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Old 11th February 2008, 13:31   #1
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Default How to use Credit cards smartly

Thread demerged from "Credit card issues"

I have figured out a smart way of using CC.
Step 1- Get a free for life CC. For eg., if you are an ICICI savings acc holder, you will be offered at least a Titanium card which is lifetime free and no fuel surcharge at any petrol pump.
Step 2- Pay using CC when you can pay by cash. For example, petrol/diesel fillups, mobile/internet bills etc etc.
Step 3- Make a rough estimate of your expenses beforehand, and invest that amount at the beginning of the month in some Debt/Liquid fund (which has zero entry and exit loads, and can be done in a jiffy using ICICIdirect etc).
Supposing i know that i am going to spend roughly 10k on my expenses on CC, then invest 10 k in a liquid fund.
Step 4- When the CC statement comes, redeem your debt fund 3-4 days before the due date of CC payment, and pay the amount before due date.

This way, you not only gain reward points (which you can use to purchase/get free useful stuff), you also pay less (the interest you earn on debt fund for 1 month).

Hows that?

Last edited by DCEite : 12th February 2008 at 17:29.
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Old 11th February 2008, 14:15   #2
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Pretty good if you can avoid all temptations, dear Adam
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Old 11th February 2008, 14:20   #3
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Originally Posted by DCEite View Post
I have figured out a smart way of using CC.
Hows that?
Thought I was the only one doing all this stuff .. One thing to watch out for is that if your credit card bill spend is over 2 lakhs per annum, it will appear in the AIR sent by the bank to the Income Tax department! No harm in that, but you will have to mention this figure in you tax return.
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Old 11th February 2008, 14:38   #4
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Originally Posted by DCEite View Post
I have figured out a smart way of using CC.
Step 1- Get a free for life CC. For eg., if you are an ICICI savings acc holder, you will be offered at least a Titanium card which is lifetime free and no fuel surcharge at any petrol pump.
Step 2- Pay using CC when you can pay by cash. For example, petrol/diesel fillups, mobile/internet bills etc etc.
Step 3- Make a rough estimate of your expenses beforehand, and invest that amount at the beginning of the month in some Debt/Liquid fund (which has zero entry and exit loads, and can be done in a jiffy using ICICIdirect etc).
Supposing i know that i am going to spend roughly 10k on my expenses on CC, then invest 10 k in a liquid fund.
Step 4- When the CC statement comes, redeem your debt fund 3-4 days before the due date of CC payment, and pay the amount before due date.

This way, you not only gain reward points (which you can use to purchase/get free useful stuff), you also pay less (the interest you earn on debt fund for 1 month).

Hows that?
OMG... you really figured out a smart way indeed bud! Only that you made it sound like an accounting and book keeping problem! haa haa haaa... arrey yaar, you do not need to do all that circus.

I have used the cards since donkeys years I would say. One simple funda. Do not spend because you have the card. Spend only what you would otherwise also if the card was not there. Only that while paying pay using the credit card. I never ever pay by cash if there is a card option available. And no. It has nothing to do with the points either (which have by the sackfulls anyhow). I do it simply because in this day and age when nothing comes free and even if you wish to take a day's loan from the market you pay a good interest on it the CC co. lets you use their money for a month or more, completely free. Thats smart usage of money.

The day the money falls due I pay back in full. Because I never ever will pay a single paisa interest. That beats the whole purpose of using cards. And by the way I carry a good few cards. And while paying I always use the card which from that day will give me at least a month to pay back. I generally have different billing dates spread all over the month for these cards. So that helps.

And by the way I do not put the money in any debt account either.
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Old 11th February 2008, 14:39   #5
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Quote:
Originally Posted by DCEite View Post
This way, you not only gain reward points (which you can use to purchase/get free useful stuff), you also pay less (the interest you earn on debt fund for 1 month).

Hows that?
Hey DCEite

Thats really a smart way, but tell me, on an average how much returns would these debit funds give in say about a month or so?

satish
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Old 11th February 2008, 14:45   #6
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And by the way I do not put the money in any debt account either.
Its better to do that since that will give you better returns than keeping your money in regular savings acc.
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Old 11th February 2008, 14:46   #7
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Quote:
Originally Posted by DCEite View Post
I have figured out a smart way of using CC.
Step 1- Get a free for life CC. For eg., if you are an ICICI savings acc holder, you will be offered at least a Titanium card which is lifetime free and no fuel surcharge at any petrol pump.
Step 2- Pay using CC when you can pay by cash. For example, petrol/diesel fillups, mobile/internet bills etc etc.
Step 3- Make a rough estimate of your expenses beforehand, and invest that amount at the beginning of the month in some Debt/Liquid fund (which has zero entry and exit loads, and can be done in a jiffy using ICICIdirect etc).
Supposing i know that i am going to spend roughly 10k on my expenses on CC, then invest 10 k in a liquid fund.
Step 4- When the CC statement comes, redeem your debt fund 3-4 days before the due date of CC payment, and pay the amount before due date.

This way, you not only gain reward points (which you can use to purchase/get free useful stuff), you also pay less (the interest you earn on debt fund for 1 month).

Hows that?
Exactly what I do as well DCEite.

Quote:
Originally Posted by spadival View Post
Thought I was the only one doing all this stuff .. One thing to watch out for is that if your credit card bill spend is over 2 lakhs per annum, it will appear in the AIR sent by the bank to the Income Tax department! No harm in that, but you will have to mention this figure in you tax return.
@ Spadival: One must not be concerned if you are a law abiding citizen, i.e. a salaried employee. You can't run, you can't hide.
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Old 11th February 2008, 14:51   #8
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Hey DCEite

Thats really a smart way, but tell me, on an average how much returns would these debit funds give in say about a month or so?

satish
Well, there is no sure shot way to make money. But, on an average, in the last 1-2 years, an average liquid fund has returned 7-8% per annum and shoprt-term debt funds will get you anything between 7-9% per annum on average.

Its a better way than say parking surplus cash in bank FD's as most banks (if not all) penalise you for a pre-mature withdrawl. Moreover, short-term FD's (15-60 days) don't pay more than 5-6% on average.
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Old 11th February 2008, 14:54   #9
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In UK, its even better.. stiff competition means banks routinely offer 6 month's interest free competitor Balance transfer to attract new customers.. My friend had like 12 odd cards and he managed a sizable 6 month's interest free loan by shifting his balance from one card to the next
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Old 11th February 2008, 14:56   #10
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OMG... you really figured out a smart way indeed bud! Only that you made it sound like an accounting and book keeping problem! haa haa haaa... arrey yaar, you do not need to do all that circus.

I have used the cards since donkeys years I would say. One simple funda. Do not spend because you have the card. Spend only what you would otherwise also if the card was not there. Only that while paying pay using the credit card. I never ever pay by cash if there is a card option available. And no. It has nothing to do with the points either (which have by the sackfulls anyhow). I do it simply because in this day and age when nothing comes free and even if you wish to take a day's loan from the market you pay a good interest on it the CC co. lets you use their money for a month or more, completely free. Thats smart usage of money.

The day the money falls due I pay back in full. Because I never ever will pay a single paisa interest. That beats the whole purpose of using cards. And by the way I carry a good few cards. And while paying I always use the card which from that day will give me at least a month to pay back. I generally have different billing dates spread all over the month for these cards. So that helps.

And by the way I do not put the money in any debt account either.
@ Zappo: Your point addresses an altogether different question. I agree with you but we are not talking about prudent spending or preventing the urge to spend more than you can afford to pay back. DCEite's method is designed to give you the maximum bang for your buck.

Do you agree DCEite?
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Old 11th February 2008, 15:04   #11
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Originally Posted by nkapoor777 View Post
DCEite's method is designed to give you the maximum bang for your buck. Do you agree DCEite?
Yup. Absolutely.

Zappo, you need to read my post again.

Last edited by DCEite : 11th February 2008 at 15:08.
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Old 11th February 2008, 15:47   #12
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Originally Posted by DCEite View Post
Its better to do that since that will give you better returns than keeping your money in regular savings acc.
Quote:
Originally Posted by nkapoor777 View Post
@ Zappo: Your point addresses an altogether different question. I agree with you but we are not talking about prudent spending or preventing the urge to spend more than you can afford to pay back. DCEite's method is designed to give you the maximum bang for your buck.

Do you agree DCEite?
nkapoor. I take it that DCEite is actually sounding out an idea, but you said you do exactly this. So essentially you are saying that
* every month you calculate before hand how much money you are going to spend on the card.
* you put that money in a debt fund.
* when the bill comes in, which will typically be 12-18 days max from the date of spending you again encash your investment.

Hmmm... amazing I must say. I have never ever heard this approach to financial handling. And I actually used to thing I know a few things about money markets and investments.

So nkapoor, considering that you are talking about getting back the maximum bang for your bucks, till date what would you say is the maximum return you have got in any such investment from a debt fund in between the day you spent on a card and the day the bill was generated?
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Old 11th February 2008, 16:09   #13
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So nkapoor, considering that you are talking about getting back the maximum bang for your bucks, till date what would you say is the maximum return you have got in any such investment from a debt fund in between the day you spent on a card and the day the bill was generated?
Its pretty simple brother.

Let's assume your average monthly spend is Rs. 20,000 per month. You get your salary credited on the 1st of every month and let the money payable to your credit card company sit idle in your bank account. You earn zilch on that, as interest in your savings account is calculated at the lowest balance at any given time in that month.

Now, what I do goes like this:

I invest Rs. 20,000 at the start of every month in a liquid fund or short-term debt fund with no entry/exit load. For simple calculation, let's assume I pay my credit card bill on the 25th of every month. Adjusting for weekends and other holidays, I sell my investment on the 20th of every month. At an average rate of 8% per annum, I would make the following money every month:

Rs. 20,000 * 8% * 20/360 = Rs. 90 every month or Rs. 1,066 every year, if the same strategy is implemented consistently every month in a given year.

Even if you take out the Capital Gains Tax, assuming you come under the highest tax bracket (30.36%), you would end up making a cool Rs. 700 every year for this float.

And, needless to say, the more your bill, the merrier you would be, as the return on your float will be correspondingly higher.

Oh! one more thing, I am not taking into account the ultimate benefit of enjoying free credit for anything between 01-52 days.

Try it brother, it will work.

Disclaimer: I am not doubting your knowledge or capabilities with the money market and investments.

Last edited by nkapoor777 : 11th February 2008 at 16:12.
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Old 11th February 2008, 16:09   #14
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So nkapoor, considering that you are talking about getting back the maximum bang for your bucks, till date what would you say is the maximum return you have got in any such investment from a debt fund in between the day you spent on a card and the day the bill was generated?
I'm no finance person at all (but a serious CC user, hardcore, lol)
By simple logic, if I was to invest Rs. 10K for 15 days at 12pcpa I should get Rs.50/- in 15 days.

I just read that whole thing below. If I spend Rs. 2.4 lacs a year on my card, I can gain Rs.700/- a year by investing and reinvesting and doing all this bank jhanjhat.

I cannot do it for Rs. 700/- a year.

Last edited by Sam Kapasi : 11th February 2008 at 16:12.
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Old 11th February 2008, 16:17   #15
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I'm no finance person at all (but a serious CC user, hardcore, lol)
By simple logic, if I was to invest Rs. 10K for 15 days at 12pcpa I should get Rs.50/- in 15 days.

I just read that whole thing below. If I spend Rs. 2.4 lacs a year on my card, I can gain Rs.700/- a year by investing and reinvesting and doing all this bank jhanjhat.

I cannot do it for Rs. 700/- a year.
@Sam: It seems like a lot. But, buddy once you get down to doing it, it doesn't seem like too much trouble. The way I do it is essentially log in to my Investment Account online, do a few clicks, and the job's done, and vice versa to redeem the investment. It hardly takes 5 minutes each time. I don't mind spending 10 minutes every month to make any sort of money.

To each his own, brother!
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