Today, some bank clients consciously avoid credit cards, fearing additional financial burden, large debts and a number of other difficulties. Others know that when used correctly, this tool helps you manage money productively, earn money, and even improve your credit history. We asked Oleg Chernyshov, Deputy Chairman of the Board of Ingosstrakh Bank, to talk about the pros and cons of credit cards.
— People are divided into three types: confident credit card users, those those who run away from a credit card like hell from incense, and those who were once issued a credit card to someone, and it is collecting dust somewhere on one of the shelves.
Often, many clients issue themselves a credit card because the bank tellers are very talented at selling them. “You will need— you will use it,” “Isn’t it enough?”, “He doesn’t ask for bread, let him lie.” So it sits on the shelf, although it could help the owner earn money.
Others, when they hear the phrase “credit card,” run without looking back. “I don’t know how to use it,” “It’s bondage.” and other epithets. Let's leave these two categories of people out of the equation. You and I are not one of them, are we? We're smart and inquisitive, so we'll look at how to make a credit card work for you and generate passive income.
Credit card — this is, in general, the same retail consumer loan, that is, a loan that can be spent on your everyday needs. You can pay with a credit card for purchases in stores and on websites, as well as withdraw cash from ATMs (I will explain below that you need to carefully withdraw cash).
A credit card is suitable for both active spending and in case of unexpected expenses, the main thing is — do not forget to return the spent (bank) money on time.
— Interest is calculated only on the amount pledged. Unlike a consumer loan, interest on a card is not accrued on the entire amount of debt at once, but only on the amount of funds used. So, for example, if you spend 50,000 rubles out of a limit of 300,000 rubles, the bank will charge interest on exactly these 50,000 rubles.
Interest-free period, also known as grace period, — a certain period during which you can use bank money for free. In order not to pay interest, you need to completely pay off the debt on the card before the end of the grace period. Many Russian banks are now setting a favorable grace period – some from three months, and some – whole year. Do not pay interest for using other people's money (that is, bank money) for a whole year – it's very profitable. And convenient.
Flexible debt repayment schedule. If you can’t pay off your debt with Grace, it’s enough to make at least the minimum payments every month — usually 3–5% of the debt amount plus accrued interest.
Cashback and bonuses. Credit cards, as well as regular debit (and salary) cards, have bonus programs that award cashback for purchases or provide discounts from partners.
— The credit card has a service fee. The fee is insignificant, but I think it is necessary to indicate this. Interest rates on credit cards are always higher than on consumer loans. If on a regular consumer loan in 2024 the rate may be around 17-20%, then on a credit card it will be around 30-35% per annum. You have to pay for convenience, you can’t escape it.
High commissions. A credit card should only be used for non-cash purchases. There is almost always a commission for cash withdrawals and transfers and it is high. Also, these transactions are usually not subject to a grace period.
— If you use a credit card wisely, you can not only avoid paying interest and commissions, but also earn money. The main principle — this is a win-win strategy. You should not pay the bank for using the card, but the bank should pay you.
To do this you need to adhere to certain rules. Choose initially free cards or comply with the requirements necessary for free service. Pay off the debt before the end of the grace period. Study the terms of the loyalty program and do not neglect bonuses. Do not withdraw or transfer money from a credit card if this threatens with a commission and exclusion from grace.
— Credit cards are beneficial for making cashless transactions. This is beneficial for both the card user and the bank. To avoid the temptation to withdraw cash, banks deliberately set high fees for withdrawing cash from loans or for transferring money to other accounts. Of course, there are cards on the market from which you can withdraw and transfer money for free, but there are only a few of them.
So, if you are not one hundred percent sure that you can withdraw and transfer money from your bank card without commissions and other surprises, It's better to abstain.
— We open a deposit or savings account in the same bank where we took out the credit card. We transfer your salary from your salary or simply from your debit card to a deposit, savings account or card with interest on the balance. Within a month, we pay for all purchases with a credit card and receive cashback and bonuses.
At the end of the grace period, we transfer money from the income account and close the debt on the credit card and do not violate the same grace period. With this scheme, you can receive double income: interest on your funds and cashback for purchases from your credit limit. It is only important to study the conditions for withdrawing funds from an income account: there should be no commission for this, plus the money must remain in the account for the period required for interest payments.
— Another unobvious advantage of a credit card — opportunity to improve your credit history. For some reason, many are sure that if they have never taken out a loan, then they — ideal borrowers. No, a person without a credit history — a bad client for the bank.
When assessing a client’s solvency, banks analyze various information, including how accurately this borrower repaid loans from other banks. If you have not had loans, then the bank does not have information about your payment discipline, which means that it is more difficult for the bank to assess your risks.
So using a credit card and having a positive credit history — this is an additional plus for further lending. For example, if you plan to apply for a large loan in the foreseeable future – With a mortgage, for example, it makes sense to open a credit card in advance (preferably from the same bank) and actively use it for some time, paying off the debt on time. This way you will establish yourself as a reliable borrower.