This blog is intended for educational purposes only. None of these posts are meant to give legal or financial advice. If you need advice you should consult an appropriate professional.

Tuesday, August 27, 2013

use credit cards to your advantage

Credit cards are very common these days.  They're one choice of payment among many.  You can pay with cash, check(who does that anymore), debit card, or credit card.  The way the bank wants you to use credit cards and the way you want to use them are two different things.  Two very different things!  You should also be aware that you have more recourse with a credit card than with cash or check if something goes wrong with your purchase.  You can dispute charges if you have a legitimate reason.  Once you spend cash it's gone.  The technique I like to use is what I call rebate maximization.  A rebate is simply a percentage of the purchase price that you get back in the form of cash, gift cards, or frequent-flyer miles.  If you don't have rebates on your credit card consider getting a card that has some kind of reward for using it.  There's no reason these days to not have a card with a reward program.  Almost every credit card has them nowadays.  In my head I have the statement closing date memorized for each card I have.  This is so I can have the card paid off before the statement even cycles.  You don't have to do this, but just make sure you pay off the balance before the grace period ends.  The grace period usually lasts 20 days or so after the statement cycles.  If you don't retire the balance before the end of the grace period then you start to pay interest.  You're then known as a revolver my friend, and believe me you don't want to go there.  Build wealth for you and your family not for everyone else.  I'm not against credit cards at all.  I think they can be used in a beneficial way for the customer.  Even when you pay your balance off monthly the bank, network, and processor still make money on each transaction.  The merchant selling you the stuff usually takes the hit and collects less than if someone had paid with cash.  Some cards make money on annual fees too.  If you collect enough rewards on the card and spend enough an annual fee may be justified.  I try not to spend anymore than I would've if I'd used cash.  There are some studies that say people spend more on credit cards than they would've spent paying cash.  That may be true.  The best thing is to be aware and try not to do that.   I mainly use cash in my daily life.  I'm so scared of debt that I always have a plan in place with any amount I put on a credit card.  I keep a mental tab of every amount I owe on each card.  With rebates try to find a card that gives you the rewards that you like.  I just had a big bill due recently.  The organization accepted credit cards as payment so I paid the bill with the card that would give me the most back in rebates.  I then promptly paid the balance off.  And there was one card in particular out of the cards I have that gave me more than the others.  That's what I mean by rebate maximization.  Use the card in each purchase that gives you the most back.  Simple as that.  Then pay the balance off before the grace period ends.  Credit card companies make money through interest and fees just like a bank.  Make it a goal not to pay either.  Credit cards can be a useful tool if used with extreme caution.  Use them in a way that benefits you.    

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