credit cards

With this post, I just want to put forward some plain facts about how our credit cards are doing some work for us. It goes without saying that gross generalizations in favor (or against) credit cards based on this information will not hold water.

I just checked my credit card rewards statement on Yodlee, and this is what I saw:

We have 4 Citibank cards between us (2 each) and all of them have been earning ThankYou reward points for us since we started using them. One of those Citi cards have been collecting ThankYou points since about three years ago and the other three earned us 10,000 bonus points each when we applied for them (for example, Citibank cards like this). Also, there have been on and off bonus points offers that have helped the points increase rapidly. At present, between both of us, we have about 60,000 points (it’s not 60,000 yet, but it will cross that mark after this month’s statements). That is worth $600 (depending on how we choose to use the reward points). Roughly, the conversion for Citi’s ThankYou points is like this:

• 3,000 points = $25
• 6,000 points = $50
• 10,000 points = $100 (best value)

We have been earning rewards on our other cards too, namely, Amex (cash back), Chase, and Discover cards; but their value is hardly of any significance as compared to our Citi rewards, so I am not including them. Also, two of those Citi cards and some other cards are carrying 0% APR balances which were transferred to HSBC Direct and are earning 5.05% APY. I will not specify exactly how much these balance transfers were and how much they are making in interest, but let me just put it this way: including the worth of the points, and the interest earned on the credit card arbitrage, we will very easily earn more than $1500 this year just by using credit cards. The only active effort, on my part, is making the payments on time. We don’t go out of the way to earn reward points. We have a very simply scheme: for rent there is check, for laundry there is cash, and for everything else there is MasterCard (earlier, I needed cash for my barber…but by latest barber accepts credit cards).

That’s some passive income isn’t it?

Btw, this is peanuts when compared to some other personal finance bloggers I have seen. You can safely say that I am still a novice in this area.

We haven’t yet decided on how to efficiently use the reward points, but most probably, we would go for the Target gift card offer. That will give us a lot of flexibility with regards to how we wish to spend the gift cards; although I am not sure we will spend all 60,000 points on Target.

Has anyone tried “Your Wish Fulfilled” rewards option from ThankYou network? I will be glad to know how that works. I am guessing that, that option might allow us to order any gift card we want.

Fortunately, we don’t have any student loans to bother us, otherwise, the best option would have been this:

On a side note (just because I am anticipating some comments on this matter), more on philosophical lines, I would like to say that being debt free (or being in debt) has nothing to do with the use of credit cards or cash. It has everything to do with your temperament, attitude, and discipline. People have historically used both the systems to their advantage, so it all depends on how you look at it. Statements like “using credit cards will put you in debt” are as baseless as “cash will make you spend more”. Instead of blaming credit cards or cash for our reckless spending and debt, it will be much more fruitful to focus on some fundamental introspection into our spending habits and start changing things from there. Earlier, I have expressed my aversion towards cash and my $10 per month cash experiment; however, in that case too, the problem isn’t with the cash…it’s with me not handling my cash properly.

All the above links are for information only. I don’t include referral links in posts without specifying that they are *referral* links.

I was just reading an article at Kiplinger.com titled “50 Ways to Keep More Cash“. A lot of tips, suggested by readers, are bunched together in this article and are arranged in the following categories:

• Budgeting and Saving
• Retirement
• College
• Travel and Cars
• Spending

I read through all the tips and most of them were common sense ways of managing your money well. But, I would still recommend going through all of them….some things are just better understood when you read them over and over again.

One of the tips was a class apart, and I have to admit that I have never heard anything like this before It’s from a person named Kelly Colucci. Here is what Kelly had to say:

When I was in college, I went a little wild with student credit cards. I learned the hard way that I needed some control, so I froze the cards in a large pan of water. If I wanted or needed something badly enough to wait for the cards to thaw out, then it was probably worth purchasing. If not, I saved the dough. My mom still laughs about this, but I saved thousands in forgone impulse purchases.

I was just about to say “this is ridiculous” when I stumbled on this post by Stacy (written more than an year ago) on her blog Birds and Bills. I just cannot resist the temptation of re-posting the photograph and a paragraph from her post here.

I think we should pass a bill requiring Congress to give this a try, as a deficit-reduction measure. And then pass another bill authorizing the construction of a really, really big freezer. I’m thinking we could repurpose West Virgina for the cause.

That’s one effective debt management technique there !

Btw, on a side note, our spring break started today and it’s time for some relaxing; we may be on the road more often, and so I may be on and off through Sunday.

If you are worried about what happens to your credit score when you apply for a new 0% APR card, then this tip is for you.

Here is what myFICO.com says about factors that do not affect your credit score:

Your own credit report requests, credit checks made by businesses to offer you goods or services, or inquiries made by businesses with whom you already have a credit account do not count toward your FICO score. Credit checks by prospective employers also do not count. These types of inquiries may appear on your credit report, but they are not included in your FICO score.

Read that carefully, it says “…inquiries made by businesses with whom you already have a credit account do not count toward your FICO score ”

For example, if you already have a Citi card and if you apply for another Citi card (or multiple cards) to avail a 0% APR offer, the new credit inquiries are not going to hurt your credit score. That’s good right? At least that is what I understand from the above information.

My good friend, Sun raised this issue on my previous post about credit scores and I thought about clarifying a few things here. Apparently, many people apply for a lot of credit cards in one fell swoop, banking on the fact that there is some mechanism in the FICO score that does not account for multiple inquiries done at once. That’s not entirely true and it’s important that you understand it. Here is what may be confusing people (source):

Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though youre only looking for one loan. To compensate for this, the score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping. In addition, the score looks on your credit report for auto or mortgage inquiries older than 30 days. If it finds some, it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score.

It’s important to note that this feature is only applicable to auto loans and mortgages. This is not applicable to credit cards. Here is what the website says about credit cards:

If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report. Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time.

So, yes, an app-o-rama has the potential to hurt your credit score (unless you follow the tip that I mentioned at the start of this post). While it’s true that credit inquiries have the least effect on your credit score (as noted by another blogger here), it is still important to understand these things before you go about doing an app-o-rama for 0% APR credit card arbitrage. Inquiries hurt different people in different ways. Don’t do these things just because others are doing it that way.

It will be in your interest to read all the factors that appear here: myFICO Credit Inquiries, before you start getting into this 0% APR arbitrage game.

Earlier, I have listed some posts from my previous domain at Blogger. Here, I am highlighting some of the popular posts since I started writing on this new domain in mid-November. Listed below are 8 posts on a variety of topics; hopefully you will enjoy them. I would encourage readers to read through the comments. At times, comments really bring out the essence of the points under discussion.

Students, Laptops, Digital Cameras, Huge Cars, and Debt

Why Dave Ramsey’s “Drive Free” Theory May Be Flawed OR Why ‘Get Rich Slowly’ May Never Get To “Drive Free”

How To Flush $299 Down The Toilet

Gasoline Prices: Why $2.189 and not $2.19; Why The Third Decimal Place?

Efficient Credit Card Management: Change Your Bill Due Date

Fidelity myPlan Retirement Calculator: Numbers Can Be Tricky

Don’t Like Your Gift Cards? Trade Them Or Sell Them For Cash

And Let There Be More Light For Less Money: Save Money On Light Bulbs

Btw, sometimes I become sullen and don’t really live up to my tag line “personal finance doesn’t need to be boring!”, but I try

Some time back PBS broadcast an excellent TV show, titled “Secret History of The Credit Card” through Frontline. I just found a YouTube version of the entire program and thought about posting them over here. The show (posted below in two parts) runs for almost an hour, so watch it at your own leisure.
Before you start watching the show, here is a small excerpt about it from the PBS Frontline website:

In “Secret History of the Credit Card,” FRONTLINE^® and The New York Times join forces to investigate an industry few Americans fully understand. In this one-hour report, correspondent Lowell Bergman uncovers the techniques used by the industry to earn record profits and get consumers to take on more debt.

“The almost magical convenience of plastic money is critical to our famously compulsive consumer economy,” Bergman says. “With more than 641 million credit cards in circulation and accounting for an estimated $1.5 trillion of consumer spending, the U.S. economy has clearly gone plastic.”

Follow this link for the videos:

http://www.pbs.org/wgbh/pages/frontline/shows/credit/view/

I should acknowledge that, earlier (right after the show was broadcast), a couple of bloggers have linked to Frontline website where the entire show is available divided into 5 parts. However, I don’t think it received “enough” attention at the time. So this post is for those who missed the show on the TV and missed those posts too ; plus it never hurts to give some occasional exposure to important stuff like this.While you are here, make sure you also read a related article on Frontline’s website titled “Eight Things A Credit Card User Should Know“. Bookmark this stuff and remind yourself every once in a while.

December has always been at the top of our “most expensive month of the year” category. Every year, the spending frenzy starts around the Thanksgiving holidays and doesn’t end till early January. We swipe our cards at outrageous frequencies, for a multitude of reasons, till they almost wear out and we keep on piling up the balances. This happens in spite of my disdain towards concepts like “black friday” and “cyber monday”. It happens in spite of our best attempts to maintain a frugal approach towards things (ok, I admit December is a bit more “non-frugal” than other months). This time it was expensive car repairs, extremely long drives and out of town stays; last December it was extremely long flights and lot of gifts…point is, stuff always happens in this month for us.

This December, we swiped our credit cards for an awesome 81 number of times! That’s almost 2.61 times a day, every day for 31 days!. This swipe-o-rama resulted in couple of rare emails from Yodlee like this:

…And gut-wrenching (considering our student status :)) things like this part of our bank statement… which shows the payments we made to clear our December mess :

Of the cards listed above, we are making use of 0% balance transfer offers on three cards. The rest, including all the cards showing three digit figures, were used for purchases.

But hey, that “ouch” bank statement is in fact the best part of it. We paid off all our December expenses immediately after the end of the month. We had anticipated the increase in the expenses and made some requisite provisions; that made paying off a bit easier. We also had to dig into our reserves (..that was a bit tough), but starting of the new year with no credit card balances (well except the 0% balance transfers that are earning 5.05% APY in HSBC) felt really good and light.

Some Thoughts on December Debt Sentence

In between the holidays, cool weather,”Happy Thanksgiving”, “Black Friday”, “Cyber Monday”, “Merry Christmas”, and the generally festive atmosphere, most of us end up spending a lot more money than usual. According to this website, US consumers are forecasted to spend almost $428 billion on retail and food purchases in December this year. Americans also spent $23 billion on online purchases between Nov.1 and Dec. 26, according to CNNMoney.com. That means millions of consumers will share a temporary debt of hundreds of billions of dollars between them. A lot of these consumers will charge thousands on their credit cards and the huge balances will make many of them will think “May be I could carry some of this balance over…and pay it over time later”. If you are thinking along the same lines, consider yourselves warned: you may be sentenced to debt (it’s funny how debt rhymes with death) for a long time to come.

I made that mistake in my foolish years and repented it for a quite a few years. Once you get in that habit of “What’s the hurry, I will pay it later..”, it’s very difficult to come out of the complacency. You will keep making minimum payments just because it’s convenient and keep piling up the balance. With increasing balance it takes increasing efforts to wipe it off entirely and that encourages the tendency of pushing repaying even further into the future. The situation can get very depressing very soon. I am deliberately not stressing on the foolishness-of-buying-things-when-you-don’t-need rant. It doesn’t matter whether you spent wisely, or foolishly, or whether you were forced to spend on things you didn’t want……just pay off whatever you charged on your credit cards. Don’t let credit card balances chase you through the rest of the year.

Here is a quick tip on better credit card management. It is especially for those of us who have experienced the “Oh s**t, I totally forgot about the credit card bill” syndrome. From my perspective, the main reason for this “I forgot” syndrome is having credit cards with due dates spread all over the month. Even if you remember a few dates, there is a very high probability that you mistakenly interchange the due dates for two cards and end up paying one of them early and the other late.

One elegant way out of this is to try and get all your statements at the same time every month - let’s call this the “due-day”. Once you do this, whenever you get any credit card bill, you know that it is due only on the due-day. An obvious advantage is that remembering one date is easier than remembering a dozen (duh!). The other advantage is that you will save a ton of time setting up payments every month. When you have just one due-day, you can set up a single “payment-day” on which you can pay all the cards at once. This helps whether you are still writing paper checks or using a financial management software like Yodlee. Also, since the due-day is a day of your choice, you can choose it in a way that ensures that there are sufficient funds in your checking account for all the payments. This will minimize the risk returned checks and over-limit or “non-sufficient fund” fees.

For example, the image alongside is a screenshot of a part of my financial calendar at Yodlee showing some of my bills due in December. Notice that most cards have due dates on or around the 15th. A couple of them are way off, but I am currently working on getting those dates changed too.

The easier ones to change are Citibank, Chase and Discover..you can do them online without the need to call anyone. For American Express, MBNA/Bank of America and Sears you will need to call them to see if they do it for you.

Some important points to remember:

-Citibank allows a change in due date only once every year. So choose your dates carefully.

-Discover will not allow you to change a due date to within plus/minus 5 days of your current due date. In other words, your choosen date has to more than 5 days away from the current due date.

-Usually, the change will take at least one statement period to take effect.

-Watch out for the statement that comes immediately after changing your due dates; there might be some abnormal date adjustment in this one.

Why did I write on this specifically?

Let’s think about it for a while. The minimum monthly payments are usually only about 2% of the balance on your card. If the average American owes $8000 on credit cards, then the corresponding minimum monthly payment to avoid late fees is just $160. With this kind of a minimum due, I have a feeling that most people who are late on credit card payments, are late because of poor management (”I forgot” syndrome) than the inability to pay the minimum required. Making just minimum payments is never enough..but at least it can save you from those late payment fees and from the disatrous effect that late payments can have on your credit score.

Some more related stuff that might interest you

In a couple of earlier posts, I talked about credit card management at length. These posts generated a lot of interest, criticism, and comments. I am listing them here for your reference:

-18 Credit Cards And Not A Single Late Payment: A Guide To Efficient Credit Card Management #1

-18 Credit Cards And Not A Single Late Payment: A Guide To Efficient Credit Card Management #2

While reading them, don’t get sidetracked by issues like “Why do I have so many credit cards”. The point of these articles is to suggest ways to manage your credit cards (or other debt accounts) efficiently. As for why I have so many credit cards..there are a dozen reasons like… I needed more credit, I was stupid at times, early cards I got were not so great, got rewards points on the new cards, made half a dozen 0% APR balance transfers and so on.

Since some people were worried about my credit score after these articles, I had to write this follow-up post:

So How Many Cards Does It Take To Hurt Your Credit Score?

A few months ago I got an offer from Chase which said this:

I think I was “chosen” for the offer because I rarely use my Chase card anymore (just a few bucks every month or so to keep it active). Anyways, this offer caught our attention and so we (me and my wife) stopped using our respective Citi Diamond Preferred Cards (that were giving us ThankYou points) and started using my Chase credit card for all our purchases..in the hopes of getting that free companion ticket. $500 was no big deal because our regular credit card expenses average about $800 per month (all of which is paid off).

And finally it came…the free ticket voucher that we were eagerly waiting for. Below are a couple of scans from the voucher. Have a look and let me know what you think about this. The voucher basically divides all of the US into different zones (first image) and there is a price table for zone-to-zone travel (last image).

Essential fine print: There is a $9.95 processing fee for each ticket and taxes and fees are not included in the above rate chart. I will not disclose the rest of the fine print at this time.

So what do you think of this free airline ticket offer from Chase? Is this a teaching moment about free stuff?

A quick introduction to those who are new to this blog. In part #1 of the series “18 Credit Cards And Not A Single Late Payment: A Guide To Efficient Credit Card Management #1“, I wrote on how to streamline your credit card accounts for better management. The inherent assumption in part #1 was that you do not use account aggregation services like Yodlee, MS Money, and Quicken.

In this part I will write about how Yodlee can help you to keep track of all your credit card transactions, balances, and bills. I have been using Yodlee for some months now, and managing 18 credit cards has become a cake-walk for me since then.

In the following, I will use some screen shots to make that point (click on the screen shots to enlarge them). Some time in the future, I will compare services offered by Yodlee with those offered by MS Money and Quicken, but right now, let me just stick to Yodlee for three simple reasons: Yodlee is free, it does not require any software installation, and it provides excellent customer service through Yodlee Forum! Also, I will try and restrict myself to things concerned with credit card management, although there is a lot more you can get out of it.

Basics:
Here, we are concerned only with the MoneyCenter module for our personal finance purposes (there are other things Yodlee offers, but they are not relevant here). Register for Yodlee to start using the service. Read this article to find out how to register for Yodlee. To begin using Yodlee for your credit cards, you register your credit cards and the corresponding websites’ login/password information on Yodlee MoneyCenter. This should be really easy and you should be ready to use the service within a few minutes.

Credit Card Management Made Really Easy:
Here is a snapshot of what you will see after you login and have your credit cards registered:

The “dashboard” you see in this screen shot is my favorite place to be everyday. The smudge marks are to protect my identity so that I can be “Golbguru” forever. [notice the error for the Bank of America credit card...those BoA guys really messed up most online activity after the merger with MBNA]
You can configure the dashboard to view all your credit card accounts at once. It shows you the balance on each credit card and the total amount on all cards. You can also have it display all the credit card transactions that you have done in the past few weeks. It’s a very handy way to stay on top of the credit card usage situation. It also allows you to track all your rewards (Citi Thankyou points, Upromise cash back..etc.)
Yodlee remembers credit cards’ login/password information by default. This feature enables something called as “auto-login”. When you click on auto-login, Yodlee sends your login information across and you automatically login to the credit card’s website. This means you don’t have to remember all those unique passwords and usernames :).

Use Spending Reports To Master Your Credit Card Expenses:
In the above screen shot, there is a link named “Spending Reports”. If you use that feature, you will be able to see how much you have been spending on certain items. A typical MoneyCenter spending report looks like this:

Use this to single out your “expensive” items and try to spend less on them (I know spending less is the difficult part here…) but the report can make you feel guilty about certain items very soon :); that may teach you to be more discreet in future.
You can also track your credit card usage in terms you how close you are to your credit limits and set and track budget goals, both very valuable features. This screen shot shows other options available in the “Spending Reports” module:

Streamline Using the Yodlee Financial Calendar:
In this feature you can see all your bills on a calendar and figure out when you need to start moving your money in order to pay those bills on time. In my opinion it gives a better perspective to the time-factor in managing your credit cards.

Pay All Your Bills Online:
Use the “Bill Pay” feature to pay all your credit card bills. This thing is a lot simpler than logging on to every credit card website and putting your bank’s checking account information on each of them for online payments. Here you just do it once, and you are ready to pay online! Here is a screen shot of all the “Bill Pay” features available:

The Best Part: Fraud Alerts and Bill Reminders:
You can set up your own alert-limits, suspected fraud notification limits on all cards that you register on Yodlee. For example, if you set a fraud alert limit of $200, anytime your card is charged for $200 or more, Yodlee will send you an email alerting about the charge. This is simply priceless….especially to those who are prone to identity theft. You can set up alerts to make Yodlee notify you if you are approaching your credit limit, or when a new bill is ready to be viewed, and whether a payment is due…and some more. Typical alerts look like this:

Yodlee’s Security:
Many people have concerns about how securely Yodlee handles all the personal information. For more information on this, read this post I wrote sometime back: How Secure Is Your Information On Yodlee?

Once you start using Yodlee…you are really going to get hooked on it…and then you will understand why I could write so much about it :). I have mentioned it before..I am addicted to this Yodlee stuff !