People fall in love with their little slabs of polyvinyl chloride acetate (PVCA)—and they often fall into debt with them as well. Many are reconsidering the relationship. According to the Federal Reserve, in 2010, 68 percent of consumers held credit cards, which was down five percent from those who held them in 2007. The Great Recession? Anyway, it’s easy to get along with your cards, provided you know the one big secret about living with them in perfect harmony:
pay credit cards off completely, without fail, each and every month, and never, ever carry a balance.
Many know this secret and act on it—roughly 45 percent of cardholders, according to the Federal Reserve Board. If you can join these savvy plastic users, you can access the many benefits that make credit cards the best payment vehicle around: better than cash, checks, debit cards, money orders, travelers checks, prepaid cards, online payments, and auto-payments (and of course, you can charge the last five of these to your credit cards).
This chapter has two parts. The first part lists the principal reasons why credit cards are such wonderful tools for spending. My purpose here is to convince you to carry some PVCA in your wallet. The second part lists tactics that maximize your credit card rewards. My purpose here is to convince you to use your PVCA strategically and as often as possible.
PLASTIC IS GOOD
Many financial experts advise consumers to cut up their cards and pay with cash only. They argue this extreme remedy is necessary because plastic makes spending too convenient, which in turn leads to excessive debt and sky-high interest rates. But this argument doesn’t apply to devoted checklisters. SLN! offsets plastic’s convenience by injecting into each transaction a large dose of frugal scrutiny. And once you settle into the habit of paying off your credit cards each month, you don’t have to worry about debt and interest. Instead, you can exploit the many benefits that credit cards provide. Here’s a list.
□ Earn Rewards
Imagine that each year the US Treasury thanked you for using greenbacks and presented you with a substantial gift—in cash, naturally. Wouldn’t you pay with currency whenever possible? This is pure fantasy, of course, but with reward cards, it all comes true. In 2010, as I paid most of my expenses with plastic, I earned rewards worth $411.87. And here’s the kicker: the IRS doesn’t treat any of this as taxable income!
□ Access Cardholder Benefits
Most cards include many bells and whistles at no extra charge. Study the fine print, and make use of the enhancements:
- Roadside assistance
- Car rental insurance
- Purchase assurance (lost or stolen items)
- Extended warranties
- Lost luggage protection
- Trip cancellation insurance
- Travel life insurance
- Travel assistance (lost luggage, passports)
- Post-purchase price guaranty
□ Bean Count Automatically
Credit card issuers make accounting easier because they track your expenses for you.
□ Qualify for Legal Protection
By law, you bear no liability for unauthorized use of your credit card provided that you report it as lost or stolen before any fraudulent charges hit the account. Even if you don’t report in time, your maximum liability is capped at $50, a fee which most card issuers will waive upon request. No other payment method affords you as much security.
□ Manage Vendor Disputes
If you pay with plastic and the merchant does something wrong, you can dispute the charge with the credit card’s issuer. In contrast, if you pay cash, your only recourse is to file a complaint in small claims court or with the Better Business Bureau (and then only if you’ve locked horns with a BBB member).
□ Ride the Float
For each transaction, you receive an interest-free loan that lasts at least twenty days and usually longer.
□ Make Foreign Travel Easier
That London pub rejects US dollars, but allows draws on Visa. Sure, you pay an additional fee for this convenience, but it’s well worth it. You can even access the local currency by swiping your card at a nearby ATM.
□ Increase Your Convenience
The major cards—MasterCard, Visa, and American Express—are accepted almost everywhere and take far less room in your wallet than a wad of cash.
CODA: SURCHARGES FOR USING CREDIT CARDS
As of January, 2013, retailers in 40 states gained the legal right to pass along card processing fees to their customers. At this early date, there’s no way to tell how many vendors will actually impose these charges—hopefully, most of them won’t for fear of losing customers. As the marketplace sorts this all out, watch out for surcharges and avoid any retailers that charge them.
MAXIMIZE YOUR PLASTIC’S VALUE
□ Seek the Highest Rewards
Find the best reward cards at CardHub.com or run this internet search: “best reward credit cards [enter current year here].”
□ Maximize Rewards
Use the PVCA to pay for as many transactions as possible. (Reminder: don’t use credit cards at all unless you pay them off in full every month.)
□ Schedule Auto-Pays
If your service providers permit, schedule automatic payments on your card instead of your checking account.
□ Plasticize Small Transactions
Don’t pay cash because something costs less than $5: tiny charges add up fast and yield big rewards.
□ Volunteer for Reimbursable Charges
Whenever I’m out for a group dinner, I offer to pay by credit card and take up a cash collection. The reason: it boosts my rewards (and it also cuts down my trips to the ATM). Other examples of reimbursable charges include work travel and club expenses.
□ Pick Plastic for PayPal
PayPal gives you a choice between paying with a credit card or check. Choose the card.
□ Strategize Which Cards Work Best
According to a 2009 survey, the average adopter of credit cards holds 3.7 of them. Carrying several cards gives you options. If one card awards three percent cash back on gas purchases, and another awards only one percent, using the three percent card gains you an extra $53 each year (assuming that you spend at the national average).
□ Avoid Annual Fees
Some cards deliver greater rewards, but charge annual fees. If you’re sure your expenses will be large enough to justify this added expense—for instance, if you anticipate big reimbursable expenses at work—go ahead and pay. Otherwise, pick a card with less impressive rewards that’s FREE. Note: many premium cards waive the annual fee for the first year, and some issuers waive annual fees after that upon request.
□ Use Plastic to Receive Cash Discounts
Flash the PVCA and offer to pay cash in exchange for a markdown.
□ Ask for Fee Waivers
On rare occasions, I’ve missed credit card payments and been hit with late fees. I’ve always been able to have them waived. Why? I don’t think it has much to do with my payment record—it’s good, but not perfect. I think it has more to do with the cost to recruit new cardholders. Card issuers spend $50-$150 to attract each new account, so it saves them money if they can retain their current customers. You have as good a chance at fetching waivers as anyone. But you have to call.