The Credit Card Experiment
There are polarizing opinions about using credit cards. Some consider credit cards to be very useful while others consider them as debt traps. Like most things in life, it is not as black and white of course. This post is not about debating whether credit cards are good or bad but more about my experience with a credit card.
I have used multiple credit cards when I was in the US. The credit card culture started soon after starting MS and continued on until I moved to India some 8 years later. But after having moved to India I haven't used a credit card for 9 straight years. Then in the December of 2019 I decided to jump into the bandwagon again.
I don't remember exactly how I got my first credit card in the US, but it was definitely after some cold caller offered me a card and I decided to take it without even knowing anything about credit cards. Many such calls followed every now and then, but I did not go over board. Just got 2 credit cards in total. In India strangely I never got any cold calls offering me credit cards. Or perhaps the spam blocker on my phone was doing an excellent job. Either way I did not really feel the need for it.
Amazon ICICI credit card
Exactly one year ago as I was browsing through amazon, I noticed an ad for ICICI credit card with zero annual fees and 5% cashback benefits. That got me interested. But remember that I have retired by the time. I wondered if the bank would offer me a line of credit. So just for fun I applied for the card. As you can imagine there were some questions about my current employment and income. Obviously there was no "retired" option in employment. I went with "self-employed".
A day or so later an agent was at my doorstep to collect more details like photo, aadhaar card etc. The agent again asked me about my job and income. I replied with "retired". He gave an odd look and said "self-employed?", I agreed. For income I reported what I redeem from my mutual funds to meet my expenses. I was impressed with how simple life has become with technology. He just took a photo of me and aadhaar on his phone. No need for physical copies now a days. Wish the government can catch-up. A few days later I got a message that my credit card was approved.
One of the benefits of using the Amazon ICICI credit card is that you get a cashback of 3% on Amazon purchases. But if are an Amazon Prime member you actually get 5% cashback. Now I am not the kind of person who really cares about points and rewards that come with credit cards. I never used any credit card benefits even in the US. However, in this case, it seemed like a no brainer to me.
The cost of Prime membership is Rs. 1000 per year. So if I buy Rs. 50,000 or more worth of stuff on Amazon in a year, that should offset the cost of membership. How you ask? Well if I buy Rs. 50,000 worth of stuff with my credit card without Prime, I would get 3% cashback = 3% x Rs. 50,000 = Rs. 1,500. With Prime membership the cashback will be = 5% x Rs. 50,000 = Rs. 2,500. So the difference in cashback which is Rs. 1,000 can be used for Prime membership.
In addition, with Prime membership we can watch movies, listen to music, get free delivery on Prime products, get early access to deals etc. This might sound like an ad for Amazon ICICI card and Prime membership, but I am just trying to explain my though process :).
How did it pan out?
I wanted to try out Prime for a year and see if the benefits are worth it or not. The results are mixed and your mileage may vary. So far we made purchases of around Rs. 45,000. Another couple of months to go, but I don't think we will hit the magical Rs. 50,000 mark. But more importantly, not all of those purchases are prime products. I am sure some 10% are non prime products. So we might have made around Rs. 40,000 eligible purchases.
Moreover this year might have been a one off expensive year because of the COVID situation and my electronics going bust on account of lightening strike. Due to lockdown we made more online purchases than offline. Next year we may not make as many online Amazon purchases. Have to wait and see. We might have watched some 10 or so movies on Amazon prime videos. Again nothing much to write home about. I haven't used Amazon music at all. I certainly made good use of the free delivery and found the early access to deals mildly useful.
When I started this experiment, I wanted to see if I can even get a credit card after retirement. Not that I needed it, but it is good to have it in case of some emergency and I don't have enough cash available right away in my bank. My spending pattern did not change much on account of the credit card which is usually the thing that most people worry about. Some tend to make impulse purchases when it comes to buying stuff on credit.
Coming to Amazon prime membership, the results were mixed. One would think that given the lockdown, there will be more consumption of movies, but not in this house with an unschooled kid at home all day. I am not really sure if I should continue with prime membership, but most likely I will try one more year and see if it makes sense. So far I couldn't take full advantage of it, and neither did I make a loss.