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Cashback, air miles, merchant discounts, other perks, these are the incentives that banks and credit card companies (Financial Institutions – FIs) use to attract you to apply and spend on their cards.
Every transaction you spend using these cards, merchants are charged a fee by the FIs for providing the card facility. The fees (known as interchange fee) are what the FIs earn and use to pay for your rewards.
For example, if you swipe your credit card when you buy a new laptop for $1,500 from Courts, FIs would charge Courts 2% of that money (or $30). That $30 would be used to pay for the FIs operation costs and a portion of it will be channelled back to you as rewards (either cash back or some other form). FIs also use the money from the cards’ annual fees and interest for late payment to fund the rewards program.
In order to make up for the fees the FIs charge, shops often have to increase the price of their products/services in order to maintain their profit margins (or profits). That means if you are paying via cash or debit card, you are not earning any rewards AND you are paying for a higher price in order to subsidise those people who spend with credit cards.
“If you are using a debit card or cash for purchases, you are literally leaving points and money on the table. It’s like throwing away money every time you use cash.”
Here’s a video that explains in detail how cards are earning money and giving you the rewards
So, use your credit cards wisely.
1) Always pay your monthly credit card bills on time and in full!
2) If you can, always charge any expenses you can find to your credit card
3) Avoid late fee payment and interest charges
4) Ask for an annual fee waiver if possible – although often times the waiver might result in loss of reward points or air miles.
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- their own transactions,
- transactions from other personal finance communities like Seedly and the HWZ forum
- terms and conditions of the various credit cards.
And if you want to find more promos and deals, check them out at our new page HERE.
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