Credit cards Archives - Page 2 of 3 - The Broke Professional

How Much Cash Do You Carry?

Only Floyd Mayweather should be allowed to carry cash

Only Floyd Mayweather should be allowed to carry cash

Right now I only have $10 in my wallet.  I know I’m a Broke Professional and whatnot, but I usually had more cash than that when I was an even more broke college student.  That’s because I used to pay for everything with cash, including gas, which means I had to talk with those rays of sunshine who worked inside the gas station convenience store.  Then I got my first credit card, which was a 5% gas credit card for BP, still a pretty good deal nowadays.  As soon as I got to experience the convenience of credit cards (and got a little cash back for my regular spending), it was credit cards all the way for me.

And many others are going in that direction also.  According to a recent survey at Bankrate, half of Americans surveyed carried less than $20 in their pockets (try buying a tank of gas with that).  This shows that most Americans are opting to use credit or debit cards for their purchases.  There are a number of reasons for this, but I think the biggest reason is simply convenience.  Carrying a lot of cash (and God forbid, coins), can be cumbersome.  Making a purchase of any kind is a lot easier with a credit card because you don’t have to fumble around looking for exact change (don’t you love getting stuck in line behind those people?) or find somewhere to put your coins which will end up getting lost under your car seat.  Pulling out a solid rewards earning card for all of your purchases seems like the most efficient way to buy anything nowadays.

But having lots of cash in your wallet makes you feel like a high roller.  Is there any better feeling than pulling out your wallet or your fancy money clip and seeing everyone’s eyes bulge out of their sockets as you count your cool stack of Washington’s?  Yes there is something cooler, and that is going on your smartphone and checking your budget and knowing you have more than enough to spend with your credit card.  The ability to do almost everything financially on your mobile device has really made needing cash a thing of the past.  It is also easier than ever to pay for things with your mobile device as well.  A number of big companies have apps to download where you can pay straight from your phone.  There are also companies like Square and PayPal that make it really easy to pay for services.  Companies that accept cash only are becoming more of a rarity than ever before.

Some argue, and there are even studies, that show people spend more when using credit cards than when using cash.  I would argue that the people who do this don’t have a great grasp on their financial situation.  Make no mistake, the credit card companies know that most people spend more when using credit cards and they want you to keep using their cards instead of cash.  That’s because there are many irresponsible people out there who get caught in the credit card trap and end up paying month after month of interest to the credit card companies.  Visa can continue to get rich off of those people and I will keep using credit cards for their rewards and being able to easily track my purchases.  In my case, credit cards have become such a normal thing for me that I would probably spend more if I had cash because credit card spending seems “real” to me.

There are people in both the cash and credit card camps who are sure that there way is the path to financial salvation.  The cash only camp is getting decidedly smaller over time, however, and we may be nearing an era when we will have hardly any incentive to use cash instead of credit.

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Get Rewards for Buying your Stuff

I enjoy writing about credit card sign up bonuses.  And for good reason.  They’re awesome.  They allow you to get a nice pile of bonus cash (or points or miles) for buying stuff on your credit card that you normally do.  If you can get past the silly temptation to use your cards more than you need, you can easily get at least a few hundred dollars worth of rewards in a year without much effort.  Put some effort into the sign up bonus game and you can get rewards in the thousands.  But what about those times you’re not chasing a bonus?  Should you just use any card for any type of purchase?

The answer is, of course, no!  There are certain cards that are very good for certain categories and some that are good for everyday spending.  I always say there should be a reason you pull out a certain credit card for a certain purchase.  Just using a card for no reason is selling yourself short.  After a while using the best credit card for your particular purchase will become second nature.  Here are what I think are some of the best current cards to use for different categories:

(By the way, none of these are affiliate links so I don’t get any commission if you sign up for these cards.  These are my honest to goodness recommendations from the bottom of my heart).

Groceries

Money spent on groceries is a huge expense for everyone so I think getting a good rewards card for groceries should be the first thing on everyone’s list.  And not just because of food.  You can buy household stuff, greeting cards and gift cards and get the same great cash back as you would on food.  My favorite card for this is the Blue Cash Preferred from American Express.  This card gives you 6% cash back on grocery store purchases on the first $6,000 you spend on groceries in a calendar year.  That’s $360 cash back for the year right there.  The card does have a $75 annual fee which eats into that, but that’s still a decent amount of cash back for making your regular purchases.  You also get 3% cash back on gas with no yearly limit which is nice as well.  If you search around on Google you should be able to find a deal with a good sign up bonus.  I got one with a $150 sign up bonus but your results may vary.

Gas

Gas is another expense that many people incur regularly, so you might as well get some cash back for it.  As I just mentioned, the Blue Cash Preferred is probably the best gas card as well since it gives you an unlimited 3% cash back on gas purchases.  The Chase Freedom gives you 5% cash back on gas, but only during certain months of the year.  This year, for example, there are 2 quarters where 5% back on gas is offered.  The Freedom is a good card to have in general so I recommend it because it gives 5% cash on other categories throughout the year as well such as movie theaters and Amazon.  It also has no annual fee so it’s a nice card to keep around to help improve your credit score over time.

Wireless

Driving around the other day I came to one of those intersections that attract panhandlers.  Before pretending I dropped something on the car floor and needed 3 minutes to look for it, I noticed one of the panhandlers was on his cell phone.  An iPhone no less.  This shows how ubiquitous cell phones are in our society nowadays.  And that can come with a price tag of course.  While I haven’t really found any good personal credit cards that give cash back on wireless purchases, there is a great business credit card from Chase called Ink Cash.  It gives you 5% cash back on your wireless bill as well as your cable bill.  It gives you 5% cash back on office supply stores as well.  The card also has no annual fee.  You can currently sign up and get a $200 bonus when you spend $3,000 in 3 months.

And most people actually do qualify to get a business card.  If you dabble in something on the side or sell things on eBay or Amazon, that’s technically a business.  (Here’s a great step by step guide to a business card application from Million Mile Secrets).

Everyday spending

There are a lot of times when you have to buy things that don’t fall under a certain category.  Random stuff like parking garage fees, medications etc. crop up from time to time.  For things like these it’s best to have a good everyday spend card.  My card of choice is the Fidelity Investment Rewards card.  It gives you 2% cash back on every purchase with no annual fee.  There are some hoops to jump through to get this card which I have already written about.  But if you’re able to get it, it will serve you well.

The Fidelity card is an American Express card, which means it won’t be welcome everywhere.  In that case, an alternative card to have for everyday spending is the Barclaycard Arrival Plus card.  While this could technically be considered a travel card, if you make any type of travel purchase throughout the year (like plane tickets, rental cars etc.), this card can serve as your everyday spend card.  It gives 2 “miles” on every dollar you spend and you can use those “miles” to get rebates on your travel purchases.  It is essentially a 2% cash back card used towards your travel purchases.  It has a great sign up bonus of 40,000 miles as well.  You do need a pretty good credit score to get approved for a Barclaycard credit card, so make sure you have all that sorted out before hand.  And this card also has an annual fee of $89 after the first year so it might not be worth it for some people after a year.

For people that hardly ever travel, the next best everyday spend card will be the Capital One Quicksilver.  The one Samuel L. Jackson really wants us to get.  It gives you 1.5% cash back on everything with no annual fee.  No frills and pretty simple.

Those are my picks for best credit cards.  I have all the cards that are mentioned here and they all work very well for their intended use.  It’s always important to remember that if you’re in credit card debt or would like to get into it sometime soon, reward cards are not for you.  You first need to not incur debt and then possibly switch to a low interest card via a balance transfer.  Most reward cards have very high interest rates so you don’t want to get into debt with those.  And remember to keep an eye on your credit score.  A great credit score will not only allow you to sign up for these great cards, but will give you the best interest rates for any type of loan you may have to take in the future.

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The Infinite Monthly Payment Loop

infinity

This is how monthly payments look in space.

I’ve been told there was once a time where people actually paid for things up front and in full.  Cars, houses, education and such were paid for with cash and then utilized to the best of the person’s ability.  A person or persons simply saved up the money required for a car, for example, paid for it in cash and drove it off the lot, knowing that it is now theirs to take care of with no extra payments to speak of.  I don’t know if such a time ever existed or will ever exist again, but it does sound nice.

If there is one phenomenon that can be pinpointed as the sole reason of financial hardship for so many people nowadays, it is the ability to get whatever you want by paying for it monthly.  This is the prime reason that people are getting poorer and the banks are getting richer.  It seems there is always a monthly payment due for so many things, and new ones seem to crop up every few years.

Let’s take the ultimate never ending monthly payment as an example, the home mortgage.  Playing with some mortgage calculators, I wanted to find how much would be spent on a $200,000 home if the buyer had a 20% down payment and took out a 30 year loan at 4%.  A 20% down payment is the industry standard for a “recommended” down payment amount and a 4% rate on a 30 year loan is considered great in any time period.  This savvy home buyer thinks he got a deal, and in some respects he certainly did.  But according to the calculations, if he makes his minimum mortgage payments on time every month, he will end up having paid $349,991.21 at the end of the 30 year loan.  So he will end up having paid almost $150K extra for a 200K house.  Doesn’t sound like a great deal to me.

Now there are things to take into consideration such as the mortgage interest deduction and appreciation of the home, but those are very variable as not everyone always qualifies for the interest deduction and the market can go up and down.  Many people don’t even save enough for a 20% down payment and buy more house than they need, so the amount of money paid at the end of the loan can be much higher.  The bottom line is, it is in the bank’s best interest to get us caught in the seemingly infinite loop of monthly payments.  They get a steady stream of income from the home owner, while getting much richer in the process because of interest payments.  The buyer gets a house to live in, which is nice, and may or may not make some money in the process depending on market conditions.

This is not only limited to houses anymore.  Cars loans are a MAJOR profit center for banks.  They provide a continuous stream of income for loans that are 3-5 years long, which is the amount of time that many Americans trade in their cards anyway.  And since most Americans have multiple cars, you can see why the banks and the auto industry love car loans.  The other thing they love about car loans:  the buyer isn’t going to be making any money off of the car.  Houses can and usually do appreciate somewhat.  Cars almost always depreciate in value.  If there is a more one sided transaction out there that everybody does other than the car loan, I would love to hear it.

The monthly payment loop is not only firmly entrenched in the home and auto industry, but in consumer products as well.  How often do you see appliances, another guaranteed depreciating product, being advertised as affordable because of no or low interest payments for the first year?  You can get pretty much any type of appliance or electronic on a monthly payment plan, especially at those God awful places like Rent a Center, where everything is advertised only in monthly payments.  These products provide no long term financial benefit for the buyer, who usually trades them in for the latest model after a few years anyway.

And the ultimate monthly payment cycle?  Credit card debt.  If the store is not offering a product on a monthly payment plan, thank goodness Visa is giving you the option.  Just charge the amount of the appliance in full, and make monthly payments on it until it’s paid off.  Most credit cards have very high interest rates, some in the area of 20%.  Can’t think of a worse deal.  I write about how I love using credit cards and getting rewards, but this is NOT the way to be using them.  This is a way to get into financial trouble in a hurry.

Thanks to savvy marketing and unending greed, most people in our society are wired to think about money in terms of monthly payments.  If you can swing the monthly payment on the house, two cars and the new dishwasher, that means you can afford it, right?  Maybe.  But you are doing your current and future self a huge disservice by having your money tied up in products like these.  Imagine not having a $300 car payment and instead investing that money in your company’s 401k or using it to pay off debt?  That is the way to financial freedom.  It’s tough to get out of the infinite monthly payment loop, but doing so will get your finances back on track.

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Why you need to collect Points and Miles

I’ve talked before about some great rewards you can get from credit card spending.  I’ve also talked about the importance of having a great credit score and the benefits one can reap over a lifetime just by having a great score.  With these two things in mind, the next step is to maximize your credit card rewards.  And I mean MAXIMIZE.  As in sign up for a few cards every 3-4 months , also known as a churn.  Contrary to popular belief, this does not hurt your credit score much, and actually will make it more solid in the long run as you will have higher and higher credit limits and lower and lower credit utilization ratios.  So there should be no fear of getting the most credit card rewards possible.

But if you are the type who racks up credit card purchases like there’s no tomorrow, forgets to pay on time here and there or is okay with carrying interest month to month, don’t even think about getting credit card rewards.  Actually, you should re-think your life and your use of credit cards at all.  They are a tool, but only in the hands of those who know how to wield it.  Willingly and knowingly carrying a credit card balance is one of the most foolhardy things one can do financially.  If you are one of those people, maximizing rewards is not for you.  If you try it, the only thing you will be maximizing will be your pain.

Now that we got THOSE people out of the way, let me show you a few reasons why getting lots of credit card rewards is awesome.  The first thing that comes to mind is that miles and points are TAX FREE.  There apparently is no way for the IRS to quantify how much a “point” is worth, especially since they can be worth different amounts in different programs.  And let’s hope it stays this way.  We work hard for our money, and being citizens of a country, we have to pay taxes.  This is reasonable and necessary as taxes allow the maintenance of the roads we drive on and the libraries we frequent.  But if there is a legal way to avoid taxes, I’m all for it.  Miles used effectively, for example, can turn a first class ticket normally costing $5,000 into a $50 out of your pocket expense to cover the taxes.  That’s $4,500 saved.  Tax free.  Now granted, most people don’t buy $5,000 plane tickets, but money saved is money saved.  You can compare that $50 out of pocket expense to a $300 coach ticket you’d probably buy.  That’s still a $250 savings.  But in a lot more style sitting in first class.

A common complaint about collecting miles is that people say they don’t travel much and there’s no need to collect so many miles.  In my experience, everyone has to travel somewhere at some point in their lives.  Be it for a wedding, funeral, visiting family or for business, everyone gets on a plane at some point in their lives.  And having miles ready for that day can be very lucrative.  From a single credit card sign up, a person can easily get a round trip domestic ticket to anywhere in the country along with no checked bag fees.  That is incredible piece of mind.  Also, some of the more flexible programs such as Chase Ultimate Rewards and AMEX Membership Rewards allow you to redeem points for cash or gift cards.  So if you know you’re not going to be flying anywhere soon, just trade those points for some cold hard (tax free) cash which you can use to pay down your debt or bolster your savings.  Did I mention it’s tax free?

Another reason to get into the world of credit card reward maximization?  It will help you spend less.  Yes, you heard that right.  The common refrain from credit card haters is that they make you spend more that if you use cash.  In my experience, that’s only if you are not conscious of your spending.  As long as you have a budget or  some type of spending plan and realize that getting 5% cash back is peanuts compared to not buying the thing at all, you will not spend more with a credit card.  On the contrary, I have found times where I want to spend less, just to maximize rewards.  If I see something that catches my eye in the mall, I don’t buy it right away because I know i won’t get maximum cash back like that.  I can use an online shopping portal like the Ultimate Rewards Mall or Bigcrumbs.  I’ll probably forget to check it when I get home, or I’ll realize it’s not worth the effort so I just won’t buy it.  If you look at every purchase you make in the frame of maximizing credit card rewards, you will want to buy less things.

And finally, if those reasons didn’t sway you, here’s the real reason you should get in on the credit card rewards game:  it’s fun.  It’s fun finding an awesome credit card sign up bonus, being approved for the card, and knowing it will cover a fun trip for you and your family.  It’s fun to find ways to maximize your cash back, such as buying gift cards at grocery stores, to take full advantage of the many great grocery cash back cards out there.  And it’s fun to kind of stick it to the big credit card companies, using their rewards to produce things of value for you which you might not have gotten otherwise.  It’s not exactly Fight Club, but it feels good to use their money to enrich ourselves for a change.

What maximizing rewards will eventually cause...I think

What maximizing rewards will eventually cause…I think

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An Essential Rewards Credit Card

I love the world of credit card rewards.  I hate the world of credit card debt.  Guess which world the credit card companies want us to live in?  Many people ask which is the “best” reward card?  That is an inherently difficult question because it depends on what your goal is.  If your goal is domestic travel, there is a certain class of cards which would be best.  If your goal is international travel, there is another group of cards to consider.  And if your goal is cash back, there is a whole other set of cards to look into.

Well, I think I found the rewards card that is the “best”.  Or close to it anyway.  I have had it for a couple of months and it has really made the process of choosing the right credit card from my wallet a little easier.  The card I speak of is the Fidelity Investment Rewards Card.  It is an American Express branded card but FIA Card Services sends you the bill.

The "best" rewards card you can find

The “best” rewards card you can find

Here are the main advantages of this card:

2% cash back on EVERYTHING.  That’s right.  Any purchase you can think of.  Especially useful for those times where no other rewards credit card seems appropriate.  Paying a co-pay at a doctor’s office.  Paying the ticket for the parking garage.  Donating to a charity of your choice online.  You will not find any card that gives you 2% back on every single purchase that doesn’t have an annual fee.  Which brings me to the next perk.

No annual fee.  If you want one go to card where you won’t have to worry about any fees, this would be the one.  There are some travel cards which give 2% cash back, but it’s only for certain travel purchases and there is usually an annual fee involved.  There are other no annual fee cash back cards that have 5% categories, but they are limited and only last for a few months.  This card gives you the assurance of getting 2% back on everything and not having to worry about a fee.  Priceless.

Unlimited rewards.  There is no cap or time limit on any rewards.  If your normal spend is $10,000 a month (which is a lot but there are ways to make it happen even if you don’t ACTUALLY spend that much), you will get a $200 reward per month.  That’s $2,400 for the year.  Tax free and yours to spend as you wish.  Very tough to beat that.

Sign up bonus:  On 3/19/14, I came across a sign up bonus offer for this card.  It’s a $75 bonus after spending $500 within 60 days of opening the account.  Not the greatest sign up bonus, but better than nothing.

There are some hoops to jump through to get this card, but it should only take a few steps to get through them.  To get this card, you MUST have an associated account with Fidelity.  This includes an IRA, 529 plan or a brokerage account to buy and sell stocks and mutual funds.  Seems like a lot of work to get a credit card right?  It used to be, until Fidelity allowed you to simply open a checking account with them.  Their checking account is called the Cash Management Account, and opening one allows you to sign up for their amazing Investment Rewards credit card.  Pretty simple process and actually a pretty good checking account.  No ATM fees and unlimited check writing.  I test drove it but ultimately didn’t go with it because their website is a little clunky and I already had similar features with my current checking account.

In any case, signing up for their checking account gives you the ability to apply for the credit card.  Once approved, you start using it and when you hit enough rewards, you can transfer it directly into the checking account.  You can transfer rewards in increments of $50.  From there you can use it to do anything.  Get cash from an ATM.  Pay part of your credit card bill.  Or transfer it to your regular checking account.  It’s a pretty simple process.

Besides jumping through a couple of hoops, the only other downside I can think of with this card is that it’s an American Express branded card.  Not all businesses care about their customers enough to accept AMEX (come on, I know the fees are higher than Visa but a lot of people use American Express), so it’s good to have a backup Visa or Mastercard just in case.

I love chasing credit card bonuses, but when I’m in between getting credit card bonuses, it’s really nice to have a card  that consistently nets you 2% on everything.  I can’t see myself not having this card in my wallet for any reason.

(I’m not making anything from Fidelity for promoting this card.  It’s just my honest recommendation.)

 

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Would you ever use a Balance Transfer?

When it comes to credit card marketing, there are some things I just never pay attention to.  One is the APR, which is the comically high interest rate you pay on the part of your balance not paid in full by the due date.  I’ve seen rates from 10, 20 to even 30 percent on certain cards.  Those are scary numbers, but I’m not scared of them.  That’s because I make it a priority to always pay my credit card balance in full.  Getting into credit card debt is one of the toughest holes to dig out of because of the aforementioned crazy high interest rates.  Everyone should avoid by any means necessary.

Another thing I don’t worry about?  Late fees.  Some companies even market cards with certain benefits like “low late fees” or “you won’t pay your first late fee.”  These marketing ploys don’t work on people like me who pay off their credit card balance as early as possible.  Adding an extra $30 to your bill is not what smart people do.  Paying your credit card bill in full and on time is one of the best things you can do for your credit score.  If you make a big purchase that takes a decent amount of your credit limit, it may even be worth it to make an early payment so your credit utilization ratio stays at a good level.

Another thing I don’t pay attention to is balance transfers.  They allow you to move your credit card debt from one card to another, with the idea being you’re moving debt from a high interest card to one with a low interest, or temporarily no interest card.  This allows you to save some money on interest payments.  The catch is that you must pay off the debt in the specified amount of time, usually around a year or so.  If it takes longer, then you get hit with a REALLY high interest rate.  Sneaky credit card companies.  I never really had a need for this because I don’t have credit card debt.  But on a fateful morning about one year ago, I did a balance transfer.  And here’s why.

I was calling to activate a new credit card with a sweet and easy to get sign up bonus.  My favorite kind.  The credit card rep was going through his usual money making pitches: credit monitoring service?  NO.  PIN for ATM access?  NO.  Balnace transfer to pay off credit card debt or student loans?  NO….wait what?  Student loans?  I love paying those off early.  I asked for more information and he informed me that they would deposit a certain amount of money into my bank account which would go on my credit card.  I could then use that money in my bank account to pay my student loan bill (or whatever I wanted technically but I figured paying off a student loan would be more responsible).

The terms of the balance transfer were I would pay no interest for a year (I did pay a 3% fee for the transfer of money so it’s essentially a loan with a 3% interest rate).  So I had a year to pay back this amount or face hefty interest rates.  Luckily, I had a student loan which I could easily pay off in a year that had an interest rate of 8.5%.  So the bank was giving me a loan with a 3% rate to pay off a loan with an 8.5% rate.  And I had a year to pay them back.  I pulled the trigger and happily got rid of that student loan and paid the bank back in 6 months.  I saved a couple of hundred dollars in interest payments in the process.

This is probably the only scenario I could imagine myself doing a balance transfer.  Since the interest rates of the rest of my student loans are pretty manageable, I don’t see myself doing this again.  Also, life can intervene in your ability to pay off a large balance in a year, so there is a little bit of risk involved.  With a freshly minted 1 year old boy, that’s a risk I would rather not take.  I really don’t pay attention to balance transfer offers anymore but for people with high interest debt with relatively low balances, they might be an option.

Leave a comment below about your experience with balance transfers or why you would never go near one.

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How to Kill your Credit Score

There is nothing more overlooked by the majority of people than one’s credit score.  This is not really based on any long term study I’ve conducted, but it’s probably true.  Most people don’t know what their credit score is, why it’s important, what contributes to your score and how you can improve it.  Well those people should read this post of mine because I will go into all of that and more.  If you take away only one thing from this discussion, it should be that improving your credit score is a sure fire way for you to save THOUSANDS of dollars across a lifetime.  This is because if you have a great credit score, you will get the best interest rates on mortgage and car loans.  Getting the best rate can save you tens of thousands of dollars on your mortgage alone.

Your credit score is a number between 300-850 that lenders use to determine if you are a risky borrower or not.  Generally speaking, the lower your credit score, the more risky you look to lenders which means they will give you the higher end of their interest rates.  The opposite holds true for those with high credit scores.  This means you will get a great rate for your mortgage, car loan and be accepted for all of the awesome credit cards available.

What goes into your credit score?  Why not find out from the people that decide it?  The Fair Isaac Corporation (FICO).  Your credit score is also called your FICO score, so it pays to listen to what they tell you.  They actually have a pretty informative website which has a nice pie chart telling what makes up your score.  Looking at the chart, it’s easy to see what makes up the majority of your score: payment history, amounts owed and length of credit history.  So as long as you make your payments on time, don’t go near your credit limit on your cards and do that for a few years, your credit score will be near the top.

Conversely, there are a few things that can absolutely KILL your credit score.  And it’s a lot easier and faster to lower your score than it is to increase it.  Making late payments is the #1 surefire way to kill your credit score.  Looking at the chart makes that obvious, but it also makes sense.  If you’re shopping for a home loan, the lenders will look at your credit score.  If your score is low, it tells them you probably don’t pay your bills on time.  This is going to discourage them from offering you their lowest interest rates since you seem risky to them.  And late or missed payments can include anything:  Credit card bills, past mortgage payments, rent, car payments, cell phone bills, utility bills and student loan payments.  All of this stuff gets reported to the credit bureaus, so staying on top of your payments is vitally important.

What’s the best way to make all of your payments on time?  Do everything online.  Pretty much all companies now allow you to pay bills online (though some utility companies are still stuck in the past and ask to mail in checks).  This makes things really easy as you can just bookmark all of your monthly bills and pay them right online.  Many also allow automatic payments, which will automatically pay your bill on a specified day.  Use technology to your advantage when it comes to your credit score.  Your future self will thank you.

Another way to hurt your credit score?  Getting really close to your credit limit.  This usually refers to credit cards, and it specifically refers to your credit utilization ratio.  If you have a $20,000 credit limit across all of your cards, and are consistently charging $19,999 every statement period, this shows lenders that you may be using too much credit and not giving yourself enough room to breathe.  You are a risky borrower in their eyes.  There are two ways to fix this.  The obvious one is don’t spend up to your credit limit!  Either switch to cash for some payments or go through your spending history and cut out the unnecessary stuff.  Another way is to request a credit limit increase.  Just call the number on the back of your credit cards and ask if you can get your limit increased.  Some will do it and some won’t.  But an increase of a few thousand can certainly help as that will bring your utilization ratio right down even if you don’t change your spending.  Increasing your credit limits and decreasing your spending at the same time would be ideal way to go.

According to the FICO pie chart, new credit and types of credit used also contribute to your score.  This is only 20% of your score, so it’s not really worth focusing a lot of your time on, especially if you have problems with late payments.  Opening a lot of lines of credit will temporarily decrease your score a few points, but it will go back up once they realize you’re still making your payments on time.  Focusing on late payments and high credit utilization ratios, the two credit score killers, is the quickest and most important way to improve your score.

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The 3 Best Cash Back Credit Cards

I really do love credit cards.  That’s because I avoid credit card debt like the plague and I like to use rewards to the max.  A recent trend I’ve been noticing is that many reward programs (especially hotel and airline programs) are devaluing their rewards.  Meaning, they are making it tougher to get certain rewards by either getting rid of them completely or increasing the amount of points you need to get them.  Here is a post about the recent devaluation by United Airlines, which will affect travelers trying to travel abroad in first class.

These devaluations can be depressing, especially for those who have been collecting points from a certain program for a long time.  Obviously, these companies are trying to save/make more money by making it harder for you and me to reach certain rewards.  This means we would have to spend more to get the reward we want.  This seems to be the trend as the economy is making companies buckle down and save money any way they can.  This does not mean the death of rewards programs by any means, just that we have to be a little more judicious in how we rack up points.

With reward programs not being as valuable as before, cash back cards seem a lot more appealing.  It is the simplest type of reward with hardly any hoops to jump through.  And it seems they might be capitalizing on that as there are some great cash back cards out there with nice sign up bonuses.  I have some experience using all of the cards I’ve listed, and they all have their strong points.  Cash back offers are always changing, but these are what I think are the best offers as of December 2013.  None of these links are affiliate links, so you can use them or search on your own and it won’t affect me the least bit.

Here are my top 3 cash back card offers:

1.  Chase Freedom:  Chase Freedom is one of my favorite cards, as it is linked with Chase Ultimate Rewards which can give you cash back as well as gift cards and travel.  It has a base cash back rate of 1%.  Here are some of the cool features of the Freedom:

-$200 sign up bonus when you spend $500 in the first 3 months.  This is for a limited time only as the usual sign up bonus is $100.

-5% cash back on different categories each quarter.  They have some pretty good categories on stuff most people already spend money on such as gas, restaurants, Starbucks and Amazon.com.  They usually send you an email before each quarter and you just have to do one click to activate that quarter’s bonus.  Not that you should, but you can spend a max of $1,500 on the 5% categories each quarter.

-No annual fee

-0% intro APR on the first 15 billing cycles.  Helpful if you have a big purchase coming up and you don’t want to go into credit card debt.  Just remember to pay it off in full because once the promo rate is over, the interest rate on this card (and most reward cards) is very high.

2.  Discover ItJust signed up for this card recently and it has some really good perks.  It is my first Discover card EVER.  Discover doesn’t usually have great reward cards, but the It is definitely an exception.  It has a base cash back rate of 1%, including some of the following features:

-Maximum $150 sign up bonus when you spend $750 in 3 months.  You won’t find this bonus by going straight to Discover’s site.  Just Google around and you can find affiliate offers with $100 or $150 cash back.  The bonus is what made me sign up for the card.

-Similar to Freedom, has rotating 5% cash back categories that need to be activated.  It also has a similar max of $1,500 per quarter.  There are some pretty good categories like online stores, gas, restaurants and movie theaters.

-No annual fee

-0% into APR for the first 14 months.

3.  BankAmericard Priveleges with Cash Rewards:  This card kind of goes under the radar, but it has some pretty good benefits.  I had to do some digging on the Bank of America website just to find it.  It has a base rate of 1% cash back as usual.  It also has some other cool perks:

-$100 bonus after making $500 in purchases in the first 3 months.

-2% cash back at grocery stores and 3% cash back at gas stations.  There is a $1,500 max per quarter on these categories.

-A cool feature on this card is that if you have your rewards deposited in your Bank of America account, you receive a 50% bonus.  So if you have $40 in rewards that you deposit into your account, you will get a $20 bonus on top of that.  Not bad at all.  If you decide to redeem as a check or statement credit, you don’t get the 50% bonus.

-The major drawback of this card is the $75 annual fee.  It is waived in the first year, but after that you have to pay $75 or have at least $50,000 in investment accounts with Merrill Lynch.  If you don’t already have that much with ML, not sure this card will be worth it after the first year.

Honorable mention:  Capital One Quicksilver:  This is the ultimate no nonsense cash back card.  No annual fee, no rotating categories.  Just plain 1.5% cash back.  It also has a $100 bonus if you spend $500 in 3 months, which is what I got it for.  For those people who just want to use a card for cash back and not think about it.

There you have it.  My favorite cash back cards at the moment.  Most reward cards require a pretty clean credit report and a decent credit score.  And as always, remember not to get into debt with these.  The interest rates are crazy high.  Have fun getting cash back!

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Financial Commandment #3: Avoid credit card debt

Put these on ice if you are in debt!

Put these on ice if you are in debt!

In the third installment of the sacred Financial Commandments, we talk about the biggest thing to avoid.  This is in contrast to the more proactive Financial Commandment we mentioned previously, Pay Yourself First.  Just like a winning football team needs a good offense along with a good defense, a great financial plan needs to proactively go out there and make you more money, while at the same time preventing big money blunders from ever happening.  Commandment #3 is to avoid one of the biggest financial holes you can get yourself into:  credit card debt.

It is known that not ALL debt is bad.  Student loans can help you get an education which you can hopefully leverage into greater income potential for the rest of your life.  A home mortgage will allow you to own a home that hopefully appreciates in value when you sell.  If not at least it gives a roof over your head.  A car loan, though tied to a product which will almost always depreciate in value, lets you drive a car, which you can use to get to work or wherever you would like to go.  These types of debt are not always the best to get into, but AT LEAST you have something of potential value to show for it.  This is known as leverage, as you can use your debt to potentially multiply your money in the future.  Interest rates on these types of loans are usually pretty manageable as well.

Credit card debt is a whole other story.  You almost never have any leverage buying consumer goods with your card (unless you can find a black market for Snuggies).  So the chance of you making some money off of your debt is not very good.  Credit card interest rates are also very high compared to most other forms of debt, ranging from anywhere around 10 to 30%!  If you have a revolving balance, meaning you don’t pay off your balance in full and always have some debt incurring interest, you are really getting hosed.  You are probably paying a very high amount in interest payments, payments that were easily avoidable and with money that could be used for much better purposes.

If you do find yourself in deep credit card debt, start praying to your Lord of choice for help.  When you’re done, it’s really time to buckle down and pay off the debt.  Another reason credit card debt is so dangerous is that it’s so easy to accumulate.  Credit cards are widely available and banks love giving them out because they are a very profitable item for them.  So if you do find yourself in debt, the absolute first step is to stop using the cards!  Sounds simple enough but it can be hard to implement for some people.

After forbidding yourself from using your cards for a while, a credit card repayment plan is very simple:  Use cash only, pay the minimum on all of your balances, and pay whatever you can on your balance with the highest interest rate.  Once that balance is gone, move to the next highest interest rate.  Rinse, lather and repeat.  This is the most efficient way to pay back your debt, despite what those “credit counseling” companies say.  They will essentially set up a similar plan for you, and charge you for it.  Bypass the middle man and follow the formula above to pay off credit cards quickly.

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3 ways to max out your credit cards

Almost everyone in the civilized world has had a credit card at one time or another.  A credit card can be a powerful tool.  It is essentially a 30-day loan from the credit card company (Visa, Mastercard, American Express etc.) with a certain limit to buy whatever you want.  Responsible users use credit cards to pay bills and buy things they already use such as gas and groceries, and then pay the bill in full every month.  Irresponsible users think of a credit card as an invitation to a shopping spree and buy stuff until they reach the credit  limit.

This article isn’t about that type of maxing out.  It’s about maxing out RESPONSIBLY.  That is, maximizing your credit card use to get the most rewards as possible.  It is actually the opposite of the traditional way of maxing out a card.  This type of maxing out is only done by responsible credit card holders who know that it is vitally important to avoid credit card debt at all costs, and also know how to get the best rewards quickly.  Here are the top 3 ways to fully unlock the reward potential of your reward credit cards:

1.  Sign up bonuses

Any reward credit card worth its salt will give you a bonus when opening a new account.  For example, as of this writing the CashRewards card from bank of America gives a sign up bonus of $100 after you spend $500 in 90 days.  Between money spent on gas, groceries, phone bills etc., spending $500 in 90 days is not that hard for most people.  Doing it with this card will give you a $100 bonus to be used on anything.  It’s usually best spent as a statement credit, essentially saving you 20% on a $500 credit card bill.

This is a nice little bonus, but in the grand scheme of things it’s not too much.  The fun starts when you are able to sign up for multiple rewards cards which offer bonuses.  Doing this can net you a couple of hundred dollars easily.  While you can usually only receive a bonus the first time you sign up for a card, there are always new bonus offers coming out so this can be a nice little perpetual bonus machine.  Obviously, it’s important to remember to get only enough cards where you can comfortably afford the spending limits.  Otherwise you potentially force yourself to buy things you never intended.  Also, signing up for multiple cards doesn’t really hurt your credit score in the long run.  This is because paying your bills on time is the most important factor in having a good credit score according to myFICO.

2.  Category bonuses

There are all types of rewards cards offering different types of category bonuses.  What that means is that you get extra points back for buying stuff in certain categories.  For example, the American Express Blue Cash Preferred offers 6% cash back on groceries and 3% cash back on gas.  This is a great card if gas and groceries comprise a large amount of your spending.  Having these category bonuses is nice because they give you an additional bonus on top of the standard 1%.  If you have cards with bonuses for things you already pay for such groceries, gas, eating out, cable bills etc., you can really maximize the points you receive just by spending money on the things you already buy.  There are many different cash back and points cards out there for different categories, so it definitely pays to look around and find the one that suits you.

3.  Use cards for everything

No, this doesn’t mean buy everything in sight with your cards.  It just means wherever you can use your card, use it!  There’s no need to use actual cash unless they don’t accept credit cards or they charge a “convenience” fee for using one (this is one of my biggest pet peeves.)  Using a card for everything you buy has two main advantages.  One, it maximizes the number of points that you receive.  Especially good when spending with sign up or category bonuses.  Two, putting all of your purchases makes it really easy to budget and see where you exactly are spending your money.  It takes a special kind of person to enjoy carrying around wads of old crumpled receipts in their pockets all day.  A credit card makes it easy to avoid this, as you can just get online or even on your phone to check on your transactions.

Some say that having a credit card can make you spend more than usual.  But if you use them responsibly, it can be the exact opposite and actually help you budget.  Maximizing your credit card use with sign up bonuses and category bonuses can give you a nice perpetual bonus.

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