up or are we entering a deflationary cycle?,' I don't know. But obviously nobody knows."

Anthony DeChellis, managing director of Credit Suisse's Americas private banking unit, said at the Reuters summit in New York that clients are more interested in capitalizing on the rise in gold prices than using the precious metal as a safe-harbor investment. "They're asking, 'If it's a bubble, how far can I ride that bubble,'" he said. "I cannot say we've seen a spike in gold interest, but there's an interest in the phenomenon of it."

Samir Raslan, Citigroup Inc's regional head for central, eastern and northern Europe, Africa and Turkey, said clients were not going overboard on gold. "I wouldn't say that clients are over-investing. It's part of an asset allocation, but it's not something that they are deciding all of a sudden," he said. And not all bankers are recommending exposure to gold. Andreas Wolfer, head of private banking at UniCredit Group, attributed the run-up in the price of gold to frayed investor nerves after the 2008 financial crisis as well as concerns about sovereign debt in the euro zone.

"We have seen it but we have not overweighted it in our asset allocation," Wolfer told the Reuters summit in Geneva, which has emerged as a major trading hub for precious metals as well as other physical commodities. "We strongly believe in an asset allocation having a clear and diversified portfolio, which sounds a bit boring but in the end it brings the best returns," Wolfer said.