5 habits of highly-effective credit card users
When I was in my early twenties, I was a credit card mess. I’d go shopping with my credit card in hand and not worry about how much I spent until the bill came. At that point, though, I’d start worrying a great deal — sometimes, I’d worry about it all night!
It didn’t take long for me to realize that I had to change my evil spending ways or cut up my card. So, I spent a lot of time learning everything I could about credit cards and personal finance. 
Fast forward a couple of decades. Now, I spend the better part of every day either writing or talking about credit cards or personal finance. But I freely acknowledge that credit cards aren’t for everyone. Cash is king for many people. But for those who do want a mutually beneficial relationship with their credit cards, here are the five habits common among cardholders who use their cards effectively.
Habit #1: They Have an Organized Credit Life.
You need to check your credit report and FICO score regularly. On AnnualCreditReport.com, you can get a free credit report from each bureau (Equifax, TransUnion, and Experian) once a year. Instead of ordering them all at once, request a report from a different credit bureau every four months. This way, you can monitor your report throughout the year. When you read the report, look for errors and signs of identity theft. (Here’s Adam Baker’s step-by-step guide to how to get your free credit report from AnnualCreditReport.com.)
Know what your credit card balances are on each of your cards. Also keep tabs on the interest rates for your cards. Check your accounts online several times a week so you stay on top of your balances. I know it’s a high-tech world, but it’s a good idea to keep files that have your credit report, score, monthly credit card bills, and disclosure statements. Nothing fancy required. Manila folders work just fine.
Habit #2: They Pay Their Bills in Full Every Month
One reason you want to have an organized credit life is so you always know where you stand with credit card balances. The goal is to pay off the balance every month. There’s really no middle ground here. You have to have the self-discipline to stop spending when you reach your budgeted limit. If your past history suggests that you will keep spending, don’t use credit cards.
And give yourself a pat on the back for honesty. The people who are the most successful at managing their money are the ones who know their strengths and weaknesses and make decisions accordingly.
Habit #3: They Use Rewards Cards to Their Advantage
I admit I love a good rewards card.I guess it’s the personal finance geek inside me who loves the idea of getting paid to use my credit card. The key here is to use the rewards card to your advantage and that means paying off your bill in full every month (see Habit #2). Rewards cards tend to have higher interest rates. If you carry a balance, you not only negate the benefit, you lose money.
Habit #4: They Track Their Credit Card Expenses
When I had sleepless nights over credit card bills it was because I wasn’t tracking my expenses. So when my statement arrived, I almost passed out from anxiety. If you’re an effective credit card user — make that a highly effective user — you’re never surprised by your bill. And since you’re paying the bill off every month, it’s just another piece of mail.
There are a lot of fun money management tools out there right now. You just have to do some research and find one that works for you. I use Mint and it’s worked well for me. I’m a visual person, and I love all the colorful charts and graphs.
Habit #5: They Read Their Credit Card Bills and Disclosure Statements
Open your statement as soon as it arrives. Look at every transaction to make sure the charges are legitimate. If you see any discrepancies, get on the phone immediately. It’s very important right now to read all the disclosure statements you receive. With the credit card legislation still being phased in, credit card issuers are sometimes getting creative when it comes to fees.
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There are 71 comments to "5 habits of highly-effective credit card users".
So true about paying off your balance in full. I stopped doing that becuase I thought ‘why do i have too’ and it always come back to bite you. The money is not yours, so why do we all feel the need to spend it? Took me a while to learn my lesson and now im on a journey to correct some of my past mistakes.
Good timing on this post for me. My son (18) lost his wallet on a trip recently. Unfortunately, it had everything (DL and SS card). I tried to run a credit report this morning and it was unable to pull it. It said it could be due to a number of issues, but I noticed that when it got to the screen where you confirm things like “street”, “employer” with the multiple choice, none of the choices in any questions applied to him, all of the answers were “none of the above”. I suspect I need to follow up in writing (as suggested by Equifax), but I wondered if this could simply be because he’s got no credit at this point. Just wondering if anyone has a similar experience.
Kudos! I keep hearing credit cards demonized in the PF media, so it’s nice to see a balanced take on using them! I give my parents credit. They planned their purchases pretty carefully and never charged anything unless the money was already sitting in the bank.
I follow most of these rules, but I need to work on #1.
In #5 you say to check your transactions every month as part of your statement review. That is way too long of an interval if you card has been stolen. You need to check transactions at least once per WEEK. After all, the easiest way to avoid credit card fraud is to shut the card off after the first bogus transaction.
We switched to a rewards card offered through our credit union as opposed to a rewards card offered from a national bank. Our spending amounts each month haven’t changed, but while last year we got back $250 total in rewards, this year we’ve already claimed $400!
I have not paid interest to a credit card company in almost 20 years, but I’ve reaped the benefits of their rewards programs for years. Right now, my internet high interested savings account pays 1.30% while I collect up to 5% in rewards from purchases on my credit card. Only in a mixed up, shook up world can you make more money off of purchases with a credit card than on your savings account. Oh well, can you hear that sound coming though your lap top speakers…It’s the sound of interest accruing.
I’ve heard Dave Ramsey often say that statistically people spend more with their credit cards than with cash because emotionally it doesn’t hurt as much (you can’t see the money leaving).
I’m pretty skeptical any time he uses a statistic like this but was wondering if you’d read or heard the same and what effect that has on you endorsing responsible credit card use.
I check my online statement at least once a week, and I have caught a few incorrect charges. (Mostly, I was charged twice for something. Once someone was using my credit card number, even though I still had my card.)
I love my Amex Blue Cash Card, as the rewards pay for almost all of my Christmas Shopping. I also pay my bill every month.
At the end of each statement period for my credit card, I take the PDF statement and print it out. Then I sit down with the printout and carefully tick off each charge and the associated CC charge slip (yes, I preserve them carefully).
Once I make the payment on the card, I use Adobe Acrobat to make a note in the statement about the payment details and save off the modified PDF file to a folder.
Finally, I shred the statement printout as well as all the ticked charge slips.
1. They do not have a credit card.
2. They do not have a credit card.
3. They do not have a credit card.
4. They do not have a credit card.
5. They do not have a credit card.
@Avenger2354: Am I crazy for not understanding this? A credit card isn’t a savings plan. Yes you’re getting some money back from your purchases, but you’re not MAKING money if you have to spend $100 to make $5.
Related to my first post, don’t you think you end up spending more on your CC since you’re telling yourself you’re basically making money on every purchase?
I’ve always thought rewards are a good bonus, but not if you end up spending more to get them.
#2 Eileen: if your son hasn’t already done so, he should immediately call all his card companies and his bank to cancel his cards. He should also consider putting a fraud alert on his credit report (he can call any of the credit bureaus to do this). A stolen wallet is a ripe source for credit card fraud.
Beverly: This is a good list. I’d add to #5 “Credit card users should know what fees and penalties will apply to them.” For example, if you’re going overseas, you should know if your card company will charge you an extra fee for international transactions. Be aware of what fees apply for overlimit transactions, late payments, etc. Know whether your card will raise the interest rate if you’re late on payments. Is there any penalty for using a human customer service agent more than a minimum number of times, or is there a fee for making cash advances? etc.
Evan – agreed, if you are spending more because you’re using the card or envisioning the benifits it’s not worth it. I think what Avenger2354 meant was, why wouldn’t I want to earn cash back for doing what I was going to do anyway?
I too never pay interest and use my card for virtually every purchase I make. I annoyed when I can’t pay with my card. To me it’s lost flight miles when I have to pay my electric bill online and can’t have it put directly onto my card.
We live pretty frugally so a typical week of spending for us means groceries and gas. Period. The mortage and property taxes are automatically withdrawn from our bank account. Everything else automatically charges to the CC (phone, cell phone, internet, life/house/car insurance). Every Friday I check that the charges have been posted accurately and pay it off. I know I don’t have to pay weekly, but this way I keep on top of it and would notice immediately if there were a suspicious charge.
I don’t really look at it as a credit card. I treat card purchase more like writing a check. Once written you would consider the money gone and adjust your remaining balance down, since the person holding the check could cash it any time. When I make a purchase on the card I go home and add the amount to my spending plan which adjusts the balance. It’s as if the money is already gone. I just wait for Friday to pay so that I can pay off several charges at once. I more or less disregard my monthly statement. I monitor the online VISA site almost daily and pay it off weekly so I’ve made 4 payments already that month and therefore the balance they show has no relationship to where the account actually stands. Since I would never pay only the minimum payment, that’s just another useless piece of information.
Purchases on our card earn us Air Canada flight miles and we’re once again holding enough points for our family of 4 to fly to Europe (last trip was Aug 2008). We haven’t decided whether to head back to Europe or let them pile up until next summer and head to Asia or Australia. Nice problem to have just for paying our normal living expenses with the card.
Evan: I should have added some more info, but I was making a quick reply. It’s not a savings plan, I was just remarking about how odd it is that the cashback reward for making a purchase is 5% while the interest on my savings account is only 1.30%. I don’t make purchases to get the reward, I only purchase what I would normally purchase. However, if it is possible to make the purchase with a credit card then I always do, so that I can get the cashback reward. Example, groceries, gas and some bills have been set up for a CC payment, basically anything that doesn’t charge a fee for the CC use, such as taxes. All of my cashback rewards are directed to a 529 plan, either directly thru my Upromise mastercard or manually whenever I get a check back from my visa card. I absolutely love getting paid to use a credit card. There has been some articles written about this strategy, which the CC companies call free-riding. I’m sure they are hard at work trying to find a way to limit the amount of money that we are making off of them, but for the time being they are still paying out anywhere from 1% to 5% in cashback rewards.
Evan, after finding Dave Ramsey (and I’m sure other people on this site will say the same thing) we stopped using credit cards. And we didn’t abuse them and we always paid our bill on time and we always got good rewards. But I love what Dave says, “You won’t find a millionaire who says, Wow it was my discover points that got me where I am today!” That was the reality for me. We can do better with our money by communicating in a monthly budget meeting and have a zero based budget. That and I don’t like the position that alot of my family members are in because of them.
@Avenger2354: Faith in humanity restored, thanks for the further explanation.
These are all good habits to follow in general with one’s finances.
Habit 5 kept me from ever getting a credit card in the first place. Every time I read the fine print on a credit card offer, it gives me a headache and I refuse to sign up.
@Kelley: We do a zero-based budget too, but in Canada we don’t have your whole debit-card-is-like-credit-card system. Our debit cards don’t have the same protection or online usability as yours in the States (I think they’re coming soon) and after doing some research it’s just too much of a pain to get rid of the card completely.
I’ve found that the zero-based budget pretty much eliminates any lapse in judgment with CC use since you know that buying something that’s not allocated will completely ruin your plan (not to mention make for an awkward conversation with my wife – once or twice was enough to learn THAT lesson).
On steps 4-6 and loving it right now.
@Evan. That’s awesome. We switched to cash this month for the first time (had been using the debit card and tracking expenses). I’m throwing our first mortgage prepay amount today…kind of nervous but feeling pretty good about it! Someday BS7.
Great summary. Credit cards aren’t something you should fear out of hand. In the end, they’re like anything else – act irresponsibly and pay the price.
Thanks Beverly.
P.S. Of course, credit cards are deliberately tricky to understand and easy to use. To learn some of the finer points, see my 15 Most Important Lesson For Avoiding Credit Card Debt.
@Ami – thanks! He only had a debit card beyond the DL and SS Card in his wallet and that was canceled right away. Thanks for the advice about the fraud alert, given his age and being a college student, he will not be applying for anything (cards, loans) in the near future, so any attempts to do so would be suspicious.
Doing some experimental financial budgeting, I switched over from cash to credit for my essential purchases, i.e, groceries, gas, meds, etc. This is what I found. Yes, I do spend more using a credit card even in the grocery store with a list and at the gas pump, everywhere. Not a lot because I do follow a budget, but definitely don’t feel as restricted. And I do pay the balance every month and check my balance daily. Yes, I became a rewards hound only to be “rewarded” by my credit card company (Capital One) with a new change in policy that now my card will carry an annual fee. Bye, bye, credit card. Back to cash. I don’t know what the credit card company hopes to gain in losing a customer, but that’s their problem. Not worth the hassle.
Good review, J.D.
Credit cards are a reasonably sophisticated money tool…if you know how to use them properly they are a fantastic way to go about your spending. (Purchase insurance, rewards, ability to track your spending closely, etc.) Unfortunately they often end up in the hands of unsophisticated users (they hand them out like candy to college kids)where the end result can be disastrous.
I only have about half of these habits. #2 should really be #1 – that’s the key habit. I don’t see how checking your credit report (good idea though it is) will keep you out of debt.
I am incredibly skeptical of rewards cards, mostly because I don’t use credit enough to warrant having one. I have one card that I use once per month, and two others that I never use. I do have a General Motors Family rewards card but I don’t use it; the “rewards” are only good toward a new car and only last for 5 years. I will not be buying a new car in that time frame.
I also feel that “getting something back” would encourage me to spend more. I could use it to pay for things I already need to pay, like student loans, but then that’s one more company I have to deal with each month, and the student loan companies are much more forgiving if my payment processes a few days late.
It seems that four of the five habits of highly-effective are all about risk-mitigation. The final one is about rewards, which generally amount to a 1% discount.
At what amount of risk and constant monitoring for fraud prevention do you just say, “you know, it’s not worth it”?
Steve: I treat my cards like they are cash, so personally I don’t feel like I’ve bought something just to get a cashback reward. I do think that this can be a problem for some though, very much like using coupons which I also do. You just have to live the mantra of only buy what you need and what you would normally buy, and that goes for both credit cards and coupons. I’ve never been interested in any of the reward programs except cash, so I’m not familiar with airline miles or car discounts. When I looked at some of those programs there just seemed to be a lot of strings attached, so I keep it simple by taking the cash.
Tyler: It takes less time to check your accounts online than to respond to one of these blogs. As for risk, assuming you mean fraud, it would depend on the person holding the card. By trade, I’m a financial crimes investigator with a large law enforcement agency, I feel that my risk is about zero. The average person, not someone reading this blog or other financial blogs, will probably have about an 80% chance of being a victim of fraud and most of that will be via a credit card compromise. Chances are though that if you are reading this blog, you have already taken steps to limit your chances of victimization.
I disagree with those who say there is no responsible way of using a credit card.
I have 2 different rewards cards through my credit union. One gets me additional points on gas and groceries, the other on travel and restaurants (I travel often for work, so use this card for those expenses). I’m not trying to get rich off of my rewards points, but if I need to make purchases anyway, why wouldn’t I want to use the option that gives me a discount?
First, there is no way anyone who travels often could do so without a credit card. I suppose you could do it with a debit card, but I would be hesitant to do that when I’ve got thousands of dollars in expenses to be reimbursed to me by my employer (the grace period allows me to be reimbursed before the bill must be paid).
Second, I have not paid a credit card annual fee, penalty or interest rate in more than 10 years (since I learned how to do it right).
Third, I actually find myself spending more when I use cash – burns a hole in my pocket, as they say, and I end up buying a cup of coffee, going out to lunch, and other things that I don’t do with a credit card. I might possibly spend more at the grocery store because of the card, but I do shop with a budget in mind and almost always stick within it.
@Kelley #15
re: Dave Ramsey’s claim about millionaires and credit card points is disingenuous. He knows it too and that’s why he’s changed his schtick. He used to say you won’t hear millionaires bragging about their Discover points, now it’s you won’t hear a millionaire say his Discover points got him where he is today. In truth, you hear millionaire next door types bragging about credit card points all the time.
However, the best argument I’ve heard for not using cc points is actually from Dave Ramsey. Dave reminds us that cc companies are bloodsucking scum, which is why I disagree with habit number 4 of only reconciling statements with expenses once a month. If you’re going to use credit cards, statements should be checked online (and preferably paid) at least a few times a week.
I might spend less money if I was on an all cash system; but what I would spend a lot more of was time going to the ATM and/or stress about largish amounts of cash in my wallet and home. I would rather have the time and lack of stress than the money. And I also get to keep the stuff and experiences I spent the money on!
On the other hand, I do worry about the effect of the credit card tax on our society. 3% skimmed off every transaction that is done by credit card is a lot of friction.
In your list above, I only do numbers :
2) “pay in full each months”
3) “capitalize on the reward cards”
and
5) “check statements for unwarrented charges/fees”
Since I’m really frugal, it has made the tracking unnecessary (other than the monthly statement).
I’ve always frugal in my spending habits, so that has enabled me to never carry a balance that I would have to pay interest on over a span of 2 months.
I talk my self out of purchases regularly and either repair what has broken or buy used, or do without. Only when it is absolutely necessary do I purchase new…
Think it all boils down to self control. If you manage your budget effectively and can use the credit cards the same way. Why not take additional advantage of things like rewards, buyers protection, etc.
If you can’t stay within budget when using credit cards they may not be for you.
Yep I do all the above; a credit card can work for your own benefit if you want it to. =)
#7 Evan : “I’ve heard Dave Ramsey often say that statistically people spend more with their credit cards than with cash”
Ramsey likes to cite a Dun & Bradstreet study. ONly problem is that study doesn’t actully seem to exist:
https://www.getrichslowly.org/money-myths-and-the-importance-of-thinking-for-yourself/
@jim: Haha, thanks – I’d read the money myths article before but didn’t know that that particular myth was from it.
I really don’t like the way Dave plays around with stats and interpretation (insurance is a scam because the only way they make money is by charging you for something you won’t use/you need life insurance, long-term care insurance, disability insurance), not to mention his insanity with 12% portfolio returns.
Still though, I often find his conclusions worth listening to even if the way he got there was misguided.
The ONLY time you (or anyone) should be carrying their Social Security card is if you are on your way to a job interview.
It really makes stealing your identity a lot easier if you carry it.
Actually, SLCCOM, you shouldn’t even carry your SS card for interviews. Your first day at the new job, sure – so they can fill out your I-9. Before that, the prospective employer doesn’t need it. They can get your full background check and credit report with your DL number and your SSN, they don’t need to see the actual card.
Back to OP: I think #1 is the real key. If you are organized, you’re going to be okay with credit. If you’re not … well, you’re not. All the others depend on that one.
Although I generally advocate not using credit cards at all (just remove the temptation), I agree/like the list you’ve presented here. I’ve been a big credit card user in the past, but we always used it responsibly. I always paid it in full each month. I used my cash back to pay bills or I just put it in savings. So avoid credit cards where possible, but if you must, then at least be smart about it.
I’ve had enough problems with credit cards to know a few things:
1) Reading the fine print doesn’t mean you’ll understand it completely or that you will remember all of it or that things won’t change later down the road in ways you don’t comprehend.
2) If credit cards offer you “rewards” it’s because they are making money out of you. You might think “oh, it’s the merchant’s fees”, but you’ll tend to spend more than you would if you paid cash. Especially if you think you’re “getting rewards”.
3) Maybe there are a few highly disciplined individuals out there who are machine-like in their self-control not to ever spend over budget, and who pay the full balance every month with plenty of time, but for the rest of us mortals, imperfect as we are, it’s playing with fire. One slip-up, one hiccup, one misread date or delayed check or financial emergency and you’re back with your head in the noose, with interest and fees eating your “rewards” like a pac-man.
4) My Visa DEBIT CARD has some sort of rewards program. They mail me my “points” every so often. Whatever.
Here’s a list of DEBIT CARD rewards programs. There are of course many more. Proof that you don’t need credit:
http://www.bankrate.com/finance/checking/2010-exclusive-debit-card-rewards-survey.aspx
5) You can save more than the 1% “reward” by paying cash and getting a discount. Everything is negotiable.
With this in mind: why walk the credit tightrope when you can live comfortably and stress-free from a fat cash reserve? Why even “mind the statements” and “read the fine print” if you can have six months of expenses in a savings account? Why complicate your life with the tracking of more statements, more paperwork, more fine print? It’s not like we don’t have enough already.
I have no problem with demonizing credit cards. Alcoholics do the same with booze. I don’t agree their demonization applies to me, but I understand it’s something they need to do in order to quit drinking. While I am not “addicted” to credit, I have had enough bad credit hangovers and catastrophes that I’d rather “just say no”. So it’s no.
Cash is king, credit is for suckers. Everyone is free to do whatever they want of course, but my mind is made up on this subject.
@29 (Michelle): I’m the same way when it comes to cash. If I have it in my purse, I tend to spend it. When I don’t have the cash and I’m using a credit card for a purchase, I think about my budget and how much I’m putting on my card. And hey, I feel the same way about my rewards card!
@35 (Jim): Thanks for posting that link to JD’s story about myths. That’s very interesting stuff.
@38 (Chacha1): So true that it starts with #1. If you don’t have an organized credit life, then the other habits don’t really matter, do they?
There are lots of different ways to get in trouble with credit cards. For me, back when I first got out of college, they just allowed me to ignore reality and pretend I had money that I did not have.
I learned my lesson, and I have been responsibly using credit and debit cards for many years, including my rewards card from Costco.
For me it all boils down to a willingness to face and understand reality, and the will not to spend more than you make.
I don’t even use my (one) credit card more than 2 or 3 times a year, and I still check my credit report at least twice a year – just because I don’t have a card doesn’t mean someone else hasn’t taken one out in my name.
I’m one of those “responsible” credit card users. I also find that cash flies out of my wallet, while I always have to stop and think before using a card (credit or debit). I’m not a rewards-chaser but if they’re going to hand them out for something I do anyway, I’ll take them.
I find that the no-credit-card camp contains a lot of the same morally self-righteous types as the joint-accounts-only crowd. If you don’t like credit cards, don’t use them; no need to go insulting people who do. (el nerdo.)
Excellent redit card habits list, Beverly!
I agree with chachat that #1 is key…be organized, and paying on time, etc. will fall into place.
@44 Ely:
Of course I’m being self-righteous, even a little insane. I said so myself when I compared myself to an alcoholic who must demonize alcohol in order to quit drinking. I demonize credit cards– I see them as the plague. They give me hives. I’m like the obnoxious ex-smoker who starts to pester everyone around him to quit. Absolutely.
Everything that credit cards do (track spending,earn rewards, fraud protection), debit cards do– without the risk of incurring interest charges.
Of course it is possible to use credit cards responsibly, I’m not denying the possiblity, but I’d rather stay adamantly against them. It’s not about “sophistication”. The sophisticated fall into traps just as much as the uneducated (I got into debt in grad school). The trap is not about being bad at math– the trap is human behavior and how we deal with temptation. We all want things we can’t afford right now, but credit cards make it much more possible. Same thing with weight loss: there are responsible ways to eat ice cream, but I’d rather not have it around–I keep frozen blueberries instead. I also don’t buy cigarettes because I can’t smoke “just one a day”.
So yes, if deranged self-righteousness is the cure to my impulse control issues (with cigarettes, food, money, etc.) I have no problem with that. Whatever works. Better a little crazy than in debt.
Good article!
I definitely have all those traits.
I try to put as many of my regular basic living expenses on my Credit Card. I pay it off in full each month. During the year, I collect points. Then, at the end of the year, around November, I cash the points in for Gift Cards to use as Christmas Gifts for my family. It’s like my basic living expenses end up paying for my Christmas gifts.
(No, I don’t put more on the card than I have to. I don’t spend just to get points).
I’d just like to say, that we’ll be millionaires by the time we’re 40 and it certainly won’t be because of our credit card points. It’s because at 28 years old we found a system (Dave) that encourages paying off ALL debt, paying off your house and sticking that money in your pocket and the pockets of others. 40! Do you hear me people? So have fun with your credit card points. They are blood-sucking scum, even if they’ve never tasted our blood.
Why do people always credit Dave Ramsey? I don’t get it, he’s not the first person who came up with living below your means,having savings, etc.
Seriously its just common sense to do so, he didn’t come up with it, had he not been born, we would still be able to function because we have brains. It doesn’t take Dave Ramsey to let me know that debt is bad and savings are good.
btw, just because people use credit cards doesn’t make them stupid, my credit score is in the 700s, I have no debt not of any kind, and I live below my means. This advice is obvious, its advice grandmothers that were born before Dave Ramsey’s time will tell anyone who is wise to listen.
Its just humorous to me because we have all these self-help books, but what did people do before self-help books were published, we relied on ourselves.
I never check my credit score.
I always pay my bill in full.
I love my cash rewards!
I never really track my expenses
I never, ever, read the fine print, boring!
I guess it’s the assumption that people who use credit card cannot also be finacially responsible that irks me. For example, @Kelley #48 why do you imply that it’s mutally exclusive that someone who uses credit cards couldn’t also be on their way to financial independence? Credit cards are a tool, like cash, like debit cards, like checkbooks. All of those can be used irresponsibly. It’s the mindset behind the money that gets into one trouble, not the form of spending itself.
BD, I like what you do with your points. What a great idea to convert them into your Christmas gift cards.
I sincerely believe that credit cards can be used responsibly. However, I am not inclined to think of credit card rewards points as a legitimate wealth building tool. I am striving for a fiscally minimalist life – I want to eradicate debt from my life, and that is inclusive of a mortgage. I am not going to feel compelled to charge anything in order to save on gas, airline tickets, etc. For me, serenity, in the context of personal finance, the only monthly bills I am responsible for are service-oriented -ie., utilities, auto insurance, healthcare.
Incidentally, I REALLY enjoyed your insights El Nerdo Loco (Posts 40 & 46) – sometimes for the sake of sanity and peace you have to draw a line in the sand – my line has nothing to do with anyone else’s sandbox but everything to do with the type of life I envision for myself
Michelle, I’m not saying that you can’t do both. I’m saying that personally once we stopped using our credit cards and started a zero based budget, we were able to sock away money like crazy. We weren’t big spenders (I’m an excel nerd) and we probably only spent an extra hundred here or there a month. Striving to be mortgage free and debt free was a real change of pace for us. No car payments, no student loan payments, no credit card payments all allow us to lead a life we probably never would have envisioned without Dave’s books. Yes, it’s nothing new in the big picture of financial literacy, but to us it was. I grew up in a family of spenders and DH grew up in a family with less-than-no money. We lived a comfortable life style for the first six years of our marriage, living frugally and saving/investing in retirement and college for our two children. However, no one ever said to us…well how about your student loans and car payment. Have you ever thought about paying those off early? It honestly never occurred to us. We were savings lots of money every month, so it made it easy for us to get out of debt once we came to this realization. I appreciate Dave because without reading his book, we’d be paying on my husband’s student loan and we might be considering upgrading cars. We’d be like the woman the other day whose mother said, “You’ll always be paying on some debt or another.” Well that’s not true for us anymore. This might not have been my most eloquent post, but I think you get the picture. It’s just a personal choice and I feel like if I talk about my experience, it might help someone else make a similar one.
I could not agree with #49 more.
Dave Ramsey is the most overrated guy on the planet.
I’d also say concentrate on disciplining yourself when it comes to spending rather than tracking your epxenses and you’ll be better off.
You can utlize your level of discipline BEFORE you spend, any tracking that you do is after its already too late.
I think tracking is boring too, along with reading fine print.
@47 BD: What a great use of rewards points! You’re getting the benefit of the points by using your card for things you’d buy anyway.
And I agree with many of the points here about rewards. No, you won’t build wealth with them. I just see them as a tool to save a few bucks on purchases you’d need to make anyway.
Kelley #54
I think the thing that gets so many of us is the attitude from Dave Ramsey’s camp that his way is the only way, no matter how much evidence points to the contrary.
So, when you say, “Have fun with your credit card points”, believe me, we will. We have 5 children and haven’t spent a dime on clothes (other than socks and underwear) in 2 years. In January, we’ll be getting a $500 check from Discovercard, or maybe we’ll hold off on collecting and turn the $500 into $600 worth of stuff from Lands End, Brooks Brothers, Dillards, etc. Christmas for our 5 kids will be completely funded by our annual loose change dump and cc points.
Like AA, Ramsey’s way is probably the only way for true addicts, but for those of us not addicted to credit cards, cc points can and do make a difference.
Dave works because he talks to the people who need the most drastic changes. People reading this blog have already thought a lot about their money habits and I’d guess have made changes if they needed to be made.
Dave talks to people who have never made a budget, have never spent less than they made, and need help NOW. Talking to these people, he has a very easy to understand plan, with clear roadmarks, that anyone can start applying.
Someone else mentioned AA. He’s talking to the drunk drivers and saying ‘you can NEVER drink again’. He’s not talking to the guy who has a beer with dinner because that guy isn’t calling for help with his drinking.
As extreme as he is, it WORKS for the people who need the solution. The only drawback is that, like any shared group experience like this, listeners have their own language and community and it’s strange hearing it from the outside.
Ignore him if you don’t agree, but he’s helped a lot of people make important changes (myself included).
El Nerdo Loco: You stated that debit cards are basically the same as credit cards, but I would disagree.
1. Fraud liability: Unless you have some special agreement with your bank, your liability could equal the full amount in your account placing you in a precarious situation to continue paying your bills with nothing in your account. I have worked many fraud cases involving both debit and credit cards, and in my experience the only victims who appear to suffer an actual monetary loss have been debit card holders. Even though credit card holders are liable in some circumstances for the first $50, I can’t recall any victims stating that they actually had to pay it, and I ask this question routinely to determine who is the actual victim of the fraud, the individual or the company. However, at least 95% of the time debit card victims do suffer a financial loss, and sometimes it is far greater than the quoted minimum limits of liability. I can remember several debit card cases where the suspects withdrew cash from ATM’s, these withdrawals led to checks bouncing, fees and so on. When it is a debit card, it is your MONEY that is compromised, when it is a credit card, it is CREDIT that is compromised.
Kelley: You shouldn’t think for a minute that many, many millionaires-next-door don’t collect from rewards programs. I made that lofty goal by 38 and rewards had virtually nothing to do with it. A mindset of having my money make money did though, including making money on money that is leaving my control. If you think of how much money leaves your control every year through purchases that you have to make, to not make 1%-5% on that money was a loss. To not then take that money and place it into an investment vehicle results in yet another loss. I agree that it is not for everyone, but if you have the discipline, why not capitalize on free money.
@ Avenger– that’s either an urban myth or you’re confusing two different things– no need to have a special agreement with your bank, it’s Visa that protects you if you make purchases with your Visa debit card.
http://usa.visa.com/personal/using_visa/personal_finance/debit.html
http://usa.visa.com/personal/security/visa_security_program/zero_liability.html
Zero liability.
You’re talking about having your PIN number stolen– that can happen to anyone with a PIN number, which is pretty much anyone with a bank account.
Just don’t use the PIN at the checkout, where others can see it– use the “credit card” option at the register for all transactions, and you’re protected 100%.
I’ve had fraudulent charges posted to my account twice. I went to the bank, filled out some quick paperwork, the charges were reversed that same day.
Since I already keep close tabs on my checking accounts online, nobody is going to mess with them undetected. I always know what’s going on. And the bank always calls me whenever I leave town, so they are keeping tabs too.
Also, there is a maximum daily spending with the card, and you can set that up with your bank. When I need to make a big purchase (e.g. buying equipment) I simply call my bank manager and let her know that I need her to raise the limit for the next 48 hours. So even if temporary fraudulent charges went unnoticed (fat chance, but let’s imagine i’m unconscious for a week), they can’t be unlimited, and they can’t make me bounce checks.
Finally, why be afraid of the remote possibility that you might have your balance temporarily altered (won’t be for more than 24 hours) when your credit card robs you every day by charging you interest.
One tip I can give to you guys is this:
1) create a separate bank account. Put some money in it (minimum deposit)
2) every time you swipe your credit card to buy something, transfer the same amount (purchase price) to that new bank account.
3) when it’s time to pay, just use the funds from the new account you made to hold credit card payments.
This has worked significantly for me. I also do not carry the ATM card for that separate account. That way, I don’t find myself overspending every month while making sure that I have fully funded my credit card purchases.
El Nerdo Loco: Good point, I should make sure that I’m comparing apples to apples in the scenario. So let’s take this one: A suspect gets two pin numbers for two cards, debit and credit. Suspect makes a $500 ATM withdrawal with each. The two cards differ at this point in what may possibly happen to each account. Credit account goes on for a few days until the victim realizes the loss, notifies the CC company and they put a hold on the amount. It’s not connected to a bank account, so nothing happens with the victims bank account. Eventually the card holder is released from liability for the fraud. Debit account goes on for a few days until the victim realizes the loss, usually because checks start bouncing. (I know that folks like GRS readers probably have more than enough money in their accounts to cover the missing $500, but I see a lot that don’t) Victim reports loss to the bank, maybe they get some relief, maybe not. If you look at the 2nd link that you posted, it shows a #1 footnote, which states that ATM transactions are not covered by their fraud protection. They all generally refund the bank’s portion of the fee for the bounced check, but the victim is on their own to negotiate with the party that they wrote the check to, some merchants refund the fee and some don’t. This is why I say that from my experience I have only seen debit card victims actually suffer out of pocket losses.
@ Avenger–
Right, but virtually everyone who has a bank account has an ATM card– so everyone is equally at risk of having their PIN number stolen. In your hypothetical scenario, the perp gets a hold of 2 pin numbers– how?? They could more easily get a hold of checks you put in the mail, erase the name of the payee and put theirs, and take it to a check-cashing place.
Use your debit card as credit-only, only and you’re as safe as credit. Safer even, because you don’t incur any interest–ever.
As for the check-bouncing scenario, i don’t know– I only write one check a month. Everything else i either pay cash, visa debit, or electronic billpay. I check my bank every morning for transactions (including “memo” credits & debits that are pending) , so i always know what’s coming in & going out. Just 1 account to monitor and zero headaches.
Bottom line is VISA guarantees protection for all their transactions, and you’re protected whether you use a checkcard or a credit card.
My point is that with credit cards there is the risk of spending money we don’t have and getting into a mess– and that’s what happens to a lot more people.
I’ve never heard anybody say “I really got overwhelmed by debt when some Russian thief charged $50 to my bank card. The bank reversed the charges, but I was already up to my eyeballs in bills, and had to declare bankruptcy”.
Hey Kelley, I guess I was put off because you sounded like you were better than everyone else because you didn’t use credit cards. If it makes you happy then its cool. For some folks ccs don’t work and they don’t like them.
Anyway, I just assumed everyone knew that stuff like debt was bad, my parents never had any debt, so its just something I took for granted, but just because I had an upbringing where that stuff is taken for granted doesn’t mean that everyone does.
Anyway, don’t want to be at war with you. 😉
Buy at Krogers with Amex at 3% back resulting in 10 cent a gallon reduction at Shell and pay with a Chase Freedom Card with 5% back on gasoline {ends at midnight). Discover buys my NASCAR stuff. Chase VISA is paying for the wifes plane ticket to go along with my 2 round trippers for being bumped by Spirit in January.
I check my credit reports daily for 5.50 per month and have all my cards set to autopay. In fact, I accidentally failed to set up Discover and noticed the late charge the same day it was posted. Explained and set up autopay with Discover while agent watched me set it up and she then reversed all the charges. No reason with Quicken not to check your accounts at least once a day.
El Nerdo Loco: I think that you have found a system that works for you and that’s what is important. I have found one that works for me. So with the safeguards that we have put in place, we should both be relatively comfortable with are exposure to fraud. My point was that for people who have not put some of your safeguards in place such as keeping a high balance in their account to cover a $500 withdrawal, they may suffer some consequences that cc users are not exposed to.
My other more obvious reason for using cc’s is for the 5% cashback reward. I have searched but can’t find any debit card offering a 5% cashback reward. For anyone who would quickly dismiss cashback rewards I would propose this question: How much money do you put in your savings account each year and what interest rate do you earn on that money (most likely less that 1.5%). Now, how much money do you spend in a year. Why not earn 5% on that money. Afterall the 5% you earn is tax free, while the 1.5% is taxable. As many have already said, I’m only talking about charging things that you need and have to pay for one way or another. I guess I just can’t comprehend not earning the 5% on all the money that is leaving my possession and then investing that free money. I do concede to any argument where the person feels that they may not be able to control their spending and may end up carrying a balance. That would demonstrate incredible forsight and understanding of their problem.
My hopes are that everyone who takes the time to read any financial blog will achieve the financial success that they seek. I’m just sharing a strategy that has worked well for me, not saying that it is the one and only way, just one way.
I’ve used my cc cards for over 20 years. Never paid interest, never had a finance charge or late charge.
Here’s how I use it.
* I pay my bill as soon as it’s available – No excuses
* I’ve never used the card when I didn’t have the cash
* I mentally always know approximately how much is currently on my balance.
* I use it for as many normal expenses (if same as cash) as I can. Additionally for big ticket items (appliances), always trying to maximize the cashback – depending on the card.
* Every time I use my cc I visualize the same amount of cash in my hand
* I request the cashback as soon as the minimum amount is reached (i.e. $40 or $50).
* I apply the cashback directly to my next balance – If cash is the only logical option, I deposit it directly to my Roth IRA. I never take the promos (i.e. ‘earn more with your cashback’).
Over this time the credit cards have paid me thousands of dollars for spending on normal living expenses.
I’m not rich, but I spend wisely. 2% or 5% is real money. Leverage it – I treat maximizing the CB as a sport.
It takes work, especially if you have less then average money skills.
Safest move: If you cannot do the above use a debit card or cash.
PA Native: Well put! I’ve been doing this for years and can remember back, as I’m sure many others can, when credit cards were’nt used as much at grocerie stores. After using my coupons, I’d whip out the credit card to pay and could just sense the clerk and other customers feeling pity for me, believing that my finances must be so bad that I’m using coupons and then committing the ultimate sin of paying for food with a credit card. The mantra of the day was that credit cards were for emergencies only and that only a financial fool would be charging everyday items on a card. Little did they know, it was the exact opposite. Haven’t paid interest to a credit card company in almost twenty years.
We got into massive trouble with credit cards (66K in debt). We climbed out in 2.5 years and have been responsibly using our cards for about 2 years now.
We were using an Amex with 1.25% cashback, but just recently switched to an airline card (huge bonus), but I’ll cancel before the yearly fee hits.
Anyhow, we pay for everything we possibly can; however, major purchases are ALWAYS saved up for in advance.
I check the online statements daily and have caught fraudulent charges before the CC did.
I usually make payments throughout the month and then one final payment at the end of the month (payday).
The system works for us. It’s all about control and knowing what you have.
I have NOT bought a single thing thinking “Oh wow, if I buy this I get 100 points.”
@29 (Michelle): I’m the same way when it comes to cash. If I have it in my purse, I tend to spend it. When I don’t have the cash and I’m using a credit card for a purchase, I think about my budget and how much I’m putting on my card. And hey, I feel the same way about my rewards card!
@35 (Jim): Thanks for posting that link to JD’s story about myths. That’s very interesting stuff.
@38 (Chacha1): So true that it starts with #1. If you don’t have an organized credit life, then the other habits don’t really matter, do they?
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