There are plenty of products out there that can make your life easier and that you can use to reach your financial goals.
The most important thing is to get a good grip on the fees and charges. Some products are free for the first year and then automatically renew for the next one with a massive fee. Watch out for that and read the contracts carefully.
Credit cards
The most popular financial product is the credit card. I use cards every day, but I do it wisely and I never buy things I can't afford. You can use a credit card in many ways:
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As a quick and easy way to pay – online too, although there I'd recommend virtual cards with a prepaid balance.
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To manage your budget and keep your cash flow steady, so you never run out of money.
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As a security deposit for all sorts of services, like renting a car.
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If you're savvier, to use the interest-free grace period for your own financial goals.
Banks know exactly what they're doing, and using credit cards carelessly can lead to a debt spiral. High limits and deferred interest distort your sense of how much money you actually have.
It's much harder to pull fast-disappearing cash out of your wallet than to wave a credit card over a terminal. You can see this especially in the US, where having several credit cards is the norm.
But for the privilege of paying by card, someone has to pay. And everyone does:
- Shops pay a fee for processing card payments
- You pay an annual fee for the card (unless you spend enough on it)
- You pay interest on the borrowed money once the interest-free period is over
A credit card, as the name says, means borrowing money.
Don't withdraw cash from a credit card. Taking cash out wipes out your interest-free period, so you pay interest right away, and it usually comes with a hefty fee on the amount withdrawn too.
I have one credit card with a low limit because it was a condition for getting a lower interest rate on my mortgage. I only use it for everyday spending around town (groceries, restaurants, etc.), so I can easily keep an eye on my budget and see clearly at the end of the month how much I spent on living. At the start of every month, I pay off the whole card, manually.
I keep a second card with a high limit as a liquidity cushion, in case I need to buy something pricier because a good deal has just come up.
It also comes in handy when I order a bunch of stuff planning to send some of it back and don't want to tie up cash.
Like I said, I don't buy things I can't afford, so I only use it when I know the money I'm borrowing is about to come in, for example because I'm waiting for a transfer, or I'm cashing out an investment and it's still being processed.
I recommend reading up on the terms for paying online with a credit card, because some transactions count as cash transactions and others as regular purchases.
When you use a credit card, the cash ones are treated as a cash advance, and you'll immediately pay a very juicy fee that's sure to ruin your day.
For example, at mBank, an online payment can go through the mBank API, which is a cash transaction with a fee, or through mTransfer, which is a non-cash transaction, so the interest-free period applies.
Free cash
I also mentioned that if you're savvier, you can use the card for financial purposes. Using it to buy stuff is easy, since most shops take credit cards, but if you're thinking about investing and need a cash injection, you'll have to move the money off the credit card without paying a fee.
With products like Revolut, you can top up your balance with a credit card. Before you top up a larger amount, test it with a small one, call your bank and double-check that it really is a non-cash transaction and that the interest-free period applies.
If everything checks out, you can top up your Revolut balance with the credit card and then make a regular transfer from Revolut to your bank account.
The result? An interest-free loan for up to 54 days. If you're going to play with other people's money, always have a safety net so you can pay off the card in full. For example, very liquid investments you can cash out quickly, savings deposits or foreign currency.
Keep in mind that companies like Revolut may not like what you're doing when you top up and immediately withdraw the money. It might be a good idea to exchange some currency, say Polish złoty to euros, to keep up the appearance of actually using their services. Be ready for a KYC (Know Your Customer) procedure if you move larger amounts.
I bet an idea has just popped into your head: since you've got free cash, you could put it in a one-month deposit and make a profit.
Assuming you earn quite well, have a credit history but no loans right now, and can get a credit card with a limit of PLN 50,000 (about $12,500) or more, the potential profit on a one-month deposit at 5% a year is PLN 208 minus 19% tax, so PLN 168 (about $42).
On top of that, there are limits like:
- Caps on the maximum deposit amount
- Deposits with good rates are usually for new customers only, and any later ones will pay low interest.
To me, there's a big risk of getting your Revolut account frozen for weeks while you prove where the money came from. Not worth the hassle for such a small profit.
Whatever you do, start with smaller amounts to get providers used to your behavior and see how they react. These platforms use algorithms that detect unusual activity.
Always have a safety net to pay off the credit card in full, in case getting your funds released drags on.
I've used credit card money in emergencies, or for investing when I was waiting for money from other sources and timing was critical. For example, to buy assets before the end of the year for tax reasons, or when the price was shooting up like crazy and I was still waiting for payments from clients.
Extra services
Credit cards aren't just for shopping. You can also collect air miles and trade them for flights. Cards come with various kinds of insurance and a chargeback option, which lets you get your money back for a service that was never delivered.
Credit cards also offer a concierge service that will, for example, get you a plumber, help you buy theater tickets or find a car repair shop. I've never needed it myself, but out of curiosity you could check how it works. Let me know afterwards!
Revolving credit
An interesting product is revolving credit (or a revolving limit). It's similar to a personal loan, except you don't get the money in your account and don't pay it back in regular installments; instead, you can go into overdraft on your account. In other words, you can spend more money than you have, and your account balance goes negative.
If you run a business, this turns out to be really useful for keeping your liquidity when you're waiting for your invoices to be paid and you're short of money to cover all your bills on time. I've used it many times.
Currencies
Meanwhile, lots of fintech startups have popped up trying to build products that are more convenient and cheaper to use. I use them every day to exchange currencies, and when traveling to pay in local currencies.
Currencies are a tricky subject, because they usually come with high payment fees, multiple conversions (for example from THB to EUR and from EUR to PLN), or just lousy bank exchange rates with a wide gap between the buy and sell price.
Before a trip, check what your bank offers, because it probably has a travel card you can use to pay abroad.
At the same time, look into Revolut. It doesn't work everywhere, so it's good to have a backup payment method in the form of your bank's card.
If you exchange currencies regularly, consider a Revolut subscription plan. It costs a few dozen złoty and lets you exchange currencies with no fees.
I've also used various Polish services for currency exchange. The best mix of quality, price and rates seems to me to be Walutomat, but it's worth checking what the competition offers right now. If you exchange regularly, you can negotiate the fee. I managed to cut mine by 50%.
There are also card aggregators that act as a gateway to your actual debit card and convert currencies on the fly. I'm thinking of Curve, for example. I don't use it myself, but quite a few of my friends do.
Exchange booths
I've hardly used physical exchange booths in years. I'd rather withdraw money from an ATM with a card that behaves as if it were in the local currency.
If you see an exchange booth with a big flashing NO COMMISSION sign, it usually means the rate will be terrible. Avoid them and check the rates online beforehand.
ATMs
When abroad, absolutely avoid using ATMs to convert currency. The sneakiest of all is Euronet, which has made tourists withdrawing cash at the airport its target. If you put a foreign card into one, it will:
- offer you absurdly high withdrawal amounts, counting on you not knowing the local currency
- slap on a high fee or a really bad exchange rate
Foreign currency loans
If you take out a loan in a currency you don't earn in, be aware that you're also betting on the exchange rate, and ask yourself: is that really what you wanted?
Everyone who took out a mortgage in Swiss francs learned this the hard way.
Cash, loans and financing
If you have a decent amount of cash and you're planning an expensive purchase like a car or property, in most cases it's better to hold on to your cash and finance the purchase fully or partly, at the cost of interest.
The interest is usually lower than on a personal loan anyway, and having cash on hand can open up other investment opportunities for you.
The money you hold on to won't lose value, because if need be you can use it to pay off the loan you took out. If you borrow PLN 200,000 and have 200,000 in cash, then no matter how many years go by, that 200,000 in cash will still be enough to pay off your loan.
I'm not a fan of buying consumer and lifestyle stuff on credit if you don't have the cash to cover it.
To me, a loan is a tool for having both the product and the cash at the same time, at the price of the interest.
If you lease a car for personal use and didn't have the cash to cover it beforehand, you've bought a car with money you haven't earned yet, so be fully aware of the consequences that may follow.
Real estate
If you're planning to buy a property and have the cash for it, instead of spending all your money, ask yourself: could you buy two at once using financing?
Even better, don't live in either of them; use them as investments and keep building your wealth. Then you're holding two high-value assets that pay for themselves and cover the financing.
If need be, you can move into one of them. It's also a pretty sensible safety net for your retirement years.
You may see it differently, and I'm totally fine with that. In my head, buying a home you live in is a pure consumer purchase.
Sure, it takes rent off your plate, but at the same time it eats up more money and doesn't make you anything until you rent it out or sell it. But sometimes that's exactly what you need most: a place of your own, stability and peace of mind!
Always think for yourself and decide what the best option is for you. I may be in a different financial situation and have different plans.