Are you a credit card super-user?
There are four different types of credit card users, which one are you?
Credit cards are widely established globally. They have been around for a long time. To apply for and get one is very simple, almost too simple in some instances. Given the market penetration of the credit card product, it is well worth speaking about them. In this article I discuss the matter from the vantage point of four types of credit card users:
1. Those that simply refuse to have a credit card and thus only use cash or debit cards;
2. Those that rack up credit card debt over multiple cards and find themselves caught in a debt trap;
3. Those that use credit cards as a convenience; and
4. The credit card super-users.
There are some people who, as a matter of principal, refuse to use credit cards and go the route of cash or debit cards. Typically, this is out of a previous experience of large credit card debts or the fear of ending up in that scenario. This is a conservative approach and if you are prone to the temptation then stick to it although it’s worth continuing to read further. Unfortunately, there are often costs or inconveniences you suffer as a result of not using a credit card, these being cash withdrawal fees or the inconvenience of having to visit an ATM. A more plausible option would probably be to use a debit card; however, a debit card usually comes with fees attached. If you are the type of person who is acting cautiously given your knowledge of your own personality then some additional costs and inconvenience are well worth it compared to the possibility of ending up in a debt trap as a result of the credit card.
For the next category of credit card users, this product can be a financial disaster. The debt trap is all too easy to fall into with a credit card.
The small plastic rectangle abstracts away the sense of actual money changing hands.
It becomes all too simple to spend money that you don’t have, often on frivolous things which could quickly rack up thousands in debt. To add fuel to the fire, credit card debt carries a very high interest rate which becomes an ever-increasing challenge to repay both the interest and outstanding capital. Should you be in this situation almost every advisor will suggest paying this debt off as quickly as possible. For many this is very difficult and will take great discipline and time.
For many, the credit card is a matter of convenience and is used in a prudent manner. At each statement date they repay the outstanding balance in full thus sticking to a budget. They enjoy the convenience of swiping the card and the safety of not having to carry cash around. They would typically be aware of the useful items such as travel insurance that’s included when paying for flights with a credit card etc. Most will also bear in mind that a line of credit is available to them should an emergency arise. These credit card users are using the product prudently and deriving a modicum of value therefrom.
An extension of the prudent user described in the paragraph above is what I call the super-user. The super-user takes the basics applied by the prudent user and optimizes all the credit card benefits available. Credit cards, more often than not, come with a wide range of rewards schemes. These rewards differ from country to country and from card to card. The super-user is very well aware of these rewards schemes and understands how to maximize the benefits offered. They are also aware of the terms and conditions applicable to the various cards — one being the interest free period which is another opportunity to derive a benefit. The super-user is constantly on the lookout for new cards with special sign-on bonuses and the like. In short, by applying some focus, free flights and cheaper hotel accommodation or other financial rewards are available.
Each country offers many different types of credit card, each with their own associated rewards programs. One merely needs to do some internet searching in your specific region or jurisdiction to get more information. Even by applying a small amount of effort to look into the various credit cards and a possible tweak to your routine could add up to big rewards for yourself over time.
