Credit Cards

[bradje]

Hope this is not out of line....
I am just setting up a LOC with STGeorge for the purpose of buying more IPs, and my advisor has said to get a Credit Card so I can buy EVERYTHING on that and pay all my wages into the loan, then pay off the CC on the due date and repeat the cycle monthly.

I am confused with googling "Credit Cards" as to what may be the better ones.
I guess I want one that will give me points that I can redeem for items (not travel). Not too scared of the fees, if the points make it worthwhile.

Does anyone have a good experience with this scenario and can perhaps recommend a CC?

Thx,
JB

 

[rossv]

Has your "advisor" explained how getting that CC will affect your servicability?


rossv

 

[bradje]

No he hasn't. What effect will it have do u think?
JB

 

[Tasman]

No he hasn't. What effect will it have do u think?
JB

Hi bradje,
Most lenders will assess your credit card as a regular debt whereby they look the minimum repayment to service the card at the credit limit;

eg; $10000 limit at a minimum monthly repayment of 3% monthly is a $300 dollar a month expense. A $302 per month payment on a 30 year P&I mortgage at 8.82%pa (7.32% current discount rate + 1.5% lenders buffer factor) would fund a $38000 mortgage.

So you are forgoing the ability to borrow $38,000 for the
privledge of running a credit card account with $10,000 credit limit.

 

[lowb]

an idea

the limit of the CC can be changed

a. before you refinance / get home loan, reduce your CC limit

b. after settlement, you increase it again

 

[redwing]

If the LOC is for Investment purposes and you claim the interest on that,then you purchase personal items (not deductible items) via the Credit Card which is linked to the LOC, which has your wages going into it to reduce the (tax deductible) interest you pay....wont this make things messy?

 

[bluegum]

Redwing makes a good point there... you dont want to use an investment LOC for your salary/personal drawings. The calculations to portion deductible vs non deductible interest are a nightmare!

Another option is to set up an offset account for your salary. This is in effect a savings/transaction account. You do not get paid interest on this account, but to balance it out the interest on your home loan is reduced.

This is how it works. Lets say you have a housing loan of $200 000. You have a balance of say $10 000 in your offset account. Interest on housing loans is calculated daily, so for the period of time you hold the $10 000 in the offset account you will only be charged interest on $190 000 on the housing loan.

The deductibility of your original housing debt is never compromised as the balance has not been paid down. You have just leveraged your funds to save interest.

Of course, if you have a loan against your PPOR, then THAT is the one you should be minimising your costs against before your investment loans.

As for the credit card question, some lenders wont count your limit against you providing you demonstrate that you clear it monthly. They normally ask for three months statements to proove this. St George is one of these lenders.

So your advisors idea of using a credit card to minimise your interest costs is a good one. Just be CERTAIN to pay in full each month, and only have payments coming out of a LOC if its purpose is personal. Otherwise an offset account is a tidier option. (You will probably also find that the St George LOC has a .1% higher interest rate than a standard loan!)

Your question about types of credit cards still hasnt been answered though!

I personally use a Westpac one with altitude points as it is compatible with Air New Zealand Frequent Flyers, and I can transfer points I have accumulated there. However, once I have had my holiday next year I will probably close it as I dont like paying the annual fee.

You will probably get a fee free credit card with St George that gives reward points (redeemable for shopping vouchers etc).

Otherwise, most of my clients that are savvy to the whole points thing seem to prefer the ANZ frequent flyers setup.

Good luck!

Roni

Please also note that the above is general information only - please discuss with your broker!

 

[Rolf Latham]

Hiya JB

Much depends on what dollars go through the card ?

ta
rolf

 

[FrankGrimes]

the limit of the CC can be changed

a. before you refinance / get home loan, reduce your CC limit

b. after settlement, you increase it again

Yep thats right. It's only a phone call away. I've done it in the past no problems, I also use my credit card to pay for everything and just pay it off each month. Maximizes how much $$ is in the offset and I get points, I could already go on a return trip to QLD for nothing!

 

[lowb]

i've always thought the rewards points on CCs... take a really long time to build up

on my cc, im use a basic one with no annual fee, and 0% for 55 days
is it worth getting a card with rewards points?

how much do you have to spend to get a $1000 air ticket i wonder

 

[FrankGrimes]

i've always thought the rewards points on CCs... take a really long time to build up

It does, but I mean a free airfare every 18 months is bloody good all the same. I'm lucky that I claim alot of work expenses, so that really adds to my points.. But it's better than nothing! I'm on the Westpac Altitude, 55 Days interest free

 

[bradje]

Thankyou all, Roni, Rolf, Frank and others....
I will be putting $3,500-$4K a month through the card. That is why I thought it would be good to get advice on what others are doing with various cards.
I was looking at Bendigo Bank and also NAB (VISA mini) for points that can buy electrical goods etc. I think they work out at a pt. per $. Suncorp offer 1.5 per $ on some specials.

It only costs about $20,000 for a toaster! Ha!

I shall have a closer look at the ANZ and Westpac cards. Thx for the suggestions. It seems that there is probably not one card which stands out from the rest.

Please send through any more suggestions. It has been a great help reading the replies.
Thx,

JB

 

[alexlee]

Bradje, this is probably going off topic, but how much do you intend to save from doing all this? If you spend the same amount of time researching properties, I have a feeling you will save even more by buying for better value.

Sometimes I think we get too caught up in the cool sounding stuff like interest minimisation and offsets and so on, when we should be concentrating on simple stuff like property selection?
Alex

 

[rj]

Im sorry but I see credit cards as poor peoples mentality

RJ

 

[alexlee]

Why? How is using a credit card for the convenience, planning to pay it off on time to minimise interest, any different from using debt to buy IPs?

Refusing a useful tool just because it has the potential for misuse shows a lack of confidence in your own self-control, surely.
Alex

 

[rj]

Why? How is using a credit card for the convenience, planning to pay it off on time to minimise interest, any different from using debt to buy IPs?

Refusing a useful tool just because it has the potential for misuse shows a lack of confidence in your own self-control, surely.
Alex

You dont like me do you geezer?

RJ

 

[alexlee]

You dont like me do you geezer?

RJ

I don't agree with some of your points, RJ. It's not personal. I respect how you're doing your investments. I just don't believe you can reduce investment strategies into 6 word sound-bite sentences: it assumes hard and fast rules where there are none. Saying things like 'credit cards are bad' as a blanket statement masks how useful a credit card can be (when travelling, say, or when you just plain run out of cash, or haven't had a chance to do bank transfers).

It's just like non-investors ('those people' in our world) who say 'debt is bad', 'you'll just money in investments', 'property always goes up' and 'if the bank lends me this it must be worth this much'. THAT gets my goat. I hope as investors we recognise that reality isn't that simple.
Alex

 

[rj]

I don't agree with some of your points, RJ. It's not personal.

My points are relatively simple and straight forward. Whatever it takes to get to the top - the rest is irrelivant.

RJ

 

[Trogdor]

Im sorry but I see credit cards as poor peoples mentality

RJ

This is a tad simplistic..

For example in my last job I had to do an incredible amount of travel. Weekly interstate flights, spending > 1/2 the year in hotels, and then later on living overseas with flights home ever 60 days.

I had a specific credit card (a charge one with no limit) to pay for all of this stuff on (flights, hotels, taxis, restaraunts, etc) - and then would be re-imbursed from work every month.

The frequent flyer points were massive - and it didnt affect my personal cashflow.

I dont see how this use of a CC was a personal weakness

Also - I have always had a personal CC, which I buy everything on, and ALWAYS pay it back every month in full. Never paid a cent of interest in my life. It accumulates more frequent flyer points which add nicely to all the other ones I got from work. Didnt have any fees either, as it was part of my IP loan package thing.

My girlfriend has gotten so many free flights to visit me when I was working as a result of these two cards.

Gotta break the narrow mindset sometimes!

 

[The Y-man]

A couple of thousand can do a lot of work in the interest free period that it is in my hand

I mentioned elsewhere that we even used a low interest rollover offer in June to fund some prepayment of interest.

Cheers,

The Y-man