- Use a credit card for every expense you can possibly charge.
- Use a card that gives you frequent flyer miles or some other benefit that you'll actually take advantage of.
- Only charge as much as you can pay off in full every month-- don't carry a balance.
I know this is controversial-- a lot of people caution against credit card use, saying that it's easy to go crazy spending money without seeing how it affects your bank balance. They'd rather use cash or debit cards, thinking this will keep them in control better, and for some people, that may be the right way to go. But if you can keep your expenses in perspective and not spend more than you can pay off, here's why it's a good idea:
-- you are basically getting a free short term loan for a few weeks, as no finance charges are due if you pay your bill in full every month.
-- you get a printed record of exactly what you spent your money on, monthly and usually a summary at the end of the year. It's harder to keep track of cash. Knowing what you spend your money on is the first step to being able to see where you can save.
-- if you use Quicken or another financial tracking program, you can set up online access and download your transactions right into the program.
-- if the card has a good rewards program, you can save a lot of money. I use a United Airlines Visa, and between credit card use and actual flights, I've earned enough miles for an average of one international round trip for each of the past 5 years. Some of this was based on business use reimbursed by my company, but that's at least $3000 or so that I've saved on airfare. My card has a $50 annual fee but it pays for itself!
Obviously, if you can't pay off the card every month, you should avoid using it, and if you have a credit card balance, you should do everything you can to pay it off, before the high interest buries you! When I was in my early 20s, I ran up a balance and switched cards a few times to take advantage of those "no interest on transferred balances for the first 3 months" kind of offers. But as soon as I had any cash, I tried to pay off the cards. I have known people who had built up some savings, and still carried large credit card debts. "But my savings are earning interest!" they'd say. It makes sense to keep some savings for emergencies, but you're probably paying 10 times more in interest on the credit card balance than your savings is earning, so just pay off as much as you can.
31 comments:
Very similar strategy discussed on my posting:
Money and Investing: Credit Card Management
Our local supermarket lets Discover card users charge up to $50.00 over a purchase which is returned as cash. I probably make about two purchases a week and get about $100.00 in cash.
The reason why I do this?
1) This lets me keep money in my checking account in which I get about %1.5 a year.
2) This builds my balance towards the Discover card cash back rewards.
learnt it from my own experience. Credit Cards kill you! Never ever..
This is TOTALLY how I do it! But you are 100% correct in that you have to have a good view of your finances and just how much you can charge per month before it gets too much. I've gotten pretty good at it and earn a nice little Cash Back bonus yearly!
Credit Cards are stupid!!! Don't use them! Mess with the snake and you'll get bit!
I'd love to try this rule out if I could actually GET a credit card!
LOL
1mil
it's a good way to build up your credit also, don't forget! Just control yourself and you'll be fine. I made mistakes with credit when I was younger too.
I've lived this way for years! Means we have to know what's coming in and what's going out. And I earn double miles at the grocery store and several other merchants when I use my card.
Though it is true... you need maturity and discipline to do this. Without those things, this could be a disaster.
My mom, who is very cautious with her money, used to always go the bank to pay off her credit card purchases right after making them, often on the way home if not simply later that week. She never ever carried a cc balance. I adopted that habit when I first got my own card, but I'm sorry to say that over time I've gotten more lax with it. For the first time ever I've found myself not paying down my balance for the last year which is very unusual and kind of frightening for me, even though it isn't a crazy big balance and I have a plan to pay it off. I also bought my first house this past year, so I kind of let myself off the hook for that.
Until I started reading blogs recently, I never thought of credit cards as anything other than a different form of payment.
Each time I use it, it's not a loan, it's a purchase. The balance has to be paid in full each month. I have never imagined doing otherwise.
The phrase "get in trouble" with credit cards never made sense to me, until recently. But now, I have been enlightened by the posts of internet denizens and think I understand: Most people in credit card trouble have been viewing the credit card as an entirely different item - a source for a loan.
...AND, the loans they've been taking out have been at obnoxious credit card rates
"Get bit" one poster above said? Only if you're trying to get something out the card that you didn't have to begin with.
If you wouldn't write a check for more than you have in your account, why would anyone knowingly pay with a credit card for more than that amount? There's no other way to "get bit", right? (Am I missing something?)
I've been on the phone with credit card CR's who start talking about their low rates. I immediately cut them off and tell them not to waste their time, they could make my rate 300% APR and I wouldn't care because they'll never see a dime of it because I'd never let a balance go to the next month. (I then try to steer the conversation to a higher credit limit instead.)
I'm honestly not trying to be a snot, I'm just trying to point out the very different philosophy behind the two types of posts I see. I think the logic behind the CARDS-ARE-EVIL school of thought is flawed. I think you really mean HIGH-INTEREST-LOANS-ARE-EVIL, and to that I would agree with you. But using a card where you'd otherwise spend cash or pay by check has many advantages, as our original poster has described.
My bank card has all the avantages you listed above for credit cards, including a good rewards program. Best of all I don't have to worry about the possiblity of carrying a balance between months and netting those daily interest rates.
This is right on point...
My wife & I do the exact same thing. I have a CITI Platinum Card that pays a 5% rebate on gas station & supermarket purchases & 1% on every other purchase. I charge every expense we have like cable, trash, gas food, utilities, etc to this card & pay off the balance every month. Not only does it save time, we max out the rebate limit of $300 by August or so. After that I switch to my wife's Discover that has the same benefits & continue collecting free cash. This year we will earn $500+ in credit card rebates-not bad!
The cash back reward you can earn from credit cards depends on your particular spending profile -- especially how much you spend in various categories (e.g. gas, grocery, restaurants, utilities, etc.)
The calculator tool at www.creditcardtuneup.com makes choosing the best cash back card (or mix of cards) easy. Given your spending pattern, it calculates your expected annual rewards for each of the leading cash back credit cards and even for your best mix of cards. See the tool at http://www.creditcardtuneup.com/ .
These guys have the Lowest Fee Debit Cards in the Industry.
http://debit-card-blog.info/page/2/
AS 2 Enterprises, LLC does business marketing various stored value card products, among them the Exclusive One Card, and the Exclusive One VISA (the “Debit Cards”). We have established ourselves as a provider of financial service solutions for the unbankable consumer demographic, and extend our services to all unbankable people, enabling participants to efficiently buy and sell products at point-of-sale or over the Internet, and participate in the buying power that is commanded by VISA, all without credit checks or a bank account.
Our program grants participants certain advantages over the traditional cash-based system. First, the Card is prepaid and loaded at one of any participating locations, via direct deposit, card to card transfer, or web interface. The Card eliminates the need for the unruly carrying of cash, and provides participants with the opportunity to upgrade the ATM debit card to a VISA product, thereby commanding the purchasing power that comes with owning a VISA card.
Every time I get a $100 check from my Chase Cash Rewards card, it reenforces this Rule. :)
I too use the "credit card" to my advantage as well, but recently came up with an even better way to track my finances; I use 3 cards, with benefits of course. One is for food, one is for gas and the last is "luxury" items, eating out, purchases etc. This way my tracking is easier at a quick glance!
Great advice. (It's how I operate.)
The most cash back you can earn from the best mix of credit cards is driven by your particular spending profile -- especially how much you spend in various categories (e.g. gas, grocery, restaurants, utilities, etc.)
The free calculator tool at Credit Card Tune-Up: Maximize Your Cash Back Rewards (www.CreditCardTuneUp.com) makes choosing the best cash back card (or mix of cards) pretty easy. Given your spending pattern, it calculates your expected annual rewards for each of the leading cash back credit cards and even determines your best mixes of cards.
You can use the tool for free at http://www.CreditCardTuneUp.com/ .
Did you know that credit card companies can change the terms of your contract at any time? That’s just one of the credit card traps that can trip up consumers and lead to spiraling debt. Consumers Union, the nonprofit publisher of Consumer Reports, has put together a lighthearted animated holiday-themed satire about abusive credit card fees and practices. Check out “It’s Always Christmas Time (for VISA)” at www.creditcardreform.org. Be sure to take action after viewing the animation!
Great points!
I hate when so-called "debt-gurus" tell people not to use credit cards. I mean, there's definitely some individuals who shouldn't use credit cards! If you're irresponsible and can't control your impulses-- you shouldn't have a credit card! But for most people, if they're used correctly, credit cards provide many benefits you can't get by using cash.
Here's an update. Less than a year later I have two credit cards with the highest possible available credit on both! w00t!
Your friend in credit card stuff, 1mil from millionster.com
Don't let the credit card companies take advantage of you-- take advantage of the credit card companies! And that's exactly what you're doing! Great job!
Of course, if everybody was as savvy as you-- many of these reward programs and other perks wouldn't be offered. So I guess we're lucky most people haven't figured it out!
Credit cards are convinient. I use them not only for purchases but also for frequent flier miles. I do not use any cash. My plastic is always with me. If you use your credit cards wisely, you will build strong credit. With good credit card you will take benefits and save your money.
I agree that credit card can be dangerous when used unwisely. And it's difficult for people with bad credit to get a good beneficial credit card. But as you build your credit to be good, you can take many advantages of good credit cards. So I don't think that plastics are complete evil.
Credit card should be used wisely. If possible it should be used only in an emergency situations.
i'm anti credit card use, especially if you don't have an emergency fund. many people don't. too many things can go wrong and your interest free loan can turn into a night mare. i love your site. i added it to my blog roll if that's okay
“Skimming….the new wireless identity theft!”
You’ve heard of hacking, but do you know what “skimming” is? Wireless identity thieves, called “skimmers”, can steal your RFID information out of your wallet or purse while the cards are still in place. All they need is an antenna hooked up to a PDA in their shirt pocket or a laptop with deciphering software. As the victim walks by, their information can be stolen with the silent sending of an RF pulse, the thief can then replay that pulse and use that information to your detriment. Imagine what can be done with a door pass card, your library card, your driver’s license or your debit or credit card information?! And they never have to go through any of the credit checks to use it!
To stop wireless ID theft, Wisteria House Products, of Arizona, has created a device, called the Armadillo Dollar (www.armadillodollar.com), which will shield your personal information from being stolen. It is a novelty dollar made with a specially tested material that when placed in your wallet, will protect the user from random wireless theft. The Armadillo Dollar camouflages your RFID cards and makes them invisible to would be thieves.
Credit cards are financial cancer.
Financial magazines talk about credit cards as if they are a good idea. That's in part because credit card companies are big advertisers, and in part because the editors realize that they probably can't convince you not to carry them, so you they might as well dole out advice on using them.
I never use a debit card or write a check, and I hate paying with cash (I never do, only exception is vending machines!).
For one, it really makes me feel more secure -- I completely minimize who has 'direct' access to my checking account, who links to it, who can screw it up, etc.
Second, I earn hundreds of dollars of cash back rewards each year and never pay interest.
Third, I have built a substantial amount of credit by charging substantial amounts of money, which allows me to have a top-notch credit score, low APR on vehicles and great rates on my homes!
So in other words, I completely agree!
I do the same thing, I charge every dime I can (gas, groceries, utilities, McDonalds, or any other purchase) and pay it in full each month. Around November or so, I've probably spent over 35 grand which translates to about $400 cash back.. this is my Christmas fund. I can do almost all my Christmas shopping thanks to my creit card company.
I Agree. Credit cards must be fully paid and while using credit card one must always think if he would have shelled out cash for that purchase.
-Vats
http://www.vatsinvesting.com
Nice post! Just watching our expense and controlling the way of spending money by credit card is good idea as u said.The reward program is good concept for credit card, so that we can spend it way accordingly the amount which we can able to pay back for it. For more information of credit cards click below link:
http://www.canadian-money-advisor.ca/secure-credit-card-info.html
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