Whoa! Double whoa!

I’ve gone from riches to rages to riches, I’ve had a twelve year period where it was paycheck to paycheck and carried consumer debt, even been late (usually by a week, which only CitiBank system will report on your credit report). I really do not understand how this family ended up in this mess, I mostly use a debt card or cash and credit card was for car repairs and such which could be often as for a time I would own the worst vehicle in any parking lot, but no car payment.

I have four credit cards and my debt card, three I never use and it’s laziness that I’ve not looked up the address to cancel. I understand for on-line purchases credit cards offer more protection (those Paypal is my preferred choice). I guess when my financial boat was close to sinking, I prayed and purchased much less groceries, when times were more fruitful I purchased cloths and longer use items.

The debtor is the servant to the creditor. Remembering that goes a long way in curbing purchasing habits on plastic.

Listening to Dave Ramsey convinced me that debt free is the way to go.  We slowly paid off all of our credit cards and have none now.  It’s a good feeling and I will never get another credit card again.  And at Christmas, we paid for everything w/cash so no January bills.  I think the best thing about doing it is realizing and getting used to the idea that less is better.  Scaling back on the purchasing of “stuff!”  And coming to believe inside that if I don’t have the cash to buy it, then I CAN’T buy it until I do.  It takes a big burden off.  It took awhile to get those cards we had paid off, but it’s so worth the effort in peace of mind.

I take a view of credit cards that is different from most people. For those who are able to control their spending, and who do not rely on credit cards as free money that is not backed by actual cash in hand (and, in periods of crisis, this may be necessary), credit cards, if used properly, can be beneficial. Since 2002, I have made over 1,000 dollars from credit card companies, paid no interest, and still keep my bills low (i.e. I am not using them to buy a bunch of crap I don’t need). I have cards that give me 5% back on groceries, gas, and restaurants, and a business card that gives me 5% back on all online services.  One gives me 1.4% back on every purchase, so I use it to pay things like tuition, that I would write a check for anyway (a check doesn’t give me 15 dollars cash back on that purchase).

I suspect that most people in this country are not able to use credit cards this way for a variety of reasons. Nonetheless, I am one of the few who has used credit cards to my benefit, which is why I have quite a few of them. Some experts recommend having multiple credit cards, because it helps your ratio of credit utilization to be lower, which helps your credit score. For example, if you are using 1500 of a 3000 limit (50%) on one card, that is a higher percentage than if you have 3 cards, using 2000 of a 10000 limit (20%). I know none of this is conventional wisdom, but it has worked for me.

Whenever my wife and I receive an unsolicited “pre-approved” credit card in the mail, we promptly cut it up and send it back with a strong note saying “Forget it!  Stop bothering us!”  We have one card, and we pay the full balance monthly…..every month!

David (#3)

  I too play the credit card game, even to a higher level.  In the last 10 years, I’ve gone through about 60 cards, and from those cards’ rewards programs received about $2000 cash, about $2500 in gift cards (mostly to Target), $2500 in 529 College savings plan contributions, $5000 in cash rebates on a new GM car, about 5 free airline tickets and about 20 free stays with Hilton and Marriott hotels.

  Every few months or so I’ll get a credit card offer worth responding to – most require you to sign up and use the card once and get $100 gift card, a free hotel stay, 75% of the airline miles required for a free ticket, or something similar.  Most often I’ll sign up, use the card once to get their “free prize”, and then cancel the card (or wait until they send me a $20 check to sign up for their “payment protection plan” – I’ll deposit the check to sign up and then cancel the card)

I regularly use 3 cards – one card that gives me Hilton points, one that gives me a 5% rebate for gas, grocery stores, and restaurants (and we use it only for those things), and a card that puts 2% of everything I spend in a 529 College savings plan.  We charge every monthly expense we can to one of those cards, and very rarely use cash.

With one exception, I always pay the balance in full every month and have never paid 1 cent in interest.  That exception is a card I got about 2 years ago that offered me a 2% lifetime interest rate on balance transfers in the first 3 months.  I signed up for the card, and over 3 months instead of making my normal full credit card payments, I transferred the balances to this card.  I took advantage of the fact that you can make a balance transfer in excess of your balance (giving you a credit on one card), and I transferred about $13000 to this card (the credit limit), and then put that money I would have used to pay my other cards in a high interest savings account – I’m actually making about 2% on the balance on this credit card.  I plan on using that money soon to pay for a new-to-us car (our two cars currently have over 300000 combined miles) – most used car loans are at least 7% interest, this one will be 2%.

But to play this game you have to be VERY careful!  You have to make sure you will never overextend yourself and will always pay the balance in full every month (#1 rule), and you have to manage making multiple payments every month, making sure to never miss the due date.  And, of course, you have to read the fine print.  For example, on my balance transfer card, if you charge anything to the card, it is at the “purchase” interest rate (which is an outrageous 15%), and you would have to pay off your balance transfer balance first before any of your payments go to the higher interest rate balance (your higher interest balance would just sit there and accrue finance charges until your lower balance transfer rate is paid off).  Thus there’s no way I’ll ever charge anything to this card.  I find it sickeningly amusing how credit card companies will try to entice you to do things that will force you to keep a balance with them (such as send you checks which, if you use them, are treated as cash advances at a higher interest rate, offer you incentives to keep a certain balance every month, or try to trick you into having a low interest rate balance which is paid off first before anything goes to the higher interest rate balance).

It’s a dangerous game – if I forget one payment on my balance transfer card, the interest rate will shoot way up.  Or if I don’t pay off the balances in full every month, I would very quickly fall behind.  But as Dave said, if you can control your spending with the cards, you can come out way ahead.

#5 Kevin-  Formidable!   Monsieur Jerome Kerviel would like to take lessons from you.