Hey 5and2 guys and gals. Back this week with another bit of sage advice from Ramit Sethi and his book, I Will Teach You To Be Rich. I am willing to bet that we all have had our experiences with credit cards. Some good experiences like I can get what I want without the money for it. And some bad ones like, paying the minimum payment and lots of interest. Like anything else in life, credit cards can be a tool or a vice. If you adhere to the Do’s of credit card use, you will see them as a tool. But if you can’t avoid the Don’ts, I am afraid they can drag you down. Let’s get started with what you should do with your credit cards.
The Do’s Of Credit Card Use
- Pay the balance off monthly – If you are really smart, you will automate the payment so you never forget to pay off the balance. Any time you carry a balance, you are paying interest. And trust me, you want to avoid credit card interest. It is the worse!!!
- Get all the fees waived – If you spend enough money on your credit card each year, you can contact your credit card company and justify getting your annual fee waived. This works quite often, so give it a shot. Ramit provides a full script in his book on how to do this.
- Negotiate a lower APR – This is critically important if you carry a balance on your credit card. You can simply call the credit card company and negotiate your APR (annual percentage rate) down. Ramit provides a full script for this negotiation in his book.
- Keep your cards for a long time and keep them active – You don’t want to be jumping from credit card to credit card as this will affect your credit score, which will affect your APR on the card. Pick one, maybe two credit cards and keep them for as long as possible. This way you can establish a long line of credit. You also need to keep them active. If you don’t use them for two or three months, some credit card companies will cancel the cards, so use them and pay them off!!!
- Get more credit – By getting more credit, you improve your credit utilization rate, which is the amount you owe divided by your available credit. Having a lower credit utilization rate can help improve your credit score, which can improve your APR. Shoot for a credit increase every three months.
- Use your rewards – Most every credit card today will give you some type of rewards. It could be cash, flight miles, or other perks. Take advantage of these and use them. Some more unknown great perks include automatic warranties (if something breaks, the credit card company can help you out) and trip cancellation insurance (ask the credit card company to kick that cancellation insurance in).
If you stick to these Do’s of using credit cards, you will be, as Charlie Sheen says, “Winning.” Well, you will be winning if you can also avoid these Don’ts. Check them out!!!
The Don’ts Of Credit Card Use
- Avoid closing your accounts – There are times where you may want to close accounts, simply because you have way too many. But usually you don’t want to close your accounts. When you close your account, you lose available credit which affects your credit utilization rate. If you lose available credit, the credit utilization rate may increase affecting your credit score.
- Think ahead before closing accounts – If you are applying for a major loan, like a house or car loan, don’t close any accounts within six months of applying. Again, the credit utilization rate will affect your credit score and affect the APR you get for your loan.
- Avoid the “Apply now for 10% off” cards – We have all experienced this at the checkout counter. “If you want to save 10% on your purchase, you can apply for our store credit card.” They say this to you, not because they want to save you 10%, but because the APR on those cards is typically more than 10% and most Americans only pay the minimum balance on their credit cards. With this in mind, the store will make a lot more money back in interest than you are saving with a measly 10% off. Avoid these and just say no!!!
- Avoid the “I’ll pay…just give me cash” – This happens all the time when the bill comes for dinner or a show when you are out with a friend. In order to keep things simple, one friend will pay for the bill and the other will give them cash. The problem is that most people will spend the cash and then carry a balance on their credit card. This results in paying more in interest and a difficulty to pay off the balance each month. If you are put in this situation, go and get cash for your part for the bill. Keep that credit card in your pocket.
Credit cards can be a good thing or a bad thing. If you are carrying a balance, then it is a bad thing. If you pay your credit card off each month and get cash rewards back, then it is a good thing. For me, credit cards are a great thing. I get cash rewards, improve my credit utilization rate, and help improve my credit score. Pay off any credit card debt you have as soon as you can. Lick your wounds from all the Don’ts you have been victim of in the past, and move on to the Do’s of credit card use. Your wallet and your credit score will be glad you did!!!
By the way, you can check out the phone scripts in Ramit’s book by clicking on the image below to get the book from Amazon: