Do you put $10,000 or more on your credit cards each month? In theory, it should be really easy to manage that debt. All you have to do is pay off your entire balances on their due dates. I mean, what else do you need to know?
Unfortunately, the answer is that there is a lot more to know. Many people are simply not able to follow this system. In fact, Americans carry an average credit card balance of about $5000. It’s just not a good idea to carry a balance like this because your interest fees can quickly escalate the amount you owe. In addition, the monthly payments you would make on past spending may inhibit your ability to pay for your current expenses and save for the future. Fortunately, many high-volume credit card users have discovered how they can charge and pay off huge sums on their credit cards and always come out ahead. Here’s what they’re doing right.
1. Use software
Savvy credit card holders use technology to see where their money goes. If you don’t know exactly where it’s going and what it takes to run your household it becomes very easy to run up debt. There are numerous apps and software available to track your cash and credit flow to make sure you never overspend. Step number one towards financial well being is to know that you can pay off your credit card debt based on your regular usage and without it affecting your checking account balance or other areas of your financial life. If you want to be a successful high-volume credit card user, go online, check out personal-finance programs and find one you think will work best for you. We like Mint.com and You Need A Budget (YNAB) but some people prefer Quicken.
2. Earn when you charge
Ultra-sophisticated credit card users make money instead of paying interest by using credit cards rewards programs. The best of these offer straight up cash back. As an example of these, Target cards offer 5% cash back on purchases and an American Express card from Fidelity has a 2% cash back rewards program. The Fidelity card could be a good choice because for every $5000 you spend, Fidelity will deposit $75 into your investment account (if you have a Fidelity account). Many cards such as the Chase Freedom Card offer choices – you can either get rewards points or cash back. This card, like many others, also offers the opportunity to earn more cash back via quarterly promotions. For example, you might be able to earn double points by using the card at restaurants during a three-month period. If you play your cards right, you could maybe spend $20,000, get as much as $1000 back and then avoid any interest charges by moving your entire debt to one of those 0% interest balance transfer cards.
If you’d like to know more about the differences between cash back, points and airlines miles, here’s a brief video that answers this question.
3. Be prepared for the inevitable
Expensive emergencies such as a broken-down car or an aging pet that requires surgery is what trips up most cardholders. These emergencies tend to feel like surprises because they exist outside ordinary spending. If you run into one of these and don’t have the cash in hand, it will have to go on a credit card –unless you’ve taken an extra step so that you are prepared for financial emergencies. What that extra step amounts to is setting aside money to pay for those inevitable emergencies. One good way to do this is to have a separate savings account with automatic deposits from your paychecks. While many financial experts say that you should have the equivalent of six months of living expenses put aside to cover emergencies, a more affordable alternative might be three months worth.
4. Have ongoing conversations about credit
Sitting down with your spouse or partner to discuss your credit situation is certainly not much fun and can lead to arguments. But savvy credit card users communicate with their partners or spouses continually to make sure they have his or her willing cooperation and participation. Don’t wait for problems to start but make credit discussions an everyday conversation, particularly if you and your spouse or partner have conjoined accounts. If you maintain a regular dialogue, you can avoid those “oops” of credit card life. For example, suppose you need a new $500 computer. That should be a joint decision as to whether you spend the money now and incur $500 in debt or save for several months so you can pay cash. The important thing is for the two of you to be able to agree as to how you are going to handle purchases such as this.
5. Commit to zero
A survey done recently revealed that 20% of Americans feel that it’s not only inevitable to carry over credit card debt but a responsible way to manage personal finances. If this is how you feel about credit, it’s time to change your viewpoint. The high-volume credit card users say that debt is not a fact of life and that the amiunt of your income is irrelevant. Pledge to borrow only what you know you’ll be able to pay back immediately and then follow through on it, no matter how painful it might be when the time comes to write a check. It really doesn’t matter how much you put on that credit card so long as you can pay it off in full and on time. If you buy only things that you know you can pay for at the end of the month, it tends to keep spending in check. This is made easy by the credit card companies that have their high interest rates and penalties. In fact, they make it seem absolutely foolish to not pay your bill in full or, worse yet, to miss a payment.
The vast majority of credit cards give you about a 30-day window to send in your payment. If you pay the entire balance owed you avoid any interest charges. Your statement(s) will have a due date and you need to make sure you know what it is. Savvy credit card holders actually pay as they go instead of waiting until the date their payments are due. For example, you could pay off your credit card balance every Friday and then start the next week fresh. In many cases if you pay often and in small portions, you’ll find this is easier than having to face one huge payment. Alternately, you could pay off your balance every paycheck, which is probably twice a month.
7. Lose the plastic
Most high-volume credit card users have streamlined their accounts to just a few cards. Multiple cards can lead to confusion. The more cards you have, the more likely it is that you will get into trouble. It’s probably better to have two or three accounts with large limits than a whole bunch of cards with smaller limits.
8. Respect your limits
It’s not important that your credit card issuer will let you charge up to $20,000. And what your friends are using their credit cards for is none of your business. The important thing is for you to know how much money you have and to not worry about what other people think. The people who most often get into trouble are those who buy things they can’t afford due to peer pressure. This means the critical number is not your credit limit but the amount you can afford to repay. The best solution is to focus on your budget and live below your means. Just about anybody can alter their lifestyle to do this and there’s no reason why you shouldn’t be able to do this as well.
I am an associate at National Debt Relief, which is a Debt Consolidation Company that has helped thousands of Americans facing credit card debt problems. We help with debt settlement, debt management, and other debt related financial crisis' facing consum