Make Plastic Your Friend

Credit card companies hate me. They send me 20 unsolicited cards a month, and keep raising my credit limit, but they still haven’t made a dime from me. Why? Because unlike the majority of Americans, I’ve made plastic my friend.

The techniques described in this article only work if you are not in debt; if you are carrying balances on credit cards, pay them off – NOW. There is no investment that currently pays the 12 to 21 percent you are paying out in credit card interest, so every month you carry a balance, your net worth decreases. That’s a pretty large sacrifice to make just to have an Xbox or to furnish your trophy home.

If you’re just starting out, here are things you can do to avoid the debt trap, and use your credit cards to your advantage.

NEVER PAY AN ANNUAL FEE FOR YOUR CREDIT CARD
Why should you pay $25.00 to $100.00 a year for the privilege of paying a bank 18% interest? Shop for a credit card with no annual fees. Your credit limit may not be as high initially, but with a good payment record it will be raised annually.

ALWAYS CHOOSE CARDS THAT OFFER REAL CASH REBATES
When I was a bookkeeper for a self-made millionaire, we tried to do business with companies offering discounts for paying bills on time. Many times, our invoices offered 1 to 5% discounts just for sending them a check within terms, and when you’re dealing with several thousand dollars per purchase, those discounts add up to real savings.

Individuals can have the same discounts on purchases if they use a credit card offering cash rebates. Unlike other perks credit card companies offer, such as frequent flyer miles or product discounts, cash rebates aren’t limited to a particular purchase or store – they come back to you. If you are considering making major purchases, such as home remodeling supplies, appliances, etc., those rebates add up to real money, and reduce the real cost of the product(s).

PAY YOUR BALANCES MONTHLY
That’s right – have enough money set aside for the purchases you intend to make that you never carry a balance on your credit card. Basically, you are using the bank’s money as leverage in your transactions – if a purchase goes bad, the bank will intercede on your behalf. Keep your money in an interest-bearing account (checking, savings, or money market), and earn money while you let the bank cover your purchase for 25 to 45 days.

MAKE YOUR LARGEST PURCHASES THE DAY AFTER YOUR CARD’S CLOSING DATE
Every credit card has a “closing date”, or a date when the bank posts all of your charges and payments and generates your statement. If you make a charge to the account the day after the card’s closing date, you’ve given yourself almost 2 months to pay for that charge. It will be another month before the bank closes your account for that month and generates your statement, and then you normally have 2 to 3 weeks as your “grace period” for payment. That’s seven weeks you can have money in your bank account earning interest for you.
Having a line of credit is a necessity in our society if you intend to purchase a house, car, or other big-ticket item that requires an established payment history. Using your credit cards wisely can help you establish your credit, lets your money work for you, and gives you the ability to contest charges in the event you purchase a lemon without having to worry about getting a refund or finding the individual who has scammed you. Just be sure that what’s in your wallet is your friend, not your master.