Scotiabank Gold Mastercard credit card.

A credit card is a very useful tool when integrated into sound financial management for the everyday consumer. Apart from the possibility of obtaining rewards and better managing cash flow, it also helps to create a good credit profile which benefits the user through better conditions when seeking financing. Despite the perceived benefits, many people look down on credit cards under the general negative stigma that debt is bad and a credit card is the financial tool that will sink them. However, today’s article will take those worries away and show the benefits of using a credit card with good financial planning.

A credit card is an instrument issued by a bank or financial services company that allows you to borrow funds to pay for goods and services at merchants who accept them. While credit cards tend to have the highest effective annual interest rates (EAIR) and annual percentage rates, these are only applied to your statement balance when you don’t pay it in full. on the due or payment date. Otherwise, the only charge you might pay for a credit card is the annual fee, which can be waived if you spend a certain amount during a period with that card.

There are some key terms that need to be discussed when talking about a credit card. These include:

*Billing Cycle – This is the period during which transactions made with your card are recorded. There are usually 30 days between each cycle and can be longer if that billing cycle’s close date falls on a weekend.

The Platinum Visa credit card from NCB.

* Credit limit – This is the amount of funds you can use on your credit card. If you go over the card limit, you will likely be overdrawn and could incur overdraft charges. If there is an overdraft limit, any transaction up to that point will be processed and approved. Otherwise, the transaction would be refused.

*Due/Payment Date – This is when you must pay the statement balance on your card. The payment date tends to be six days before the end of your billing cycle. If you don’t pay anything by that date, you’ll likely have to pay late fees.

* Minimum Payment – This is the minimum amount as a percentage of the statement balance or a fixed amount that must be paid in order to keep the card in good standing and avoid additional penalties.

* Monthly Statement – This is a document generated at the end of the billing cycle that shows all transactions made during that period. It lists all transactions, where services were paid for, times when the cardholder repaid the amount owed, and any creditor life insurance payments on that card. It would also show the amount of credit available at the end of the billing cycle, the payment date, and the billing cycle for that period.

So how does a credit card allow someone to optimize their cash flow and profit from their use? Let’s say you want to buy a refrigerator for $250,000, but you only have $125,000 in savings, you have $75,000 of spare cash after paying your salary bills, and a credit limit of $300,000 on your credit card. This means that you are $50,000 short of purchasing the item. You could enter into a hire purchase agreement or a credit agreement with the seller, but the total amount paid would probably be $300,000 depending on the agreement.

One could buy the refrigerator at the start of the new billing cycle on October 16, pay $100,000 immediately, and have a balance of $150,000. By the time your billing cycle ends on November 15, you’ll see $150,000 appear as your statement balance with $150,000 as your available credit. Once you have paid the balance before the due date around December 9, you will not be charged any interest or penalties. This would effectively mean that you would have kept cash, spread the transaction over a billing cycle, and would not incur additional charges if you had entered into a credit agreement with the supplier.

This capital management can be extended by using the buy now, pay later products of National Commercial Bank Jamaica Limited (NCBJ) or Bank of Nova Scotia Jamaica Limited (BNSJ). NCBJ’s Flexi Pay option allows someone to split payments of $50,000 (US$300) or more into 3, 6, 9 or 12 month payment plans. No additional interest or program fees are paid when used only for the three-month payment plan. BNSJ offers Select Pay which allows you to convert transactions of $40,000 (US$250) or more into the same 3, 6, 9 or 12 month payment structures, but there are fees in all cases. So a $150,000 transaction would result in a one-time fee of $1,500 and monthly payments of $53,408.30 for a grand total of $161,724.90. Even if one pays $11,724.90 more on the three month option, if one can put that money to work elsewhere and earn above that payment, it works for the user.

Another great advantage of credit cards is the rewards program offered to customers, such as cash back, travel rewards or special arrangements with particular suppliers/companies. In the case of BNSJ’s Gold Mastercard, they offer four percent back on shopping and gas station visits, two percent at pharmacies, and one percent everywhere else. As a result, a person is paid to shop normally and gets a discount on their card when applied. If you shop with your debit card every day, you’ll just use a credit card and pay off the balance at the same time if you want to be on the safe side and focus on risk. NCBJ’s Visa Platinum offers the opportunity to enter airport lounges for free and redeem accumulated points to book air tickets to different destinations. Even the Miles allows you to use your accumulated points like a virtual card and spend them anywhere.

So, a credit card effectively benefits you once you pay off the statement balance in full and acts as a good risk management tool with your funds. If your debit card is compromised with your funds, you could wait three months to get it back. If your credit card is compromised and you haven’t committed any fraud, that’s the bank’s problem and you can just order a new card. So the next time you go out to lunch with friends and people are paying cash, take the cash and pay with your credit card instead.