In their 2014 book Dare to Journey: The Path to Meaningful Wealth, financial advisers Angelo Cabrera, Ricky So, and Aristides Merida, Jr. quote that “the rich get for free what the poor have to pay for.” The financial system is a reality that works either for you or against you – there is no middle ground. And it favors those with resources.
Now, before anyone starts protesting at how elitist and discriminatory this may sound at first (and I was one of those who had that sentiment at first, myself), I invite careful, objective analysis of this statement. And what it is is that it’s a truth – not a derogatory comment of any kind.
How so? First, don’t necessarily think of “rich” and “poor” in terms of financial volume achieved. Rather, think of them in terms of skills – financial skills, to be precise. Or awareness. It’s entirely possible for a person with more money to be “poorer” than one with less, if he were not as financially aware.
What does financial awareness – or the favorite term today, financial literacy – bring anyway? It empowers people to manage their resources more wisely, with the future and others in mind. No one has infinite wealth, and not cared for wisely, it will run out eventually. And you won’t bring any of it with you when you die, so there’s no use in hoarding it all for yourself. Besides, your Truly Best Life is all about selflessness, so sharing the wealth (and the love) is a no-brainer.
Which brings me to the topic of credit cards.
Cabrera, So, and Merida observe that audiences who are asked if they have credit cards do so a bit sheepishly, as if they were ashamed to own such. But the credit card, in reality, is one of the basic manifestations of the aforementioned quote. It’s relatively easy and accessible. And, most importantly: it is a tool, which means that in itself, it has no powers. It’s up to the user of the tool to use it wisely or not.
I’m somewhat of a credit card collector, having quite a lot today for someone of my age and status (I stick to mostly using around three, though). Yet I’m regularly offered new cards, and that’s because – based on feedback of banks – I have a very good credit score. Besides, most banks generously waive the annual fee especially if you’re a well-behaved user, so I get many of these essentially for free – plus the oh-so-many benefits that wise usage of a credit card can bring. Here are five of them.
1. Credit cards are convenient.
Ask anyone what they like the most about having a credit card and “convenience” would probably be one of the top answers, if not the top. Most major establishments around the world today accept credit cards, though it’s a bit less prevalent in developing economies (like here in the Philippines, where cash-only is still common in micro- to small-scale enterprises, and even some large fast food chains). Be that as it may, <data on credit card acceptance around the world>, which means that more often than not, one will be able to just swipe (or tap, in some cards’ cases) instead of having to fork out a wad of bills.
Isn’t that convenient, then? Many of us are frustrated by long queues upon checkout or payment. The process of paying in cash, especially with more denominations or if your purchases are worth more, can slow things down. If you’re given change, and you’re the type of person who has to put it back properly in your wallet or purse right away, it can also be annoying for those waiting in line. A credit card does away with all of that.
Credit cards can also be used as an emergency mode of payment if you don’t have cash, or enough cash, on hand. Personally, I don’t bring around a lot of cash on myself anymore, to reduce the risk of theft, and to keep my Average Daily Balance (ADB) in my bank accounts as high as possible. I keep a bit of cash for purposes such as parking or tipping, but most of my expenses my card can cover.
Which leads to the next benefit.
2. Credit cards offer flexibility.
Unlike debit cards, you don’t deduct the money from your account right away when using credit cards. It’s up to you to pay it whenever you want to – within the allotted time frame. This is usually from the moment you swipe until the due date of the billing cycle your transaction came under – the usual is 3 weeks after the (usually monthly) cycle ends. So, if you happened to purchase something relatively hefty at the start of the billing period, you essentially have nearly two months to pay it off.
This is particularly useful for business, when you have to purchase raw materials or goods whose value exceeds your current cash liquidity, but you also expect it to be translated into sales within the same period as well. As a distributor of natural and wellness products, this flexibility is very beneficial for me, especially in bulk orders I can’t pay in cash. It’s embarrassing and not very professional to ask for pre-payment (unless the customer is unfamiliar to you and asks for their order to be delivered to them), so a credit card is greatly helpful in this case. In fact, I know some people who have a ton of different cards and allot one business or one category per card, for organized expenses.
Personally, I like to pay off my charges as soon as I swipe the card – the benefits of online banking – rather than wait until the deadline. It clears my mind and gives me finality of what I’ve swiped for. It also frees me from a false sense of security that I have more money than I actually have – thereby giving me a clearer, more accurate picture of my finances. Why get a credit card then, you ask? I’ll get back to that later. Besides, some cards charge multiple payment (within one month) fees, such as those from Metrobank and RCBC, to recoup processing expenses. You’d think they’d reward good behavior…
3. Credit cards teach you discipline.
Perhaps the biggest reason why people who dislike credit cards do so because they’re concerned of spiralling into debt. That’s true, and it can happen… if you’re not disciplined. Again, a credit card is simply a financial tool that can be used or misused, and a lack of discipline translates to misusing this tool.
Anyone who says that learning discipline isn’t a benefit should take time to evaluate themselves or seek guidance. Discipline and self-control is so crucial to Truly Best Living that without it, when things go awry or when temptation arises, all of these would get hurled out the window.
Here’s a little philosophy discussion to illustrate my point.
In ethics in university, we took up Kant, who taught that one who does something out of a sense of duty, of commitment, because they “have” to, is actually morally or ethically superior to one who does it because they “want” to. In the case of the latter, there is an underlying (or overarching) motive or vested interest. Our professor used this example: Suppose a man picks up his wife at the airport at six in the morning. If he prepares thoroughly for it, such as dressing up, tidying the car, and even buying breakfast, he does it because he “wants” to – perhaps out of a desire to impress his wife or simply show her how much he loves her. This is still, technically, an “ulterior motive” that is in itself unrelated to the task at hand, that of fetching someone.
However, if he does it without these gestures, such as turning up at the airport only in sweats, not yet having shaved or showered, he is doing so out of a sense of duty, of discipline, and is thus morally “superior”. Without the desire to show off his love, there is no “ulterior motive” – just the commitment or responsibility. He may not feel up to the task, but does it anyway. That’s discipline.
In living your Truly Best Life, you will encounter a lot of situations where you’ll have to do something you don’t want to do, or not do something you want to do (such as buy something you can’t afford but really want). Living a life of selflessness, of awareness and service, will at times challenge our self-interest, with the easy way out being to only help ourselves. Discipline, however, keeps you rooted in your values, your principles, even though you may not feel up to it. This is equivalent to the second stage of conscience as we were taught in my Catholic high school, or conscience you follow because you know what’s right and just (the first stage is because you fear the consequence).
Self-discipline in credit card usage means that just because you may have a sky-high credit limit, and thus can swipe like there’s no tomorrow, it doesn’t mean you should. For starters, are you sure you have enough money to pay it off responsibly and on time? (And, if you want to be even more financially literate, limit that “money” to your disposable income, not your entire wealth.) Are you able to track your credit card usage?
I personally have charts and trackers for each of my credit cards, including the one who’s paying for it (such as my customers, my company, or a family member who asked me to swipe for something), the exact amount, and if I’ve paid for it already or not. I organize them by billing cycle as well. I never max out my credit limit, and I always have a keen idea of how much money I actually have (and how much I need to save), so I don’t abuse my credit privileges.
That’s why my credit score continues to improve, with my only interest having been because of a miscomputation on my part, and my cards all receiving generous limit increases every year. Because I know my limits (literally and figuratively) and I can pay off my debts in full, ahead of time, I can maximize the benefits of a credit card and not be afraid of it.
4. Credit cards are rewarding… literally.
More than the convenience and flexibility, my primary reason to get the cards I have – and to pay using them for as much of my transactions as possible – is because of rewards.
Of the five benefits I’ve listed, this is perhaps the most striking example of the rich getting for free what the poor must pay for. And having this just one tool can make all the difference between financial empowerment and lack thereof. If you’re disciplined, and use the tool well, you can avail of its benefits.
Most credit cards have corresponding point-based rewards systems where you earn points per x units of currency you spend. A few of them are cash-back credit cards, where you don’t earn rewards points BUT you get back a small percentage of the transactions you swiped – which is also inarguably a reward in itself. Rewards points can be redeemed for freebies, such as appliances, gadgets, tickets, or gift certificates.
Many cards also have their respective promos in partnership with various establishments, such as travel sales, hotel and restaurant discounts, and installment payments for gadgets, appliances, and luxury goods. For credit card collectors who can manage their resources responsibly and resist temptations, this is a gold mine for their common lifestyle habits, such as eating out with the family or taking annual trips.
All because of that plastic card. If you pay in cash for all your transactions, you’d lose out on all these rewards. True, it would take time to build them up, because rewards points are relatively expensive. But having that incremental wealth is better than none, and since most rewards points don’t expire anyway, you can build it up over several years for maximum benefit!
Taking into consideration my personal preferences and needs, my favorite type of credit card is the travel credit card, where points you accumulate are automatically converted into frequent flyer miles, or where, at least, the rewards system is generous in miles conversion. I’ll be coming up with a post of my preferred travel credit cards in the Philippines, so stay tuned!
5. Credit cards help prepare you for the future.
The point of personal finance and financial literacy is to be able to secure your future (and that of your loved ones’) and staying rooted in the present at the same time, no head-in-the-clouds type of fantasies. This is why Gawad Kalinga’s call to action of investing in the Philippines is so impactful and powerful: we are reminded that our lives are meant to be shared, not just with our loved ones, but also with the wider society we operate and live in. To invest in our country is to prepare it, and ourselves, for the future. But I digress.
How do credit cards help prepare you for the future? For one, opening a credit card with a certain bank begins having a relationship with said bank. They say not to spread yourself too thin, so I restrict my bank accounts to only a couple, but I have cards from other banks so that, at least, I have a record with them – hopefully, a good one.
As mentioned earlier, I’ve had the fortune (pun intended) of having my credit limits increased every year because of good behavior. But beyond that, having a good credit score – and it applies not just to credit cards, but also your other bills – is beneficial in the long term. For one, you’ll be able to afford swiping for correspondingly huger purchases, perhaps even negotiate for a temporary increase in limit or terms if necessary. You’ll also be more likely to be approved for loans, should you need them in the future.
You may not be needing them per se, but it’s always better to be prepared for whatever comes your way, than not. As we become older, there will be many life changes we need to prepare for, such as buying a car or a house, education of children (if any), medical bills (or, at least, insurance to mitigate these), and the like. Through all that, the rewards system still stands, so for these bigger-ticket purchases, you’ll get correspondingly greater rewards as well. The convenience and flexibility factors are definitely perennial as well and should be a godsend. Of course, this is assuming good self-discipline – so it is always wise to start cultivating that behavior as early as possible, to handle small things well in order to handle big things well.
Many people often express their anxieties and regrets at getting or using credit cards. But if you really want to maximize resources provided you, I encourage you to face those fears and just cultivate self-control and discipline. With a wise and prudent approach, you’ll have nothing to be afraid of, and you’ll even benefit from it.
To your truly best life!