Leveraging Credit Cards - Principles that Maximize Gain while Preventing Pain

Version 1.0

Leveraging Credit Cards is a personal project where I’m sharing my personal, ongoing knowledge and experience. I’m sharing this with friends, family, colleagues, mentees and any others who might be interested (hence posting on Senki). This work is a living document, crafted for my extended “Crew” to help them not make the same mistakes.

Using Credit Cards — Photo by Blake Wisz on Unsplash

I’m like the majority of people. My first use of credit cards were a disaster. Noone taught be the core principles. My parents were clueless on the ways the credit card companies make money off their customers, and there were now help guilds to help me learn. I dug myself out of “credit card debt holes” many times in my 20s and early 30s. This continued after marriage. My wonderful wife/live-partner Laina was just as in the dark when it came to credit cards. It was her effort to blast through the credit card darkness to find a path to financial empowerment.

The Rich Dad Poor Dad workshops was the start. Reading Rich Dad Poor Dad by Robert T. Kiyosaki is a starting place recommended for everyone. It highlights two core principles to effectively leverage credit cards. First, people with financial empowerment are in a better position than the ones without financial empowerment. The “rich” work to ensure they pass on that financial empowerment knowledge to the next generation. The second lesson gained from Rich Dad Poor Dad is how the economic systems in this world have been and always will be skewed to prey on the people who are financially clueless. These lessons were a wake up call for Laina and I.

Laina and I then sought out more financial education. We found other tools, pushed for everyone in the family to be “financially empowered,” and sought out other mentorship. We still made mistakes, but we know had the financial awakening. Get a financial clue of get victimized. Remember Warren Buffet’s core principle of financial success …

“Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1” – Warren Buffett

Cash Flow Card – Not a Credit Card

Never think of a credit card as a tool for “credit.” This is the biggest mistake people make. People might think “credit cards” are a tool for credit, when in reality it is really a tool abuse people who don’t have the disciple to manage their finances. Credit Card companies change really high interest (16% to 35%). Rethink you “credit cards” into the concept of a “CASH FLOW CARD.”

The concept is simple. First, budget for your purchase. Don’t spend on things you cannot afford. That the credit/cashflow card provides is a tool to extend when you have to pay over a longer period of time. Instead of saving then paying, you are pushing the payment out to the next month. You still need to have the money. Second, use the right credit/cashflow card the best matches your purchase. A travel card from an airline is optimized to buy plane tickets, not groceries. Kevin Paffrath offers great advice – tape a note on each of your credit cards with the core benefits. This would help pick the right card for the purchase. Finally, Pay on Time. Credit Card Companies Make Money from Your Mistakes! They will chard fees, interest, and other “extras” when you don’t pay on time. It is best to set up automatic payment (minimal charge + paying off the full amount).

Prepare to Get Cash Flow Cards

The Internet and Youtube has a wealth of “credit card advice.” But, one of the core elements missing is preparation before you apply for a credit card. Here is a checklist:

Make sure you are earning revenue to use the cards for credit/cacheflow management. Don’t make the mistake of seeking credit cards for money which you do not have and do not have the means to pay.
Have a Bank Account with a means to automatically pay the balance. Check with your bank to make sure you are allowed to have automatic payments set up. It is best to have these set up from the credit card company. Get your bank’s routing number and your bank account number.
Start building your budgeting habits. Don’t use the credit card for credit. That means budgeting is critical. Understanding your personal budget and how much you can afford is interlocked with levering credit/cacheflow cards.

Principles to Leverage Credit Cards

These are core guiding principles for everyone to leverage the maximum benefit from their credit card use. These principles turn the credit card into a cache flow card that provides benefits, points, and cash back. Notice that repetition through this guide. There are key principles that are critical to your financial empowerment.

Never use credit it card for “credit” – they are cash flow cards.

This is the core principle repeated over and over again.

Pay off the Credit Card Every Month and On Time

Credit Card companies make money for their customer’s mistakes. That is one of the core principles to their business model. They all provide the tools to allow you to prevent these fees, penalties, and interest. The core is to pay on time.

Keep Credit Cards Open and Used

Don’t close cards. Some cards are worth keeping open. Closing a card will drop your FICO credit score unnecessarily. For most cards which are recommended a specific amount of use would cover the annual fees. Don’t forget your cards! One of the mistakes are people opening cards then forgetting that they have it opened. Credit card companies will some fees which will add up for people who are not watching.

Maximize the Credit Card Benefits

This takes some work. Credit Cards each have benefits and perks which align to specific types of benefits. We’ll cover more about these perks/benefits in later sections.

Pay attention to the changes – companies will trick you

There are times when the credit card company sends a “updated terms and conditions.” This and other tools are used by the credit card companies to “migrate” customers to new “products.” Pay Attention. Many times a card that has worked for you over time will be “phased out” by the credit card company. If you stay on the card, you might find the benefits and perks have changed without you realizing.

Explore Special Services and Tools provided by the Card

Many cards are not offering special services to help keep their customers. Some of them are free credit scores. Some are budgeting tools. Some are email alerts on payments. Explore all these tools to leverage the most benefits.

Watch out for Debt by a Thousand Cuts

Applications charge. Service charge. Daily activity charge. These charges add up. They are small. Being small, they don’t alarm people until they wake up and realize that money is being drained. This is “debt by a thousand cuts.”

Multiple credit cards make it harder to see when this is happening. The best way to watch out for this is a tools that aggregates all your accounts and spending in one place. There are a couple of tools out there. My favorite is Personal Capital. Personal Capital pulls down all my credit cards in one location (along with all my banking and investing accounts). That allows me to look through all my credit card transaction on all my cards and watch out for services which I now longer use, have canceled, or are just outgrown.

Monthly REVIEW

A monthly review of all your credit card/cash flow card use is recommended. This is where personal wealth tools like Personal Capital are useful. It allows you to review your budget, you spending, and look at the over all “personal cashflow.”

Which Credit Cards are Best?

The short answer is “it depends.” It would depend on your life situation, your credit rating, what you are trying to achieve, and many other factors. We’ll walk through some approaches, but first, we have a list of websites which focus on credit cards and advice on how to best leverage them. This work is an empowerment notes from a personal journey. It is not focused on keeping up with the latest cards. What we’re working to capture are the principles and approaches to best leverage credit cards as cash flow cards with benefits.

Credit Card Research Sites

Here is a list of sites that do the research and illustrate the pros/cons with each credit card. Compare information from multiple sites. There is always a suspicion that the sites might be “sponsored” to promote one credit card over another.

The Ascent (From The Motley Fool)

Motley Fool is a paid stock/wealth service which provides excellent advise to new investors. They offer Ascent free as a tool to help people figure out their best credit card options.

“We’re your money concierge. We cut through the noise and guide you to what we think are some of the best products and services that can make your money work harder for you. Our seasoned analyst team fully vets and rates a wide range of financial offers for everyday needs. We then compile in-depth reviews to help you confidently take action.”

Nerdwallet

Nerdwallet is a paid service that has a several free services. Most of the credit card research is public.

WalletHub

“WalletHub is the first-ever website to offer free credit scores and full credit reports that are updated on a daily basis. But we consider that just an appetizer, as we’ve built the brain of an artificially intelligent financial advisor that will truly leave your wallet full. WalletHub’s brain performs three primary functions, providing: 1) Customized credit-improvement advice; 2) Personalized savings alerts; and 3) 24/7 wallet surveillance. Such features are supplemented by more reviews of financial products, professionals and companies than any other website offers and a diverse community of subject matter experts. WalletHub is owned by Evolution Finance, Inc. and is based in Washington, DC.”

Credit Karma

A lot of people I’ve run into have recommended Credit Karma as one of the tools open to the average person working to get Financially Empowered.

“How we stay free Credit Karma will always be free. The offers on our site help us keep it that way. When you take an offer through Credit Karma (like for a credit card or a loan), we usually make some money from one of our partners (like the bank that issues the card or the lender who funds your loan). We’ll even crunch the numbers and give you personalized recommendations. When those tips are on target, we both win. But if you’re not interested, that’s totally fine too – you’ll never get charged for using Credit Karma.”

Money Under 30

Money Under 30 is specific targeted at the 20-somethings who are just getting started.

“Money Under 30 is an independent personal finance site providing free advice for young adults wanting to make informed decisions about where their money goes. “

Financial Empowerment Advice to Better Leverage Credit Cards

There are many people that I’m personally learning new “leverage tricks.” As I find people, I will add them here in future versions. Please let me know if you have people that have helped you gain financial empowerment to better leverage credit cards.

Mark Orlowski is a good friend who “woke me” to how I need to rethink some of my credit card leverage practices. Laina and I were doing OK with our system, but Mark pointed out many more things that we were missing. Mark has been sharing his advice on Marketplace (a M-F radio program). Here are links to some of Mark Orlowski Marketplace interviews….