A wise person must learn quickly if they are able to handle credit cards. Here’s my approach to credit cards and it is Rule #1 : If you can pay your credit card off within the upcoming billing cycle (often less than 30 days now) then yes, you can use your credit card. If you can’t, CUT IT UP!!! Do NOT buy anything on that credit card – EVER! Period! I mean it! EVER!
If you read Wealth Tip #1, you’d know that the first thing that we all have to do is to save. When you save enough money, you can go buy something on your credit card and then pay it off before the lending agency puts interest on the balance. Save some money then go buy something. You’ll enjoy it even more!
That guide has served me well. When the temptation to purchase something hits me and I rationalize that since its a larger purchase, I’ll spread it out over this and the next billing cycle, then in plain old English, ‘I’m screwed’. It is tempting. My mind tells me that I deserve it. I find all kinds of reasons to act now instead of wait. But wealth is built by spending less than we earn. So, wait on your purchase. Just as saving requires discipline and a long term approach, so also credit cards have long term consequences. Remember this, if you can’t pay it off within the next billing cycle, don’t buy it.
Instead, Rule #2 is to use your debit card! Your debit card is cash. It subtracts money spent from your bank account instantly. Your balance is immediate available for you. Know your balance by getting the app from your banking company and check your balance. You can spend as long as you have money in your checking/debit account. Then you have to stop. You can’t pull out your credit card now because you just ran out of money. You have to stop spending. You must stop spending. I must stop spending. It isn’t easy. I want that vacation, or that delicious bottle of wine, or a night out at the restaurant. But I won’t accumulate wealth that way. Wealth is not about increasing your income. Wealth is about spending less than your income – whatever your income may be.
The third rule on my credit card plan is a fairly new approach for me, but I’m sure lots of smarter, quicker people have been doing this for a long time. I think I recoiled from this approach at first because I was afraid that I’d get credit card loopy and just ‘grab and spend’, losing sight of my running balance on the credit card. But now, having established that I can responsibly pay off my bills in a timely manner, I next ventured into this plan. Here goes:
Every major line of business, whether hotels, food chains, airlines and stores, have a credit card available. Macy’s, Southwest Airlines, Subway Sandwiches….all of the offer credit cards. For years, I threw all that junk mail away. Then one day, I was walking through Houston’s Intercontinental Airport where a person at a little kiosk was trying to give me a T-shirt if I signed up. And if I signed up, I could get points added to my Continental Airlines ( well, now it’s United Airlines) Frequent Flyer One Pass program. They’d add enough to get me two round trip tickets anywhere in the USA! In addition, I’d get two free passes to the President’s Club ( free drinks, snacks in a private VIP waiting area) and……I would get one mile credited to my One Pass account for every dollar I purchased with my credit card. Plus, the first year had no annual fee. That added up to a pretty good deal if the fine print didn’t contain little cost increases over the years.
I’ve had that credit card now for many years and I’ve been pleased with it, buying big ticket items with it like a new TV or an airline trip (they give double miles when you book a United trip). However, hold on to you britches – I’ve started using it for everything that I purchase now. I use it for paying my property taxes, for groceries, for gas at the pump, to pay my electric bill, to make my contribution to my church, to pay for dinner at a restaurant, even to pay for dance lessons. The only thing I can’t pay with that card right now is my mortgage. They won’t take a credit card to pay a mortgage loan but I’ll keep trying until I figure out a way.
Take a moment, and think how much you money you make each year. It’s the amount you report to the IRS at income tax time. You gotta pay taxes, so how much do you have left after taxes? For every $10,000 of income, you’ll probably have $8,000 left to spend. What does that come to in a year? With a little bit of addition, just look at how much money could be used on that credit card to earn miles ( or points, or free nights in a hotel or, heaven forbid – more Subway sandwiches).
I like the airline card instead of a hotel or store card. Many department store cards don’t offer any kind of ‘loyalty’ points. They just offer credit. And I don’t want bills. I don’t want to pay any interest on top of my purchase that will cancel out my smart price shopping.
Back to loyalty cards. My strategy is to save enough miles to have a free trip for 2 people anywhere in the United states. There’s so many reasons that I like this, mainly because I LOVE to travel. Love it. But think about this: if you don’t have much money and an emergency arose that was out of town, you’d have your emergency air fare already saved up and ‘in the bank’. You won’t have to pay a full price fare, or prove its a ‘Bereavement Flight’, if you can find an airline still giving those discounted fares. You can quickly call the One Pass desk who will find the next flight with an open seat and use your travel miles at the normal rate. It might take you a few years to accumulate enough travel miles, but who cares? If a parent, or a college student, or a friend suddenly needs you, you’re ready and able to go. I like that!
I’m not going to promote any particular card or business because you’ll have to find the one that applies to your desires. Here’s a good website for travel related cards (Million Mile Secrets) and their associated fees and requirements. Don’t skip over the requirements. Some have steep annual renewal fees. Some require you to spend $3000 in the first 3 months in order to receive your Sign-Up bonus points. Just read it. It’s not hard. Remember, knowledge is power. Be smart.
I’ll cover other loyalty programs in an upcoming blog. You’d be surprised at how rewarding some of these companies are.
So, pay off your card within the billing cycle; use your debit card; sign up for a business ‘loyalty’ credit card. Just remember, if you can’t pay it off during this upcoming billing cycle, DO NOT USE YOUR CREDIT CARD!
Next time – Your Dream Job and Your Ideal Income