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Credit Cards are an important part of your personal finances. They are tools that you need to use to your advantage.
The problem is that it is easy to misuse credit cards. You need to have a good credit card strategy to take full advantage of credit cards.
Since I have started improving my personal finances, I have optimized my usage of credit cards. I have reduced the annual fee of my credit cards to zero, and I have now reduced all my credit card fees to zero! That’s right. I do not pay any fee using credit cards, even for foreign currencies. My credit card strategy is much better than before since I did not realize I was paying too much at that time!
On top of that, I have also improved the cashback I get for each of my purchases. Now, I get up to 1% cashback on my purchases! On the other hand, I had to go from one single card to three credit cards to optimize my fees and cashback. There is no free lunch, unfortunately.
In this article, 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.
Credit card strategy
When I choose a credit card, I want two things:
- minimizing the fees
- maximizing the returns (the cashback or bonus).
Contrary to what most people think, there are plenty of free credit cards in Switzerland. Unfortunately, most people still pay for their credit cards. And there should be free credit cards in most countries. And some of these credit cards have nice cashback. Sometimes, they even have higher cashback than paid cards.
It is essential to choose a free credit card. For instance, if your card costs 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% cashback would have given you back 40 CHF instead of 0 CHF! 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 foreign fee 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 cashback possible.
In Switzerland, the cashback is pretty bad. But in some countries, you can find cashback of several percentage points. First, you want some real cash as a bonus. If the cash is only usable in some shop you never go to; you do not want it. Ideally, it is real cashback going towards your credit card bills. Or it could be cashback in a shop that you often go to.
The best credit card strategy
Now that we know the goals, we can move on to my actual credit card strategy.
1. 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. Swisscard introduced its new credit cards in 2018.
This credit card has 1% cashback and is entirely free for domestic purchases, either in-store or online. It is an excellent 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 two big ones. Nevertheless, I have found out that more shops than I thought are accepting Amex cards.
Since I started using this card, I have tried to see where I could use it. I will be able to use it to pay for gas for my car. Also, I can use it in Migros for all my purchases. Big shops usually accept it. And several online websites also take it without issues.
Unfortunately, I cannot use it in Lidl, which is my primary source of groceries. However, Lidl started accepting American Express cars in Germany. So, it may come to Switzerland as well. I can also use it in Aligro, where we buy most of our meat.
On average, I can do about 40% of my purchases with American Express.
If you go forward and order this card, you can use the affiliate code WC40XKEXB. You will receive 40 CHF for signing up, and I will also receive 40 CHF!
For more information on this card, I wrote a review of the Swisscard Amex.
2. Domestic Purchases- Cumulus Credit Card
Whenever I cannot use my American Express card, I use my Cumulus MasterCard. This card has 0.33% cashback, and the cashback is not really in cash but in special cash that you can only use at Migros. But for us, it is okay since there are still some things that we are buying at Migros instead of Lidl.
This availability is enough for using our cashback. Interestingly, 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 cashback 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 a 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.
If you want more details, I have an entire post about my Cumulus credit card.
3. Foreign currency fees
In the previous section, I focused on domestic purchases in Swiss Francs.
Now, I also make many purchases in other currencies and other countries. And so do many people in Switzerland. 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, and this extra card is an essential part of any credit card strategy.
All credit cards available in Switzerland charge a substantial fee for purchases in foreign currencies. Sometimes, they are also charging based on the country, not only the currency. For instance, my credit card charges a fee for everything 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! It is much more than the cashback I get on my domestic purchases.
4. International Purchases – Neon or Revolut!
If you are often paying with your card in another country, you could consider using Neon for this. Neon is a free Swiss digital bank. And they offer free purchases abroad with their MasterCard.
Using Neon over your other cards could save you a lot of money! Most people do not realize they pay a large fee when they purchase in another currency.
The downside of Neon here is that it is a debit card. In most cases, it will work just fine. But there are a few cases where it will be refused. Renting a car and reserving hotels often require a credit card. It is because they make a reservation of the money instead of taking the money out. And this is not possible with debit cards. One way around it is to require to pay in advance, in which case debit cards should be fine. But this is not always possible.
When this is not possible, you will have to use either the American Express or the Mastercard. It will not be free, but this will work.
For more information, I have made an entire review of the Neon Bank.
If you prefer, you can also use a Revolut debit card to do foreign transactions for free. I much prefer Neon, but there are some cases where Revolut is helpful. To help you choose between these two cards, I wrote an article comparing Neon and Revolut.
What could be better?
I am quite happy with my current credit card strategy, and it is getting better and better. But there are always things that I could improve.
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 want 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, and it 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 want 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 how to improve my credit card strategy?
The simplest credit card strategy
Now, some of you may wonder whether we could make things simple. Many people do not want to carry three cards with them. And I completely understand that.
The simplest credit card strategy would be with fewer cards. In this case, you have to sacrifice some cashback. However, unless you spend a lot with your credit cards, this is probably not a huge deal for your finances.
If you want the simplest credit card strategy, you have a few choices.
- If you ever buy something in foreign currency, you need a card with free foreign exchange. In this case, go with Neon. It will be entirely free, and you will be able to use it in Switzerland, abroad, and online. If you do not need a real credit card (for hotels, cards, …), you can simply use Neon.
- If you need a credit card and never buy anything in foreign currency, you can simply go with the Cumulus Mastercard. This will be free, and you will be able to get some cash back. And this card is well accepted in Switzerland.
- If you need a credit card and pay in foreign currency, you will have to go with both Neon and the Cumulus Mastercard. But you would generally only need to carry one: Neon for foreign currencies and Cumulus for rentals and domestic purchases.
The simplest credit card strategy is quite good. The important part is to save money on the fees. The cashback is a little bonus, but it is only a tiny optimization.
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.
It is the reason why some people think that we should not use credit cards. If you feel you cannot control your use of credit cards, you may be better off without them. But if we use them well, they can 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 fee is a lot of money you will lose if you start having credit card debt!
2. Do not withdraw money with your Credit Card
Also, you should never withdraw cash with your credit card.
Most Swiss credit cards have high fees on cash withdrawal. But withdrawing money is not what credit cards are about. For instance, the Amex from Swisscard has a 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 be careful to use it only in case of an actual 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 credit card strategy, I am using three credit cards. For each of my purchases, be it in a store or online, I have to think about which card I should use. Choosing the correct card is important because a 2.5% fee on foreign currencies purchase will entirely remove all the bonuses with your credit card.
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 you are 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 use the excuse of cashback to buy more expensive things.
For instance, between my Amex and my Cumulus MasterCard reward program, I get 2% cashback when I shop at Migros. However, many things are more expensive there. Overall, it is estimated that grocery shopping at Migros is at least 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. 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 making many mistakes with their credit cards. And credit card companies are exploiting these people! Do not make 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 cashback from purchases. To achieve these goals, I need three different cards:
- one Amex with the maximum cashback
- a MasterCard with lower cashback when I cannot use the Amex
- a Neon card for my foreign purchases
With this credit card strategy, I never pay any fee and have a 1% cashback with my Amex and 0.33% with my MasterCard.
If you are used to United States credit cards, you may wonder why I did not talk about travel hacking. In fact, in Switzerland, travel hacking with credit cards is 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! These cards may be good if you spend a lot of money. However, that is not the point of this blog to spend a lot of money.
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!
And if you want to keep it simple, it is also possible. Remember only to use free cards, and that will minimize foreign exchange fees.
Finally, all this is about optimization. Just having the best credit cards will not make a huge difference in your way to financial independence, for instance. It is good to do it. But there are things you can do to save money that will matter more.
What is your credit card strategy? Do you have any tips to share?