Making Credit Cards Work For You
Credit cards are very dangerous to the average person. One reason this is true is because we are never taught how to handle credit cards in the proper manner. Once learned, an individual will never pay interest, spend more than they should, and even get the credit card to pay them.Credit cards have become the financial bane of many a family. It seems like the only real winners are the credit card companies themselves. Look at some of these statistics for the year of 2003:
1. Total consumer credit: $1.7 trillion.
2. Credit card debt carried by the average American: $8,562.
3. Total finance charges Americans paid in 2001: $50 billion.
4. Percent of U.S. households deemed credit worthy by the lending industry: 78%.
5. Number of card holders who declared bankruptcy in 2003: 1.3 million.
And that was way back in 2003! Imagine what it is like today. Clearly, the winners so far have been the credit card companies! If you are one of these statistics, the best thing that you can do is cut up your cards!
But, there are ways to make them work for you, not them. You must be very careful, however. These methods require a strong degree of character. At least 75% of all the money that credit card companies make comes from finance charges. They don't want you to pay off your cards! In fact, there are some companies that will actually assess a fee for paying off the balance! Don't ever touch one of those!
What can you do to make them work for you?
1 - Building Your Credit with Credit Cards
Credit cards are useful in that they can improve your credit rating if you can be consistent to make at least the minimum payments. Also, the credit limit goes on your credit report, which is also factored into your credit score.
To build your credit without the risk of going into debt, do the following:
* Use it like you would a check. When you make a purchase, immediately deduct the amount from your budget or checking account.
* If you do this, then you don't have to worry about the credit card bill when it comes in. Since, on paper anyway, you've already deducted it from your budget or checking account, you can simply write out a check for the entire amount knowing that you have already taken care of it.
* Never use the credit card when you can't afford to. The wonder of credit cards is the 'buy now, pay later' concept. It might be wondrous, but it is the biggest financial trap you'll ever step in.
Following the above principles will allow you to build your credit, preserve your good name, and stay out of debt at the same time. Oh, and you'll never have to worry about your current interest rates because you'll never pay any interest.
2 - Making Money with Credit Cards
My current card gives me 5% cash back on all gas purchases and grocery purchases. It also gives a 1% cash back award for every other purchase. I usually get back from my credit card company about $200-$300 a year. That's not a bad bonus isn't it?
Of course, I follow the procedures in the first method to ensure that I never pay a penny of interest. I always deduct my charges from my budget the same day that I make any purchase. I never worry or even really look at the size of my bill. I already know that it is paid off.
And then, they pay me. I like that. You will too.
3 - Getting a Free Small Loan from a Credit Card
Occasionally, you might come across a need that is extra-ordinary. Something that is important to you and your family. Well, it is possible to get a free loan from a credit card to help finance this extra need.
Here is what you do. Search the internet for credit card offers. Many of them will have some introductory offer of 0% APR on purchases for the first 6-15 months, depending on the company. This is your free loan. Do the following:
1. Apply for the card-sometimes your credit score will actually extend the 0% introductory offer.
2. When the card comes in, the only thing you charge to it is this special need. ONLY!
3. Once the charge has gone through, cut up the card!
4. Come up with a payment plan that will allow you to pay the charge off before the introductory offer is over.
5. Once you've paid off the card, cancel the account.
I've done this for two items. One was for a camcorder. I wanted to take video of my kids, and there were some special events that were coming up, so I didn't have time to save up for the camera. I applied for one of these cards, got the card inside a week and purchased the camcorder. I paid the entire thing off within the first 6 months and never paid a penny of interest!
Then, when my wife was pregnant, we noticed how difficult our water bed was making both of us feel. We determined that we needed a new bed, so we purchased an air bed using this method. I had an introductory offer of 15 months of 0% on purchases. I only put the bed and accessories on this card, cut it up, and then paid the entire amount off in 10 months. I never paid one penny of interest on that either.
It was funny, when I called to cancel it, the man who took my call asked me for a reason. I told him the truth. There was this long, almost thoughtful pause on the other end of the line. The man said, "Wow. I never thought of doing that!"
CONCLUDING THOUGHTS:
Credit cards are very dangerous. If you don't have the character to handle one the right way, at least get the character to cut them up. However, if you have the character, you can make credit cards work for you instead. I use one for everything. Why? They pay me, and my credit score is near 800 as a result.
But, I always pay the entire balance off every single month. I can do that, because I never overspend. You do that, by simply deducting the purchase from your budget or card immediately.
Make credit cards work for you...or destroy them, but stop financing the credit card companies.
1. Total consumer credit: $1.7 trillion.
2. Credit card debt carried by the average American: $8,562.
3. Total finance charges Americans paid in 2001: $50 billion.
4. Percent of U.S. households deemed credit worthy by the lending industry: 78%.
5. Number of card holders who declared bankruptcy in 2003: 1.3 million.
And that was way back in 2003! Imagine what it is like today. Clearly, the winners so far have been the credit card companies! If you are one of these statistics, the best thing that you can do is cut up your cards!
But, there are ways to make them work for you, not them. You must be very careful, however. These methods require a strong degree of character. At least 75% of all the money that credit card companies make comes from finance charges. They don't want you to pay off your cards! In fact, there are some companies that will actually assess a fee for paying off the balance! Don't ever touch one of those!
What can you do to make them work for you?
1 - Building Your Credit with Credit Cards
Credit cards are useful in that they can improve your credit rating if you can be consistent to make at least the minimum payments. Also, the credit limit goes on your credit report, which is also factored into your credit score.
To build your credit without the risk of going into debt, do the following:
* Use it like you would a check. When you make a purchase, immediately deduct the amount from your budget or checking account.
* If you do this, then you don't have to worry about the credit card bill when it comes in. Since, on paper anyway, you've already deducted it from your budget or checking account, you can simply write out a check for the entire amount knowing that you have already taken care of it.
* Never use the credit card when you can't afford to. The wonder of credit cards is the 'buy now, pay later' concept. It might be wondrous, but it is the biggest financial trap you'll ever step in.
Following the above principles will allow you to build your credit, preserve your good name, and stay out of debt at the same time. Oh, and you'll never have to worry about your current interest rates because you'll never pay any interest.
2 - Making Money with Credit Cards
My current card gives me 5% cash back on all gas purchases and grocery purchases. It also gives a 1% cash back award for every other purchase. I usually get back from my credit card company about $200-$300 a year. That's not a bad bonus isn't it?
Of course, I follow the procedures in the first method to ensure that I never pay a penny of interest. I always deduct my charges from my budget the same day that I make any purchase. I never worry or even really look at the size of my bill. I already know that it is paid off.
And then, they pay me. I like that. You will too.
3 - Getting a Free Small Loan from a Credit Card
Occasionally, you might come across a need that is extra-ordinary. Something that is important to you and your family. Well, it is possible to get a free loan from a credit card to help finance this extra need.
Here is what you do. Search the internet for credit card offers. Many of them will have some introductory offer of 0% APR on purchases for the first 6-15 months, depending on the company. This is your free loan. Do the following:
1. Apply for the card-sometimes your credit score will actually extend the 0% introductory offer.
2. When the card comes in, the only thing you charge to it is this special need. ONLY!
3. Once the charge has gone through, cut up the card!
4. Come up with a payment plan that will allow you to pay the charge off before the introductory offer is over.
5. Once you've paid off the card, cancel the account.
I've done this for two items. One was for a camcorder. I wanted to take video of my kids, and there were some special events that were coming up, so I didn't have time to save up for the camera. I applied for one of these cards, got the card inside a week and purchased the camcorder. I paid the entire thing off within the first 6 months and never paid a penny of interest!
Then, when my wife was pregnant, we noticed how difficult our water bed was making both of us feel. We determined that we needed a new bed, so we purchased an air bed using this method. I had an introductory offer of 15 months of 0% on purchases. I only put the bed and accessories on this card, cut it up, and then paid the entire amount off in 10 months. I never paid one penny of interest on that either.
It was funny, when I called to cancel it, the man who took my call asked me for a reason. I told him the truth. There was this long, almost thoughtful pause on the other end of the line. The man said, "Wow. I never thought of doing that!"
CONCLUDING THOUGHTS:
Credit cards are very dangerous. If you don't have the character to handle one the right way, at least get the character to cut them up. However, if you have the character, you can make credit cards work for you instead. I use one for everything. Why? They pay me, and my credit score is near 800 as a result.
But, I always pay the entire balance off every single month. I can do that, because I never overspend. You do that, by simply deducting the purchase from your budget or card immediately.
Make credit cards work for you...or destroy them, but stop financing the credit card companies.
