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| rainbow of credit by frankleleon |
I hold a multitude
of credit cards.
In my wallet there's
a Visa Debit from S bank, a Mastercard Gold from Nordea, a Mastercard
from Hypo Bank and a corporate American Express. Of these I used only
two: The S bank card for all purchases from the S group (because of
the 0.5% cash back offer (”maksutapaetu”)) and one of the credit
cards for everything else.
The reason I use a
credit card for almost all of my purchases is that then I can have
much less cash on my bank account. This may seem counter-intuitive
for some: I actually want to minimize the amount of money on my bank
account.
That's because of
the time value of money or time preference in economics, i.e., the idea that money now is more
valuable than money in the future. This is because capital has an
earning capacity. If there's no cost involved, one should always
choose to pay later. Due to the low interest rate environment this
doesn't currently mean as much as it used to but the principle is
sound.
When I use a credit
card to pay for everything, I don't need to keep money on my bank
account. Instead I can invest that money. Let's say I would invest
1000 euros, that I would otherwise keep on my bank account, for 50
years and make 6% on that investment, then I would end up with around
18 400 euros. Now, that is extra money just from behaving more
smartly without zero sacrifice or saving more, etc. Using a credit
card is a no-brainer.
I always pay off my
credit card bills in full. The interest rates on credit cards are
quite high and no person who's in control of their finances should
have an outstanding balance on their credit cards.
