Dec 5th, 2007
(Not so) Stupid Credit Card Tricks
As I stated in an earlier post, I don’t think that credit cards in and of themselves are horrible things. Rather, I think that the folks who use credit cards have to make choices as to how to use them–sometimes to their advantage and sometimes not. That said, there are some ways to really use your credit cards to your advantage.
First off… get cards with no annual fee! Fortunately most annual fees have gone away, or will with enough protest (try calling the 800 number on the back of the card to say that you don’t wish to pay the annual fee and are considering dropping the card and see if they’ll drop it; if they don’t drop the fee, then seriously consider following through). The last few cards that still hold on to annual fees, aside from those targeted at people with poor credit, seem to be airline milage cards and some American Express cards. I currently, with a caveat, have an American Express card with a fee… but the caveat is that the “fee” is my Costco membership fee, which I would be paying every year anyway–and every year since I’ve had that card, the Costco rebate amount that I get in February has been in excess of that membership fee (a bit over $50 here in Hawai’i).
Secondly, and even more importantly, pay your bill on time every month and in full. This tends to be the biggest single issue with credit cards; if they are not paid off in full every month, the large amounts of interest paid can easily outstrip the principle that’s owed. In addition, late fees have become a profit center for the credit card companies; some of these fees are in excess of $30! Don’t pay any more to the credit card companies than you already owe. Given my previous blog on the possibility (I am not convinced, although I will concede that it is quite possible) that folks who use credit cards spend more money than those who use cash, you may want some method of monitoring your spending (whether it’s “just” will power or some other way of preventing excessive spending).
Once those two primary things are dealt with… it’s time to use your cards to your advantage.
1) Check on your card’s benefits. Not the rewards program–you probably know all about that one–but the benefits. For instance, many credit cards offer free auto rental insurance if you rent a car, so you can turn down the overpriced insurance that Alamo offers you. This is a benefit that’s quite well known, but there are often other benefits that are not so well known. Price protection. Extended warranties. Air travel insurance. Check your card’s benefits to take advantage of these. My Amazon.com Visa has offered extended warranties for years; their program was less expensive per year than AppleCare for my iPod and allowed longer coverage (four years vs. two), and I got three replacement iPods over the last few years using that program.
2) Watch your card’s billing periods and use them to your advantage. For instance, my Discover Card bill is due on the 16th, and a new statement is generated on the 17th. The bill that ships on the 17th of December is due on the 16th of January. I will often wait until the 17th or 18th of the month to buy something, missing the statement until the following month. That means that something I buy on December 18th doesn’t actually get paid for with cash until February 16th; nearly two months to either come up with the money (hopefully not) or let the money gain a bit of interest in a money market account (hopefully so).
3) Maximize your reward programs. My Discover card typically pays 1% cash back most of the time, but it’s currently paying 5% back on supermarket purchases and restaurants. My Amazon.com Visa gives 1% toward an Amazon.com gift certificate on most purchases but 3% on Amazon.com purchases. Discover also has agreements with online vendors to offer increased rewards if the purchase is routed through Discover.com’s special site. One of my current favorites is buying gift cards at my local supermarket for places like iTunes and Macy’s–for 5% cash back. I’m also considering getting gift cards for the supermarket at 5% cash back–it’s like saving 5% off the bat somewhere I know I’m going to be shopping.
There you have some ways to manage your credit card use and maximize your benefits. Do you have any tricks to making the most out of these much maligned financial tools? Let us know!
