Using a Credit Card Properly

The following is a guest post from Marotta Wealth Management. 

Getting the right credit card for the right reasons is half the battle. Using it correctly is the other half.

When the perfect card arrives in the mail, sign it, activate it and pull the sticker off the front. But before you put it in your wallet and start using it, deny the credit card company the permission to market to you.

Dial the 24-hour customer service number on the back of the card. Tell the representative you want the maximum amount of privacy on your account. The credit cards companies have multiple lists in their system. You may find it challenging to turn off each possible marketing opportunity.

Specify that you want no phone calls, statement inserts or junk mail. That means no phone calls from third parties, no selling your information, no sweepstakes offers and no offers of credit protection.

Most importantly, make clear you do not want any access checks. These checks look innocent, but micro print on the back explains that by cashing the check you are accepting the company's offer to bill subscription charges directly to your credit card.

When you think you have listed every marketing possibility, be sure to ask, "Is there anything else I can turn off?"

None of these offers help you build real wealth, which is why they have to advertise them. You won't miss anything. We've all made the mistake of wasting too much time on a deceptively easy offer that subsequently was very difficult to rescind. Your time is worth more than sifting through the ashes of advertising looking for valuables. Do yourself a favor and repeat the process just described for all of your other credit cards too.

If you have already taken my advice, put all your purchases on your ideal card. If you spend $50,000 and earn 2%, you will receive an extra $1,000 to save and invest. It's worthwhile using a card that pays you.

Debit cards can be dangerous. Every time you use one, you reveal how to access your entire bank account and drain it dry. Hackers are targeting merchants who have debit card personal identification numbers (PINs) as the weak link in their security system. Your bank's computer system may be secure, but the computer in the gas kiosk where you just paid is not. Even using your debit card like a credit card leaves your entire account exposed.

The most you can lose with a credit card is $50, which you can simply contest and refuse to pay. The most you can lose with a debit card is $500 if you wait more than two days to report the fraud. Your liability is unlimited if you wait more than 60 days. And while you are waiting for the money to be replaced, supporting your lifestyle is up to you.

Additionally, debit transactions are routinely approved even you have insufficient funds. The bank processes the $5 charge and tacks on a $35 overdraft fee. It would take $1,750 in spending on your dream credit card earning 2% cash back to pay for one overdraft fee.

Pay the bill as soon as it arrives in the mail. Don't wait until the last minute. You never want to risk paying interest or late charges. Paying electronically via electronic transfer, Bill Pay or by using your debit card is the quickest and easiest method. Because these are bank-to-bank electronic connections, this payment method is secure. You will save both time and money.

If for some reason you are late paying the bill, pay it as soon as you can, and then call customer service. Explain the reason for the late payment, and ask for the interest and late charges to be waived. If you have been a good customer, they may agree but usually only once in a 12-month period.

If paying either interest or late payments becomes a pattern, put the credit cards in a drawer and opt for a debit or cash system. Both people in a marriage should agree on the use of credit, with either partner having veto power about using credit.

Watch out for a few other special situations. Some merchants require a minimum purchase to use your credit card, which violates Visa and MasterCard agreements.

Vendors are also prohibited from adding on a credit card surcharge, but they can offer a cash discount. Although this may seem like not much of a distinction, it means that if merchants have an advertised price, they are not allowed to charge over that price just because you are using a credit card.

If you believe a specific merchant has violated these rules, call either 1-800-VISA-911 or 1-800-MASTERCARD. Merchants need to keep the credit card companies satisfied, which is leverage you can use in a dispute. Having charged a purchase on your credit card can help if you believe a specific merchant has treated you unfairly.

Try to resolve the dispute directly with the merchant if you can. Most merchants are reasonable, but if they are obstinate, the question isn't "Can they do that?" The only question is "Will you let them get away with it?"

Every one of us has felt cheated by being promised more than we actually received. But you may not realize that leverage and the law are on your side if you are willing to take the time to dispute the charge. Wrongdoing thrives when good people do nothing. You can do something.

You can refuse to pay for any charge on your card during a dispute. I've only take the time to fight regarding a few charges on my credit card. It requires lawyer-like patience and an eye for details. Documentation, especially of the portion in dispute, is critical. So is following the rules, which includes putting everything in writing as well as keeping copies for your own records.

Remember that your credit card's financial institution wants to keep you as a customer. Issuing a charge back is easy for them to do pending the resolution of a conflict.

The merchant's bank similarly wants to keep the merchant as a customer, but only if their business practices don't generate time-consuming disputes. They only make money from a seamless volume of transactions.

The final step in using your credit card properly is to record your spending information. Part of wealth management is spending money deliberately. You need a way to keep track of your expenditures.

For couples in financial trouble, establishing and following a budget eliminates fights about the first dollar spent. It frees them to focus on those categories where they went over budget.

Capturing how you spend doesn't even have to take the form of a budget. It can just be a tool to see what you have done, decide together what you would like to do and adjust how you will spend your money going forward. Think of a spending plan as simply the process of adjusting how you spend to best reflect what you value. Nothing is better for a relationship than talking together about what you hold dear and your hopes and dreams for the future.

Simplify whatever method you use by capturing your spending electronically. For every vendor on our credit card statement, we download our information into QuickBooks. But other interfaces such as mint.com or an Excel spreadsheet can work just as well.

Credit cards can provide convenience, protection and a little extra savings. But you must pay promptly and take the time to negotiate a fair resolution if your payment is not received or you don't get what you've paid for.

Comments

[Michael Gardner]

Apparently the author did not check the Mastercard and Visa websites thoroughly enough. Otherwise they would have learned that debit cards branded with either have the SAME protections as credit cards ($0 liability) when processed across their respective networks. Debit cards can do everything a credit card can do, except get you into debt. Even if you plan on paying it off every month in full, if you play with snakes, eventually you will get bitten.

The only way to use a credit card properly is as an ice scraper for your car, and then only if you hold it correctly.

[alex harrison]

I agree with the poster above. As far as I am concerned, having a credit card in your posession is enough because as night follows day, you will use that card no matter how thorough your debt and finance management is.

[JimmyDaGeek]

Instead of paying the credit card bill the day you get it, SCHEDULE the bill payment using your checking account electronic bill pay feature. You should be looking at your checking account online at least once a week to make sure you know what is in your account.

You should also be tracking your credit card purchases online to make sure you have a handle on your bills. Quicken and other software let you download this information. If you don't have that, you should be able to download it into an Excel spreadsheet. There are lots of free budgeting templates around.

[Moo]

I'm a huge fan of Credit Cards. One thing I like about them is that they can do everything a Debit Card can, except rack up overdraft fees!

Also, if you use ING Electric Orange (or similar) you can schedule your payment to be sent out on a specific date. I enter bills the day I get them, but schedule them for a few days before they are due. Sure, it's only an extra 2 weeks of holding on to the cash, but at least I'm making *some* interest on it.

[Crystal]

I have used a credit card since I was 18 and have never once carried a balance or bought something that I would not have paid cash for otherwise. Plus, I've earned thousands of dollars in cash back rewards. Credit cards are only as dangerous as their user...if you have financial discipline, they are just another way of managing your money and earning a little bonus.

[Jim]

I've used credit cards and been free of debt or fees for about 11 years now. In the same time I've earned hundreds of $ worth of rewards. But back in my college days I got into piles of debt and paid tons of interest.

They are what you make of them. Good or bad.

[texashaze]

I'm quiting credit cards!

About 2 years ago my wife and I went from paying with debit cards & cash to credit cards to get the cash rebate. We always paid the balance in full so finance charges weren't the issue. What we learned was that our spending habits worsened and consistently exceeded our budget. This resulted in us saving less although the rebate check was pretty good. Maybe we arent disciplined enough. However spending real money versus credit causes you to pause and not impulse buy. Last month we went back to debit cards and cash and we are already spending less and saving more.

Has anyone else shared a similiar experience?

[Old Limey]

Credit cards are GREAT!!! How else can you save between 1.5% and 3% on everything you buy including all of your monthly bills.
Find the cards, without annual fees, that have the type of rewards you like.
Never, ever, under any circumstances pay a late fee or interest charge.
Be very careful how you dispose of papers that have card numbers on them, and those blank checks the companies like to send you.

You need at least two cards, M/C or Visa is accepted everywhere but AMEX seems to have the best rewards.
Use a BillPay system (free if possible) to schedule payments the business day before they are due.
Jot down on your desk calendar both the due date and the next closing date.
Try to make large charges just after the closing date, not just before it. This way you get to use their money for free for an additional 25 days.

Then put every household expense and monthly bill that you possibly can on one of your cards. One of the best cards is the AMEX/COSTCO card, it gives you back 3% for gasoline & restaurants, 2% for travel, and 1% for everything else. I also have 1.5% reward M/C and a 2% reward AMEX.

Another benefit is that you save money on postage stamps and electronic payment is far more reliable than the US Postal Service. Bottom line is that you save hundreds of dollars every year.

If you lack financial discipline, are a compulsive spender, and are prone to missing payment due dates you have my sympathy because my system won't work for you.

[Eric]

If you listen to nobody else, you have to listen to Old Limey's comment above! Here's a man with experience lol. :)

I agree though. I don't buy into the anti-credit crowd. Do what works for you but don't be bitter about credit cards just because you're not responsible enough to use them.

I've had several credit cards and reaped a ton of points, cash, and flights from them all without paying a single extra cent. My spending is budgeted and controlled regardless of my choice of payment.

Learn folks!

[kitty]

When I saw the title of this post about proper use of credit cards, I remembered a satiric video from a couple of years ago posted on somebody's blog. It was like an interview, but an example for improper use of credit cards was using it to open the door to your apartment if you locked yourself out, but proper use was to simply use the card to buy a new apartment. It was really hilarious. Don't remember who posted it. Tried to find it and couldn't.

Back on subject, I am with the author and Crystal: I've used credit cards for 25 years and have never carried a balance.

@Michael Gardner - yes, they offer protection, so if you find out that the bill is a fraud, then you get to call and have the money returned to you. However, there is a time window during which your account is out of money and your checks can bounce. With credit cards, you get a chance to look at the bill in advance. Also, if there is a dispute between you and the merchant you can deny payment. Plus, some cards offer automatic extension of warranties.

Additionally, most credit cards today have this feature called "automatic payment" of the full balance. This way you get the full grace period, have a chance to examine the bill in advance yet the money will still get paid in full and on time auto-magically.

@Alex Harrison: "you will use that card no matter how thorough your debt and finance management is."
Sure - for things I could comfortably afford to buy. Incidentally, I don't need to "manage debt" since I have no debt. Own my home outright and bought last three cars for cash. Oh, and I am not particularly disciplined: I've never even kept a formal budget. I've just learned at a very young age to appreciate the value of money.

@texashaze - no, but it's all individual. In fact, I often travel to countries where cash is the preferred method of payment and somehow cash manages to disappear whereas my credit card bill is reasonable. Not sure where all the cash goes - must be magic.

But really, it is all about how you think about purchases and money. Say you come to a store and see something you fancy. You may look at the price tag and think "this is expensive, I am not sure it is worth the money, I can buy so much more useful stuff for the same amount of money" or "it takes me so much time to save this amount" or "I am not even sure where to wear it". Or you may think "oh, I can just charge it". Depending on how you think, you will or will not overspend. I tend to think about amounts of money in term of what this amount can buy and whether a particular expense is worth it - regardless of how I would pay for it.

One thing I don't understand if you really paid the full balance: didn't you get unhappy in parting with the large amount when you got the bill? If so, why didn't it stop you from overspending the following month? To me seing a large bill or even thinking about the bill is a pretty big deterrent to overspending.

Mind you, I am sufficiently comfortable right now that it doesn't really matter if I spend a little more or a little less...

[Credit Card Chaser]

@Michael Gardner
"Debit cards can do everything a credit card can do"

EXCEPT for that little thing called cash back or rewards that gives me 1% - 3% cash back on everything that I buy... hmm why would you turn away that free money?

[texashaze]

@Old Limey - I agree on all your points. AmEx Costco Business is the best. My problem is I love Costco and spend too much there. I'm a very disciplined spender except at that store. They have so much good stuff and good deals.

@Kitty - We are also comfortable so the over budget spending didn't hurt us but when the monthly bill came I didn't like the number. Once a month pain is actually easier to handle than everyday. So, in that respect cash is easier - more pain everyday keeps me disciplined than that once a month big AmEx bill.

[Apex]

Those who are posting here about how bad credit cards are all have one thing in common. They admit that THEY do bad things with them or that it causes them to spend more money.

The answer to that is simple. Don't have one.

The leap is that many of them then say, everyone else will do the same thing I do, it's just too tempting. They have determined what worked for them (get rid of the cards) and thus that is the solution everyone should use.

The problem with this is that not everyone suffers from the various kinds of discipline problem these people have. Everyone has their own issues to fight and their own way to fight them.

Credit cards may be horrible for many people. I submit they are horrible for most people. I would be fine with drastic reduction of credit card availability and massive changes to credit card payment terms.

For example. I think it would be very beneficial for our economic stability in the long term if we mostly eliminated credit cards, allow them for small credit lines (perhaps maximum total combined lines of 5k) with minimum payments of atleast 10% of the balance per month which gets newly charged money paid off in a year. Credit cards should not be used to finance things people cannot afford. If you want to purchase furniture that you can't afford, get a loan from a bank, get financing from the store, or don't get it.

In place of the drastic reduction of credit card availability encourage massive increases in charge cards which is how most credit cards started out. You could charge large sums on them, but the full balance was due every month, and if its not paid within the grace period, your credit limit is revoked. This is how short term credit should be used. Simply to purchase things in a convenient way which you already have the money for.

I think changes such as these would be beneficial for everyone involved including the U.S. economy.

However, I don't think any such thing is likely to occur. And in the meantime, even though credit cards are used for bad by many, they have benefits to me that I intend to take advantage of.

It's great that some people have determined they are allergic to credit cards and make the wise choice to avoid them. However I don't tell people to avoid things just because I happen to have an allergic reaction to them. They would think I was a little nutty.

[Eugene Krabs]

So, I think Apex hit on what I wanted to say.

Credit/debit issues for people who are financially responsible usually comes down to a matter of budget tracking. I think saying that it's a discipline issue is kind of harsh, but you definitely need a system to track it.

Now, I realize this is easier said than done, especially for bigger households, but once you nail that down, I think you'll find that using a debit/credit card PROPERLY (and with a reputable credit card company) is one of the best financial tools available, especially if it pays cash or rewards back!

If not, cash is fine too.

[Tyler]

My debit card through Chase is a leisure rewards card so I do get points for every purchase that I run as credit and then I can cash those points in for cash.

[mgs]

Hi, Old Limey
Can you share which M/C has 1.5% rewards? I am looking for one for all Sam's Club purchase. Thanks!

[Bill]

FMF, hope you don't mind if I post my question to you, here.
I use credit cards and gain points. I pay the balance due every month. No other debt save the mortgage.
Here's my question: In the view of credit card issuers, I have seen people like me called "freeloaders". Does anyone see/know af an advantage to leaving a small balance on a card, say once or twice a year and paying a small interest charge? Frankly I can't but maybe someone has a different view or experience.

[FMF]

Bill --

I don't see any advantage in it.

Does anyone else?

[Eugene Krabs]

Bill, what you call "freeloaders" are also called "deadbeats" in the industry.

First of all, don't let them fool you. Your credit score does NOT suffer! Quite the contrary, it improves because it shows that you are fully capable of paying off your debts.

What it doesn't do for the credit card company, however, is for them to make money off of you via debt interest. Their favorite kind of people are the ones who does not default or is late on their payments, but rather, will not pay it off either. Instead, they maintain a healthy debt balance and only pay the monthly minimum. They call these people the "Golden Goose".

Credit card companies do NOT help deadbeats. They have to make money off of you somehow, and therefore, will not budge on that one late fee or overdraft fee that you accidentally incur. Some companies may go as far as hiking up your interest rates or even close your account without your permission! These are the companies you do not want to do business with.

However, they will bend over backwards for a golden goose. They make a killing off your debt interest, and your minimum payment guarantees that they will continue to make money off of you for a long time to come. So, if you should ever slip up or need a limit increase, or whatever else you want to request, they will do whatever they can to accommodate you. One simply does not kill off their golden goose.

By the way, I do NOT consider deliberately becoming a golden goose as a viable financial strategy. Remember, no matter what they do for you, in the end, you are still losing a lot of money to them. It benefits them, but it hurts you.

Besides, with your good credit score, you can always switch and do business with a much more reputable credit or charge card company who will also offer you perks and cash back. My feeling is that if they won't help you, screw them and find somebody else who will.

Remember, we are here to become masters of our finances, not become a slave to them.

[Bill]

FMF and Eugene, thanks. Your views are the same as mine, I just thought I might be missing something. Sort of like "You don't know, what you don't know".
Thanks again.

[kitty]

"Credit card companies do NOT help deadbeats. They have to make money off of you somehow, and therefore, will not budge on that one late fee or overdraft fee that you accidentally incur."

I've always paid in full and yet I've not had a problem having a late fee waived when I was late. Once I was really late - carried an envelope with a check in my purse and kept forgetting to mail it, just had too much on my mind. I called and they waived the fee "just this once". The other time I simply sent the payment too close to the due date but called them to get it waived in advance. The lady said she couldn't do it, but suggested that one way to avoid problems is to sign up for automatic payments and that she could send me the form. But then when I got next month' statement there was no late fee. So either my call worked or my check arrived on time though I don't believe it could've.

I also had limit increased even without my asking them - I hadn't even needed it. And the only company that closed my card for inactivity was AmEx and that was a corporate card which is supposed to be only for business expenses and is required be paid in full. Interestingly at one point I hadn't used my personal card from them for several years and they didn't close it, so maybe it's a policy on corporate cards.

Keep in mind that when you call, you talk with a phone desk employee not an executive. This person doesn't care quite that much about the whole picture or profits, he or she are just doing a job. This employee has personality and feelings, he or she may be in good mood or bad mood. If you are nice and polite, the employee will often forgive a fee or two assuming you don't make a habit of it. But if you are rude then "golden goose" or not, you'll still not get any fees waived.

There really is no reason to ever carry a balance other than some real (e.g. medical) emergency.

[Old Limey]

mgs:
My 1.5% cash reward M/C and my 2.0% cash reward AMEX are both sponsored by Fidelity Investments and only for their customers. The cash rewards are deposited into a Fidelity account.

[Tamara Holmes]

If you want to get rid of your credit card debt and employ a debt settlement company for this task then I have a pertinent suggestion. Do not go immediately to just one debt settlement company but instead use a debt relief network that is associated with multiple reputable debt settlement companies. To qualify for inclusion in the debt relief network, the debt settlement company must prove a history of effectively reducing debt.