Credit Cards (CCs) – Best Use?
What do the following items have in common? A hammer, a drill, a reliable search engine like Google, a financial formula that calculates your retirement savings? When you need to secure two pieces of wood together with a nail, a hammer would come in handy. A drill would be nice to have if you want to secure a door hinge to a frame to hang a door. If you want an answer to a question or you want to conduct some type of research, Google sure can help. Or if you want to know how your retirement savings will look in 20 years at a specific annual rate of return, a nice future value calculator should set you straight. Yes, all of these items are very useful tools. Yes, a CC can be a useful tool, if, and I want to emphasize if, it is used correctly.
A pencil is a useful tool. But if you try to use the pencil to drive that nail into the wood, well, good luck. If you are using a CC to fund a lifestyle you cannot afford, you have found trouble with a capital T. I want to be clear; I am not anti-CC, however, please proceed with extreme caution. Maybe I sound a little extreme in my commentary, but when you carry a balance on a CC, thus debt, it does not get much worse. About the only thing carrying a more punitive interest rate would be pay day loans.
In my book, The Debt Dilemma: Get out, Stay out, I discuss just how insidious this debt type is and how difficult it can be to eliminate. I have one rule when it comes to using your CC (s); PAY IN FULL every month!! To ensure this happens, I recommend two things; spend less than you make and set up an auto-debit from your checking account. Clearly the balance due each month needs to be sitting in your account and with auto-debit you are guaranteed to avoid any interest charges.
This is exactly how Diane and I, as well as Danielle and Christina, operate. Never have we paid a single penny in interest. I am fairly certain I am no hero of Chase (my CC company). That is fine by me, I am not looking for hero status with my CC company, just a useful tool that I can use free of charge (no annual fee either). With all of my consulting work over the years, I have amassed considerable reward points that we have used for free flights and hotels mostly. At one point I was within striking distance of 1 million points with Priority Club, while having over 700K with Hilton Honors.
We only have one CC and we use it for everything, including things like our electricity and cell phone, both on auto-pay. Sometimes, however, you have to be careful. Recently our air conditioning unit went kaput and after receiving the bill, Diane stopped by to pay, with the CC of course, only to be told there would be a 2 percent surcharge. I am certain you have heard of this happening, basically banks charging merchants and the merchants charging us; we always pay in the end. Not this time. That 2 percent surcharge amounted to nearly $70.00! She pulled out our handy-dandy and seldom used checkbook; bye-bye surcharge.
I have much more to say about CCs and their use and misuse. Start a conversation, what questions do you have for me?