Picture by Acarlos1000
Cue the dramatic music, because... I'm using Credit Cards again! Does that mean I've turned to the Dark Side of the Financial Force?
For more than a decade, after making stupid mistakes with Credit Cards & filing Bankruptcy, I was an extremely vocal member of the anti-Credit Card regime. I avoided Credit Cards like they were thin, plastic pieces of alien technology sent to Earth for the sole purpose of enslaving anyone who was stupid enough to use them. They seemed to possess some kind of magical power, giving them the ability to make you feel great as they suck the life out of you...and every last dollar from your bank account! As Arthur C Clarke was so keen to observe- "Any sufficiently advanced technology is indistinguishable from magic."
I think his sentiments are just as applicable to this particular financial concept.
So what changed? Two things- 1) my financial education & 2) my financial situation.
When I used Credit Cards in college I was naive. I didn't understand my spending habits or my temptations. Credit Cards were like FREE money now and, even better, something I didn't have to worry about paying until later. I could get the stuff I wanted now and just pay it off over time. Interest rates, fees and other charges were irrelevant because they didn't effect me in the present. I could enjoy everything in life I wanted now and worry about the future...in the future. It's not like my parents ever had Credit Cards. They barely had enough money to pay the bills, who in their right mind was going to let them buy something on credit. I felt like I was special...like the Credit Card companies knew my future was going to be better than my parent's past, present and future. Who was I to argue with these successful companies if they believed I was worthy of such an honor?
I already had a full-time job the last two years of my undergrad and was making (at least what I thought at the time was) good money. But I didn't realize how much of an impact carrying a balance could have on my finances and how quickly it could eat up all my income. When my wife & I got married, had kids, bought a house, bought a couple of cars and had to pay other bills- the reality of it hit...HARD. The future I had put off for so long had finally converged with my present. Fast forward a couple more years & we're being sucked into the Debt Black Hole (Bankruptcy). Like I said- HARD! I swore I'd never use Credit Cards again.
However, over the last year or so, my attitude about Credit Cards has started to evolve. Every so often I like to challenge my assumptions and absolutes. I decided to take a long, hard look at why I thought Credit Cards were evil. What I realized is- it was my financial ignorance that caused my problems. It wasn't the Credit Cards or even the Credit Card companies- it was me. It was so easy to try to blame others- but when I analyzed all the data- it was a lack of planning, a lack of understanding and a lack of personal responsibility that were staring back at me.
During our Bankruptcy I read just about every personal finance book I could get my hands on (it's amazing how much time you have for reading when you can't pay for cable or satellite because every last cent is going to your Bankruptcy Trustee). And almost all of them tell you to avoid using Credit Cards. But, I think, the main reason for that suggestion is the majority of the people who read those books are having financial problems and are already in debt. It's only logical that, when writing for this audience, you tell them to stop using Credit Cards and accumulating more debt. Take Dave Ramsey's Total Money Makeover (& Financial Peace program) as a prime example (and of course Dave still doesn't use Credit Cards- he doesn't have to- he's already RICH).
But once you have your financial life in order, is that advice still valid? It is...IF...you know for certain you can't avoid the temptation of carrying a balance (as a way to artificially fund your lifestyle) or using Credit Cards for UNNECESSARY purchases. On the other hand, if you can...without a doubt...limit your purchases and consistently pay off the card every month (or week if necessary to keep a azero balance), why shouldn't you use them to maximize your cash flow? Besides, I refuse to live in fear of Credit Cards.
I know for certain the people I admire from Enemy of Debt, Ninja @ Punch Debt In The Face, Dr. Cabler at Celebrating Financial Freedom and many other PF bloggers will adamantly disagree with me about using Credit Cards. But that's perfectly fine. Others like 20's Finances, Money Beagle & Financial Samurai will likely understand my new point of view. Everyone needs to identify and explore their Financial Superpowers (strengths) & Financial Kryptonite (weaknesses). If Credit Cards are a problem for you then, by all means, don't use them! Again, using another of Clarke's Laws as inspiration- "The only way of discovering the limits of the possible is to venture a little way past them into the impossible."
Want to know which cards are in my
RFID Blocking Wallet (ThinkGeek Affiliate Link) right now? I must admit, I spent months researching every aspect of Credit Cards before signing up for anything. I wanted to make sure I was thoroughly educated. Thanks to the insights from Chris Guillebeau's Cards For Travel, Phil @ PT Money, NerdWallet, Geoff at NoobTraveler and several other resources- I put together a 9-month Credit Card plan.
Knowing I had not had any type of revolving credit account in over 10 years, I was pretty certain I would not be approved for a regular Credit Card. Because I didn't want to be limited on purchases, I decided against applying for any store cards. Instead, my best option was to sign up for a secured Credit Card. That's where my new Credit Card adventures begin...
CAPITAL ONE SECURED MASTERCARD
The first card I applied for was the Capital One Secured MasterCard. When you apply, based on your current credit, they'll ask you to deposit $49, $99 or $200. This money is refundable after a year or so. Even though they only asked me for the $49 deposit, I added a couple extra hundred to my initial deposit to increase my credit line. The annual fee for this card is only $29. A small price to pay to help improve my credit usage.
Once I got my card, the routine was simple. I started paying three small recurring bills with this card each month. I never charged more than 50% of the credit line at any time. I paid the bill in full each month. Not very exciting...but it's an effective system.
When I've used this card for one full year, I will contact Capital One & ask them to increase my credit line and refund my deposit to make this a regular card. I'm pretty confident they'll approve my requests.
After I used and paid this card consistently for 6 months, I applied for my next card. My first REWARDS Credit Card!
CHASE SAPPHIRE PREFERRED
The next card I applied for was the Chase Sapphire Preferred card. This has been the most popular rewards card for quite a while now. The reason I chose a rewards card was because of the initial 50,000 Point Bonus (recently changed to 40,000). This is worth about $650 towards travel or other rewards. You get the bonus by spending $3000 on the card in the first three months. You pay no foreign transaction fees, can transfer points 1:1 to several participating frequent travel partners and get discounted travel (20% usually) when you book through their Ultimate Rewards program. They waived the $95 annual fee for the first year, too.
This particular card is very useful to me for a few reasons. I get 2 points per dollar for travel and dining (which I obviously do a lot of) and 1 point per dollar for everything else. Since I've experienced a sharp increase in my Conflict Coaching & Conflict Engagement consulting work and Dispute Resolution speaking engagements over the last few months- my travel expenses are drastically increasing.
Even though I get paid UPFRONT for all of my services- I still have a 4-5 day span before checks clear & payments are posted to the appropriate accounts. Being able to use the card to pay for these travel expenses, instead of cash, allows me to better manage my cash flow.
As a bonus- I'll also be able to utilize the travel rewards to cut down on expenses when I start traveling outside Texas to attend Comic Book & Sci-Fi Conventions. I'm looking at you DRAGON*CON 2013 & the Cardiff Doctor Who Official Convention!
One of the most interesting things about the Chase Sapphire Preferred card is that I constantly get compliments about it when I use it. Not only is the Card # and other information on the same side as the strip (which makes most people do a double-take), but it's much heavier than most cards because it's made of metal. I also love the special 800 number where I always get to talk to a real person...<3 IT!
I managed to earn the bonus in no time with this card, basically using it to pay most of our monthly expenses. I just make weekly payments on the card, instead of to each of our individual bills. Making one payment is so much easier!
After using this card for a few months, it was time to apply for the next card. I decided to apply for AIRLINE MILES Credit Card this time!
CITI PLATINUM SELECT AADVANTAGE
I've always had good experiences flying on American Airlines. So I try to fly with them as often as possible. So it was a no-brainer to apply for the Citi Platinum Select AAdvantage OneWorld card. At the time I applied- I could get 30,000 Bonus Miles as long as I spent $750 in the first month and an additional 10,000 Bonus Miles if I spend $5000 in the first six months (sorry, but this offer is no longer available). This card also waived the $85 annual fee for the first year (the annual fee is now $95).
There are a lot of great benefits with this card though! I get priority boarding, first checked bag is free, $100 statement credit on my first American Airlines travel, I get double miles on eligible American Airlines purchases and I can transfer miles to other OneWorld partners- including British Airways (this was cool because we have plans to travel to London soon & I plan on volunteering for Mediators Beyond Borders).
I plan to use some of the Bonus Miles earned on this card to cut my flight costs to attend the Financial Bloggers Conference (FinCon12) in September. It's expensive for me to fly, because...well, quite honestly...I'm fat.
For my comfort (as well as for the comfort of the people around me), I usually purchase TWO coach seats (still less expensive than Business or First Class most of the time). When my family travels- that means I have to buy FIVE tickets even though there are only four of us! And despite most of the airlines claiming they will refund the price of the second seat if a flight is not full- I've never been able to get any of them to do it.
Not to mention, I don't want to have to have my own Kevin Smith-like "Too Fat To Fly" moment...Debt Black Hole doesn't have 2 Million Twitter followers (@debtblackhole) to back me up.
I'm excited about testing my ability to use Credit Cards again. Sure, I'm still a little nervous about it- but facing your fears is always somewhat stressful. Oh, and just in case you're wondering- NO- I don't plan to sign up for more Credit Cards anytime soon. I don't need or want them. These three cards suit my current financial situation perfectly. Plus, I don't want to have to deal with any more than three right now anyway.
But who knows...once these accounts have aged for a while & I've proven to myself I can effectively manage them...I might tap American Express on the shoulder & introduce myself. Only time will tell...
What about you? What's your stance on Credit Cards? Can you use them & consistently pay them off every month? Do you use rewards cards? What mistakes have you made using them? What do you love about them?
**Disclaimer: I have received no compensation of any kind for my reviews or usage of the Credit Cards or Rewards Programs mentioned in this article. The only affiliate link you will find in this article is for the RFID Blocking Wallet from ThinkGeek. I am not endorsing or promoting the use of Credit Cards to anyone who does not have the maturity to use them properly. In fact, I'm still against people using any Credit Card if you plan to carry a balance. Seriously- paying interest on them is ludicrous!**
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