How Do *You* Manage Your Credit Card Use?

When I listen to Clark Howard (a local consumer advocate) I sometimes wonder if I’m alone in my approach to credit in particular and spending in general.

I’ve had a credit card since I was in my late teens. My perception of the word “credit” in the name “credit card” was always that the Credit really only extended as far as the grace period from when I purchased the item until when payment was due on the account.

I have never held a balance on a credit card.

When my wife and I started living together we actually merged our finances at that time and I undertook to manage the household finances.
In the arena of credit we had only two rules, we would discuss big purchases, and that we would make no purchases on a credit card that would not be fully funded by the time the credit card bill was due.

Everybody needs a safety net, these days mine is provided by a home equity line of credit. Something that can be dipped into should an emergency arise or if you have a project to do and it makes more sense to do it now and pay for it in arrears (such as a tremendous sale on something that you were already planning, and saving, to purchase).

Back, before I owned a home, my local bank was able to make available to me a $5,000 line of unsecured revolving credit. This was MASSIVELY better than relying on my credit card for such debt as the interest rate was more in line with a car loan than that of a loan shark which, I’m sorry to say, is the nicest thing I can say about credit card interest rates.

So we live within our means.

I also receive with disgust those awful Cash Advance Checks. I have some sitting in front of me right now. I honestly cannot see anything good about them. You get charged a premium to take out the money and you begin paying an insane rate of interest on them immediately. Certainly you pay more than you could ever hope to earn in all but the riskiest stock ventures. In my house those Cash Advance Checks are immediately consigned to the shredder along with a few choice words directed toward the marketers responsible for them.

I have my credit card set up to pay off in full, automatically, directly from my bank account so that I do not have to risk the check going astray in the mail (this has happened before).

For any other bills that I need to pay, I pay those immediately when I receive the bill. Why gamble that I won’t forget about it and miss the due date? The interest I may earn, even when interest was in full integer digits, was always puny and never worth the risk.

The amount of money that I have saved in not paying late fees and not pissing it away in ridiculous interest charges can easily buy me my nice new computer system several times over.

So how do *you* handle your credit and why? I know that there are cool deals out there where people can get money interest free for a period. So they take it and invest it, paying it back before it is due.

7 thoughts on “How Do *You* Manage Your Credit Card Use?”

  1. I agree with you about paying them in full when the bill comes due. although if you want to get your credit limit increased without going through the hassle of applying for it and risk being rejected and it hurting your credit score and proving you can afford it, just make the minimum payment one month and let a few $’s of interest accrue then pay it off. In a few months you’ll get a lettering saying what a good client you are and they are increasing your limit. This may change given the recent financial mess and tighting of credit.
    I make the cards work for me. Not so much these days, but back when I first got my house, the card compaying would give freebees to entice you to use it if you hadn’t in several months. I got a few things for the house that I needed and couldn’t afford. I also use cards that give me reward points or 1% back. It’s amazing how that adds up. I’ve even used the cash advance checks to my advantage. Two of my cards have said use them for for every $1000 you spend they give bonus money. So I first make a payment to the credit card bill online then I use the cash advance cheque. Since the money is there siting on account to cover the cash advance, no interest charges can be assessed. I’ve made at least $200 in bonus money so far using them. I also had one card say use the cash advance cheque they’d only charge a very low percent for 6 months. I could invest it at 2% (I think it was) more than they were charging me so I made money on their money for 6 months. (that was back in the days where good investments could be easily found and int rates were higher).
    There is also the added benefit that some of them come with insurance protection if the item you buy is lost, stolen or defective. I’ve never needed it but there’s been stories on the news lately where people would have been covered if they had only used a credit card and not paid cash.
    I also like the fact I can download my statement into financial software and have a complete record of all my expenses all nicely automated for me. Rarely do I spend cash so rarely do I need to make manual entries to the software.
    Now none of this is what the credit card companies want to hear. If everyone did these things they’re would be no credit cards.

  2. @Alison – Hey Alison,

    I can see if they’re offering a special incentive (which has never happened to me) that those cash advance checks might be useful, but the cost of withdrawing the money seems to undercut potential investing profits otherwise.

    With respect to the credit card companies falling on hard times if people managed their card use more carefully, that’s what I find so galling about the annual fees, incredible interest rates and transaction fees. They make 1-4% on every transaction you do in the first place. There is incredible money in it for them just on the seller’s side. Everything else is just gravy. Thick, lard-infused gravy, but they are swilling on it just the same.

  3. @Marc – might be a difference between CAN/US but I’ve never paid a fee for using a credit card. I do object to the way they hit you for currency conversions. It does seem excessive to be charging a % of the sale vs a per transaction fee.

  4. @Alison – The cards are pretty comparable (US vs. Canada), the transaction fees I referring to are for those “cash advance checks”, I don’t know about Canada but I think they are a minimum of $10 or 4% of your cash advance amount.

    I’ve *just* found a card that offers me 2% on everything (up from the 1% card I’ve been using for the past few years) PLUS no international transaction fees. Of course they can still nail me on exchange rates, but there’s a class action suit going on against VISA right now for exactly that kind of behavior. I’ll probably manage to get a voucher for 25 cents for that and the lawyers will all take home an average of $3,000/hr spent. 🙂

    But all cards charge the vendor a transaction fee, I think that’s adequate money for them.

  5. Back about 18 months ago, during the peak of the credit crunch, a bank which which I have a credit card (mbna) called me up, and wanted me to take a 10grand cash advance and go buy something. When I said I did not want to buy anything, they wanted me to just deposit it to my bank account so that my balance would look better.

    About 6 months ago I bought a car, and needed to transfer some funds out of a stock trading account into a certified check, and the bank tried hard to talk me into taking a loan instead of withdrawing my own cash.

    Lastly, here is a ‘ficticious’ story, except the math does work (at least it did when you could get 7-8% on our ‘high-interest bank accounts’.
    2 guys, both 20 years old go to a dealer and ‘buy’ a car, and begin 4 years of car payments.
    After 4 years, the 1st guy trades his car, and continues making car payments. The 2end guy, keeps the car, but also continues to make his monthly car payments, but into a bank account, which pays him interest.

    After 4 more year…. both guys trade their cars, and buy new ones. The first guy, just keeps making car payments. The 2end guy, pays cash for his car, and continues depositing his monthly car payment into his own savings account.
    The 2 guys continue doing this until they are 68 years old, when they both decide to quit driving. The difference, the 1st guy gets the trade-in value of his 4 year old car.
    The 2end guy, not only gets the trade-in value, but has accumulated about 60GRAND in interest in his bank account, all for driving an old car for 4 years, and getting on the good side of the interest curve, rather then the bad side.

  6. Originally Posted By Marc@King@King – Ah, 7-8% interest… those were the days.

    Where they offering you a good deal on the $10K cash advance?

    A good deal is relative. I don’t remember exact amounts, but I’d say something in the 7-8% range. Just to may one’s account look better, that is a pretty big price tag.

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