Issue #004: Credit Cards - The Good, The Bad and the Ugly

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👋 Morning All,

Credit cards – you either love 'em or hate 'em, right?

Now I know that this isn't going to be everyone's favorite newsletter due to the polarizing effect that credit cards seem to have. But by the end of this newsletter, I want to reset your thinking altogether so that you look at credit cards the same way that I do.

THEY ARE SIMPLY A TOOL.

That's right, whether you grew up being told they were evil, or you think that they're the best thing since sliced bread, I want you to understand that both ways of thinking are wrong. They are simply a piece of plastic (or metal if you're fancy), that can be used to either enhance your life or damage it, but the decision as to which is up to you!

That felt like quite a dramatic intro, but let's dive in, shall we?

P.S. If you are just here to take a look at my favorite credit cards, then scroll straight to the bottom.

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Credit Cards

Before I simply give you the lowdown on what my top credit cards are, I do want to tackle a few topics, that is if you'll let me. Let's start by taking the title of this newsletter quite literally, and understanding the good and the bad!

Pro’s of Credit Cards

Rather than just listing a whole bunch of benefits of credit cards, making you think that a credit card is essentially the holy grail, I want to split this section into two further subcategories: general and specific benefits. General benefits are those that you should be receiving, regardless of the credit card you choose, while specific benefits are, as you guessed it, specific to your card of choice.

General Benefits:

1. Increase your credit score - If you manage your credit card well (stay clear of your credit limit and pay off the balance in full every month), you can improve your credit score. This is because you will demonstrate to lenders that you are a responsible borrower. The great side of an improved credit score is that it enhances your chances of being approved for other products like mortgages or car financing in the future and could even lower your interest rates on these, saving you thousands of pounds!

2. Purchase protection - Anything you buy on a credit card that costs £100 to £30,000 (even if only 1p of it was put on the card) is covered by Section 75 protection. This means that the card provider is jointly liable for the entire amount of the purchase if something goes wrong, for example, if the product is a scam or the company goes bust before you receive your product.

Specific Benefits:

1. Rewards - These can vary significantly, but some that I have personally benefited from include companion vouchers (2-for-1 on flights), airport lounge access, free streaming services, and credit towards restaurants.

2. Points - You may have heard of air miles or Avios, but cards offer all types of points per £ spent on the card, which then translate back into savings. This includes Nectar points for supermarkets, points for most airlines, and shop-specific points.

3. Discounts - Imagine having Unidays but for adults. Plenty of credit card providers offer exclusive discounts with retailers, giving you yet another tool to never pay full price for anything ever again.

4. Insurance - From travel insurance to accident insurance to car rental coverage, insurance is a big pro for some cards.

5. Cashback - 5% cashback on all spending, yes please! Like I said, who wants to pay full price?

6. 0% Transfer/Interest rates - A more specialized card that helps people struggling with mounting interest in the short term.

Con’s of credit cards

1. Debt if You Can't Afford to Repay: Most credit cards have VERY high-interest rates. If you don't pay off the statement in full each month, you will quickly accumulate a significant amount of avoidable debt.

2. Damage to Your Credit Score: A well-managed credit card will improve your credit score, but a poorly managed one will have the opposite effect, as you'll be viewed as a risky borrower. Missed or late payments can stay on your credit file for up to 6 years, so don't take this lightly.

3. Minimum Repayment Spiral: Credit cards allow you to make a minimum payment to continue using the card. However, be aware that doing so will cause interest to accumulate quickly.

Rules to maximise benefits

I hope I haven't scared (or excited) you too much with the pros and cons of credit cards. Remember, as I mentioned earlier, they are simply a TOOL, and with good management, they can enhance your life and ensure you never pay a penny in interest again without receiving some kind of benefit in return.

I've come up with a set of simple rules to ensure that I:

• NEVER pay a penny in interest.

• Maintain a PERFECT credit score.

• Never MAKE a late payment.

• Make money from the credit card rather than them making money from me.

So, here are the rules:

1. Pay off the card in full every month (NO QUESTIONS ASKED).

2. Set the full balance to be paid off automatically.

3. If I can't pay for it twice with a Debit, I don't pay for it once with a Credit.

4. Only spend up to 30% of my credit limit.

5. If, for some reason, I ever have a charge for something on the card, I call up the credit card company ASAP to remove the charge as a loyal customer who doesn't make these mistakes or miss payments (this only works if that statement is true).

There you have it - stick to those rules, and credit cards will become your new best friend!

How to know when they aren’t for you

I'm gonna keep this section short and sweet. In my opinion, if you're unsure as to whether you will be able to keep all of the rules above, credit cards are not for you.

End of section 😅

Different types of Cards

Rewards Cards - A card that rewards you for using it. Normally comes with an annual fee and high-interest rates, and you will need a good credit score to be approved.

Credit Builder Cards - Just starting out and looking to build your credit score? This card does exactly that. Generally, these cards will have low credit limits and high-interest rates as they are for people seen as high risk.

Balance Transfer Cards - Usually for a small fee, you can transfer your existing credit card debt onto a balance transfer card. You will normally then be given a 0%/low-interest rate for a set period.

Cashback Cards - You will get money back every time you spend (sometimes with a cap - e.g., Cashback on your first £2000 of spending).

Travel Cards - Many credit cards have huge fees for withdrawing/spending money in a foreign currency. Travel cards can help you minimize these to simplify the exchange rate.

Purchase Cards - Designed to help you spread the cost of big purchases, these cards normally have an interest-free period. But remember, you need to pay this off in full by the end of that period or be hit by massive interest charges!

➕ BONUS

My Favourite Credit Cards

Because credit cards aren't a one-size-fits-all kind of product, I've split the list into different categories (loosely based on the list above)!

Let's take a look.

Best for Cashback

AMEX Platinum Cashback*

• Cashback: 5% (up to £125) in the first 3 months (new cardmember offer), falling to 0.75% on spending up to £10k, and 1.25% on anything over.

• Annual Fee: £25

• Representative APR: 36.3% Variable

• Other perks:

• Why it's good: There is an alternative version* available without an annual fee, with slightly lower cashback rates, but if you're spending over £10k per year, this annual fee is offset by the increased rates.

Best for Free Flights

British Airways AMEX Premium Plus Card*

• New cardmember bonus: 25,000 Avios when you spend £3k in the first 3 months (often promotions where the bonus increases)

• Annual Fee: £250

• Representative APR: 112.5% Variable

• Companion voucher: Available in any cabin when you spend £10k in a year

• Other Perks: 1.5 Avios / £1 spent, 3 Avios / £1 BA spent, Travel accident and inconvenience insurance, discounts at retailers

• Why it's good: If you want to experience luxury travel, getting a companion voucher that can be used in first and business class is a massive plus and definitely covers the annual fee. If not, then the non-premium version* may be right for you with ZERO annual fee. However, the perks are slightly worse, and you will have to spend £12k to get a companion voucher. The reason I opt for the premium card is because the hardest part is getting enough point to get the companion voucher, which is where the new cardmember bonus comes in hand.

Best for Premium Rewards

AMEX Platinum Card*

• New cardmember bonus: 30,000 Avios when you spend £4k in the first 3 months (often promotions where the bonus increases)

• Annual Fee: £575

• Representative APR: 470.7% Variable

• Perks: 1 membership reward point/£1 spent (2x on amextravel.co.uk), airport lounge access, worldwide travel insurance, £300 dining credit in select UK/international restaurants (£150 each per year), £50 Harvey Nichols credit (per 6 months), hotel benefits, car rental benefits.

• Why it's good: As you can see, when these benefits are added up, they can far outweigh the hefty price of this card, if they are relevant to you. There's no point getting a card thinking you're saving when you're actually spending more. When I traveled a lot, I used this card for a year, but have since reverted to the AMEX Gold Card.*

Best for Travel

Barclaycard Rewards Credit Card

• Foreign transaction fee: 0%

• Cash withdrawal fee: 0%

• Representative APR: 27.9% Variable

• Annual Fee: £0

• Perks: 0.25% cashback on normal spending, 5 months Apple TV+, Music, Fitness+, News + and Arcade.

• Why it's good: Get to spend abroad with zero fees while also getting some cashback. Not bad when traveling normally incurs high fees.

Best for Starting to Build Credit

Tesco Bank Foundation Credit Card

• Starting Credit Limit: £250-1,500

• Annual Fee: £0

• Representative APR: 29.9% Variable

• Perks: Collect Tesco Clubcard points, 3 years of free credit score reports

• Why it's good: It has stringent rules on who it accepts, but it is a great starting point for building credit and learning how to manage a credit card.

NOTE: Getting a card with an annual fee is only worth it if the benefits were already part of your life. For example, if you don't eat out at expensive restaurants, then the premium card's dining benefit makes no sense for you, and that card is most likely not right for you.

NOTE: Many AMEX cards have promotions where sign-up benefits are increased. I like to wait until those points to maximize rewards. Also, check the terms and conditions to see if the new cardmember bonus is valid, as for many, if you've held an AMEX card in the last 2 years, you can't get the bonus.

Note: any card with an * has a referall link attached where we both benefit for using a personally provided link. This has in NO way affected my recommendation of the card.

PLEASE HIT "REPLY" TO THIS EMAIL WITH ANY QUESTIONS OR TOPICS YOU WOULD LIKE ME TO COVER - I WILL DO MY BEST!

DISCLAIMER: None of the above is financial advice. This newsletter is strictly education and should not be taken as investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and always do your own research.