Since I have started improving my personal finances, I have optimized a lot my usage of credit cards. I have reduced the annual fee of my credit cards to zero. As a matter of fact, I have reduced all my credit card fees to zero! That’s right, I do not pay any fee using credit cards, even for foreign currencies. This is much better than before since I did not even know I was paying too much at that time!
Moreover, I have also improved the cashback I get for each of my purchase. Now, I get up to 1% cashback on my purchases! On the other hand, to optimize my fees and cashback, I had to go from one single card to three credit cards. There is no free lunch, unfortunately.
In this post, I am going to share my entire credit card strategy. If you want to save on fees and improve your cashback, this will help you! Indeed, if you are willing to go the extra mile, you can save money and generate some small income with credit cards.
If you have an idea on how to improve my strategy, I would love to know about it!
Credit card strategy
When I choose credit cards, I want two things in return: minimizing the fees and maximizing the returns (or the cashback).
Contrary to what most people think, there are plenty of free credit cards in Switzerland. And there should be some in most countries. And some of these credit cards have nice cash back. Sometimes, they even have higher cashback than paid cards. It is really important to choose a free credit card. For instance, if your card cost you 100 CHF per year and has 0.5% of cashback, you would need to spend 20’000 CHF per year to get even. Most people do not spend that much on their credit cards! A free card with 0.2% cash back would have given you back 40 CHF instead of 0! Unless you spend a lot on your credit cards, and you probably should not, you should always opt for a free credit card.
The annual fee is not the only thing that needs to be minimized. Most cards are charging a very high fee on currency exchange for instance! This needs to be taken care of as well! And withdrawals from a credit card are also almost always expensive.
Now, the second thing you want with your credit cards is the highest cash back possible. In Switzerland, the cashback is pretty bad. But in some countries, you can find cash back of several percents. First, you want some real cash. If the cash is only usable in some shop that you never go to, you do not want it. Ideally, it is real cash back going towards your credit card bills. Or it could be cash back in a shop that you often go to.
Now that we know the goals, we can move on to my actual credit card strategy.
Domestic Purchases – SwissCard Credit Card
For my domestic purchases (in Switzerland), I am using two different cards. Let’s start with the first card.
By default, I am trying to use my Swisscard American Express credit card. I only got this credit card very recently. Swisscard introduced their new credit cards in late 2018. At first, I was quite hesitant about getting one new credit card, for two reasons. First, I already had two credit cards and did not really want a third one. Moreover, I was worried that I could not use the American Express so much in Switzerland. But finally, I decided to try it.
This first card has 1% cash back and is entirely free for domestic purchases either in-store or online. It is a great card for Switzerland. But it has one drawback: it is an American Express and not a Visa or a MasterCard. I do not have anything against Amex cards, but they are not as widely accepted as the other twos big ones. Nevertheless, I have found out that more shops than I thought are accepting Amex cards.
Since I received this card, I have tried to see where I could use it. I can use it in Migros for all my purchases. Unfortunately, I cannot use it in Lidl which is my main source of groceries. However, Lidl started accepting American Express cars in Germany. So, it is possible that it comes to Switzerland as well. I can also use it in Aligro where we buy most of our meat. I am estimating that I will be able to do about 40% of my purchases with my American Express. But this is only an estimation, time will tell how well I will be able to use it.
Domestic Purchases- Cumulus Credit Card
Whenever I cannot use my American Express card, I use my Cumulus MasterCard. This card has 0.33% cashback. The cashback is not really in cash but in special cash that you can only use at Migros. But for us, it is fine since there are still some things that we are buying at Migros instead of Lidl. This is enough for using our cash back. Interesting, when we shop at Migros, we have 2% cashback. I always have 1% cashback at Migros with my Cumulus and I can use my Amex on top of that! This is pretty good. However, on average, Migros is about 50% more expensive than Lidl. So it is better not to do all the groceries there just for 2%.
So, to sum up, I use two cards for my domestic purchases. Whenever I can, I use my Swisscard Amex with 1% cashback. And when I cannot, I use my Cumulus MasterCard with 0.33%. I am getting used to this system and I know which shops I can use my Amex and which I cannot.
Foreign currency fees
In the previous section, I focused on domestic purchases in Swiss Francs. Now, I also do a lot of purchases in other currencies and in other countries. About 40% of my credit card bills are paid in foreign currencies. For this, I need to use another card with minimum currency exchange fees. This is an essential part of any credit card strategy.
All credit cards available in Switzerland are charging a very large fee for purchases in foreign currencies. Sometimes, they are also charging based on the country not only the currency. For instance, my credit card charge for everything that is abroad even if it is in Swiss Francs.
Eliminating foreign currency exchange fees is definitely what will save you the most in your credit strategy. Compared to my base card, the Amex, I save 2.5% on each international purchase! This is much more than the cash back I get on my domestic purchases.
International Purchases – Revolut!
To minimize fees on international purchases, I am using my Revolut card. If I had to choose a single card, it would definitely be the Revolut card. This would mean the cheapest single card for me.
You can use a Revolut debit card to do foreign transactions for free. They are no fees for currency exchange. Since it is a debit card, you will need to charge it in advance. This can also be done for free by charging from your bank account. You can then use the debit card as you would use any other card. Be aware that this is not a good card to withdraw money from! But you are allowed to withdraw 200 EUR each month for free.
One other advantage of the Revolut card is that you can also do a bank transfer in almost any currency. For instance, if you are using a service that needs EUR but do not accept credit cards for free, you can also transfer money directly their bank account. Otherwise, I would have to pay high fees for international transfers from my bank account. Moreover, these bank transfers are extremely fast. I have been able to send EUR and it has been received on the same day by the recipient. This is much faster than my bank that only executes my orders the next day.
Recently, Revolut got a banking license for the European Union. Maybe one day, we will have our accounts at Revolut. In the meantime, it is still a great card for foreign purchases.
What could be better?
I am quite happy with my current strategy. It is getting better and better. But there are always things that could be improved.
First of all, the cashback bonus from my credit cards is pretty low. I have 1% on my American Express and 0.33% on my MasterCard. And I have zero cashback on my international purchases. I would really like to increase this cashback. For now, I have the best credit cards in Switzerland. But I am always looking for ways to improve my strategy.
Another thing I would like to improve is the usage of my American Express card. There are many places where I cannot use my Amex. This is unfortunate since the bonus is higher than it is on my MasterCard. If I could use my Amex everywhere, my overall bonus would be higher.
The next thing is also related to the previous ones. I would like to reduce the number of cards I am using. If I could always use my Amex, I would not need my Mastercard. And if my Revolut card had enough cashback, I would not need any of the other two cards. For now, I need three credit cards. But hopefully, I will find a better solution in the future.
Do you have any idea on how to improve my credit card strategy?
7 Tips for credit cards
Credit Cards are a powerful tool for your personal finances. However, they may be dangerous if you do not use them correctly. This is why some people are thinking that we should not use credit cards. If you think you cannot control your use of credit cards, you may be better off without them. But if they are well used, they can actually help you a little towards Financial Independence.
1. Do not carry Credit Card Debt
First and foremost, you should never carry a balance on your credit card. Just after borrowing money from a loan shark, this is the worst kind of debt you can have! This kind of debt has at least 10% interest and can go as high as 20% interest. This is a lot of money you are going to lose if you start having credit card debt!
2. Do not withdraw money with your Credit Card
Also, you should never to withdraw cash with your credit card. Most credit cards have very expensive fees on cash withdrawal. This is really not what they are for. For instance, the Amex from Swisscard has 3.95% fee on withdrawal with a minimum of 5 CHF. Of course, if you are in an emergency and this is the only thing you can do, it is not so bad to pay this interest. However, you should really be careful to use it only in case of real emergency!
3. Always use the correct card
You also need to make sure you are using the correct card for the correct thing. In my current strategy, I am using three credit cards. For each of my purchase, be it on a store or online, I have to think about which card I should use. This is important. Because 2.5% fees on foreign currencies purchase will entirely remove all your bonus with your credit card.
4. Be careful of hidden fees
All the cards I am using are free for me. However, that does not mean that everything is free with those cards. I already mentioned interest on credit card debt and withdrawal fees. But a lot of credit cards have other services that are paid. For instance, all free credit cards will make you pay if you want a paper statement. And some credit cards will make you pay if you need to call them for instance. You have to be extra careful about what are you doing with the card.
5. Do not let cashback blind you
There is also one subtle thing with cashback that you need to be aware of you. Sometimes people are using the excuse of cashback to buy more expensive things. For instance, between my Amex and my Cumulus reward program, I got 2% of cash back when I shop at Migros. However, many things are more expensive there. Overall, it is estimated that grocery shopping at Migros is about 40% more expensive than at Lidl. Compared to that, the extra 1% cashback bonus is negligible. Cashback should only be considered as a bonus on shopping for cheap things.
You should never buy something because it will make you some extra income in the end. If you lose 100 CHF and make 1 CHF back, you still have lost 99 CHF! You are much better off with your 100 CHF!
6. Keep your credit cards safe
You should consider your credit cards as sensitive material. Always be careful when you type your PIN number. If you suspect something is not safe, do not use your credit card! And if you think someone got your PIN, change it immediately or block the card! If you lose the card, you should immediately report it as stolen to make it blocked!
7. Credit Cards companies are not your friends
Overall, you need to understand that these credit card companies are in for the money! They are not offering free cards just because they are nice! Most people are doing many mistakes with their credit cards. And credit card companies are exploiting these people! Do not do mistakes with your credit cards and you will have a powerful tool in your wallet!
An optimized credit card strategy consists of reducing the fees to zero and maximizing the cash back from purchases. To achieve these goals, I need three different cards. One Amex with the maximum cash back, a MasterCard with lower cash back when I cannot use the Amex and a Revolut card for all my foreign purchases. With this strategy, I never pay any fee and have 1% cash back with my Amex and 0.33% with my MasterCard.
If you are used to United States credit cards, you may wonder why the hell I did not talk about travel hacking. In fact, in Switzerland, travel hacking with credit cards is really bad. There are a few options from Swiss and Miles for instance. However, their bonus is not very interesting and their credit cards are not even free! This may be good if you spend a lot of money. However, that is not really the point of this blog to spend a lot of money, is it?
Finally, do not forget that credit cards are powerful tools if used correctly. If you are not using them correctly, they can be very dangerous to your personal finances. You need to make sure to never carry a balance on your credit card. If you are going to carry a balance, you are much better off with no credit card at all!
What is your credit card strategy? Do you have any tips for me?