What is value of your credit card?

[tachniki]

We often discuss value of credit card in P&L terms.

Let's say you paid Rs 10,000 annually as credit card fees. You spend about Rs 10,00,000 annually on it. And you saved Rs 1,00,000 from it (in form of discount, cash back or rewards). Value derived from this credit card is Rs 90,000 in absolute terms or 8.1% in percentage of total spend. There is common phrase- "Money saved is money earned". So, you have effectively earned Rs 90,000 (or whatever you value at) from your credit card.

Since credit card is making your money, It is an asset. What could be value of your credit in terms of assets and liability?

Let's assume that your average return of investment is 14%. What will be your investment to earn Rs 90,000 annually? Rs 90,000/14%= Rs 6,42,857. And here we have an answer. Rs 6,42,857 is asset value of your credit card.

I understand this sounds absurd. Normally folks talk about credit card as liability but I just called it an asset. (And I am hoping all group members will agree in this community) That totally depends on whether we are saving money (earning money) with it or paying interest (losing money) on it. Obviously, banks or creditors may not take that as collateral but it does make you money.

What is value of your best goose that lays golden eggs?

 

[Anupama_Jha]

Agree 💯 can't disclose much.

Basically I am in both boats, the earning one and losing one also.

 

[NikunjP]

Tere’s another important dimension to this theory: time.

Many of my friends don’t invest as much time as I do in researching credit card options and maximizing rewards; they simply prefer to pay with cash for convenience.

If we’re spending X hours on researching, managing, and optimizing credit card usage, the value of that time should also be factored into the overall return-on-investment analysis. This would provide a more comprehensive view of the true net benefit of using credit cards.

 

[realjayt]

Tere’s another important dimension to this theory: time.

Many of my friends don’t invest as much time as I do in researching credit card options and maximizing rewards; they simply prefer to pay with cash for convenience.

If we’re spending X hours on researching, managing, and optimizing credit card usage, the value of that time should also be factored into the overall return-on-investment analysis. This would provide a more comprehensive view of the true net benefit of using credit cards.

In that sense any other type of asset acquisition should also be held to the same standards. I mean you won’t be buying a car without spending zero time on research either.