Congratulations! You are now earning money from working online. A lot of offers are now open to you: loans, businesses, investments, and even credit cards. Come to think of it, if you have the money, do you really need a credit card? Here are 7 credit card tips for remote workers and freelancers.
What is a Credit Card?
For those who don’t know, what is a credit card? Is it free money? Not really. It’s a preapproved amount of money (or “credit”) by a bank that you can use to purchase products or services. It usually comes with a plastic card embellished with your name and the bank issuer.
To let you understand better, a bank earns interest from lending money. When you use a credit card to purchase from stores, they earn a “service fee” from the merchant. And when you fail to pay your credit card bills on time, you are also charged a specific fee.
So going back, why use a credit card when you have money coming in any way? Should you not pay all cash instead? Here are some qualifiers.
Good Debt vs Bad Debt
A lot of people are averse to getting a credit card because they don’t want debt. I mean, it’s understandable because of the thousands of horror stories of people drowning in credit card debt.
There are times when it’s logical to use a credit card. It’s when you use it for good debt versus bad debt.
Good debts are borrowings that can earn you more money. For example, you charged a laptop from your credit card so that you can earn from freelancing. Let’s say, for 30,000 PHP full price with a 12 months installment for P2,500 a month.
If you can earn P20,000 a month because of the laptop, that’s good debt because you still have P17,500 (P20,000 a month income minus P2,500 a month installment). Without borrowing, you wouldn’t have earned that extra money,
On the other hand, bad debt is buying items on credit that won’t give you additional cash flow. For example, you bought a Louis Vuitton bag for P30,000 with an installment of P2,500 a month. That’s living beyond your means. And constant charging of these would bury you in debt.
Rolling Capital for Your Business
If you’re a freelancer or remote worker with a side-business, you can actually use your credit card balance to finance your operations.
For example, you sell summer items. And you expect a surge in sales in the coming season. If you don’t have enough money to purchase inventory with the increase in demand, you can use your card to borrow money and buy inventory.
Usually, there’s a monthly borrowing fee for cash advance transactions. But credit card companies, like Citibank, have this option to “Pay All” transactions with a direct cash deposit charged to your card. So, for example, you need to pay a supplier. You can request this transaction through their app and pay them with your credit card balance.
You now have extra leeway when you run your business.
Installment Transactions for High Ticket Items
On top of the rolling capital, you can also use your card for easy installment transactions. For example, you need new equipment (like a more powerful laptop) for your remote working needs; you may opt for installment payments to manage your cash flow better. And a lot of merchants offer 0% installment for big-ticket items.
So if you need that big purchase to be more efficient in work, you can actually buy it through your card. And have lighter payment schemes. With this, you can pay for the items from your income you’ll be earning along the way, not from your own pocket.
Build Up Credit Score
For bigger future purchases like houses or cars, you might need to borrow from a bank. But how do you prove that you can pay? Aside from your continuous income source from your remote working job, you can build a credit score by using your card.
When you pay on time and you don’t utilize all your credit, you can show the bank that you do have the right habits in managing your money. And it can lead to higher chances of loan approval.
Record of Expenses
Sometimes, it’s hard to track your expenses. With a credit card, you would have a record of all your expenses for a specific period of time. You can now see if you were spending so much on groceries or online shopping. In return, you can limit some expenses for your next budgeting month.
Last Resort Emergency Fund
We know that an emergency fund is crucial for unforeseen circumstances like accidents. But what if it’s not enough? You can use your credit card as a last resort. But make sure to build an emergency fund after (for at least a month) to avoid using your card for these reasons again.
Credit Points for Rewards
Credit cards usually have perks when you use them. For example, I have a credit card with points for free flights. Because of this, I usually get free flights every year just by charging my normal purchases to my card. (Super cheap round trip tickets to Japan every quarter!)
If you are responsible for your balances, you can actually enjoy the benefits and discounts from your credit card.
Are you ready to get your own credit card? With the tips above, you are sure that you can use it wisely for your financial journey. Cheers!