Frugal money saving tip of the week #2

TIP:  Create a credit card calendar

Revolving credit

Revolving credit

Ah, the beauty of revolving credit.  It's a double edge sword that can cut both ways.  It's convenient to use credit, and can really extend your purchasing power, but you can easily end up paying more for it.  I've been managing credit wisely (most of the time), since I received my first card when I was 18 years old and still in high school.

It's imperative to build a good credit rating, and to start as young as you can, as long as you can reasonably handle the responsibility.

Since we have recently become a one income family, I've been more closely managing the closing dates and the due dates of our 10 credit cards.

This has been so effective, that, the adjustment to a single income hasn't really been all that stressful.  In fact it's helped us better manage the ebb and flow of our bank balances and helps us plan for larger purchases, by staggering them toward the end of a closing cycle.

At times, in the past, when we were both fully employed, we were basically shooting from the hip with our cards.  Using whichever card we reached for first, with little management.   Equally, because we had much more disposable income and were much busier,  sometimes, due dates were overlooked and I would end up missing it by a day or two, which resulted in unnecessary late fees and a possible ding on our credit history.   This was far from my "norm" and it was mainly a time management issue.

This behavior also ended up giving us "lopsided" balances from month to month.  Often, I would get a single bill that was $3,000 or more, and I might just barely have that much available in checking to pay it off fully.  If not...boom...instant interest charge on the unpaid balance.  Yeah...you get it.  I know it's not brain surgery, but those costs add up.  Those costs REALLY add up, especially if they are easily avoidable.   The basic premise with paying interests is, that if that money can't earn the same amount as the interest rate, in a 100% safe investment, then that cash is better served, being put to use to pay off debt.

Set up a simple calendar

Credit card calendar

I'd recommend to anyone trying to get a handle on their debt to start by setting up a revolving debt calendar.

You can even set up automatic payment schedules, if you know that the money will be there.

The whole purpose of having "revolving credit" is to leverage the interest free loan that you get, when you charge stuff, and then pay the balance in full when the statement is due.  In addition, if you have a preferred points card (mine is Amazon) then charging smartly can give you a 1% to 5% return on your purchases, based on what you might end up redeeming those points for.  Amazon recently increased their points rewards for Amazon Prime members.  Prime members received 5X the points for every dollar charged on Amazon purchases.  That's a considerable discount.

Since I was raised by parents who grew up during the depression, they were somewhat fearful of using any type of credit.  I remember my parents had a Sears "charge plate" they called it, and a Bank Americard (Now Visa) that they kept in their top dresser drawer.   They didn't carry it around with them, and it was only used for absolute emergencies and/or larger household improvement purchases.   Fast forward to 2017 and like most people, my wife and I have about 10 cards between us, with purchasing power in excess of $100K

An interest free loan!

To get the maximum leverage on such a large line of credit, I have a color coded calendar set up, that shows a gray color box for due dates and a gold colored box for closing dates.  After a closing date happens, you basically have 60 days to pay off anything you'd normally charge within the next 30 days (30 days after the next closing date).  That's basically a 60 day, interest free loan.  I recently purchased a new Dyson vacuum cleaner, that was about $400.  I wasn't in a hurry for the vacuum, so I knew I could wait until my Amazon card closed, and then I pulled the trigger the day after that card closed.  In addition I scored about $20 worth of points since the purchase price times 5 would equal about 2,000 points.

With proper management and keeping an eye on the current balance, I simply let my wife know which card is best to use, based on the rolling balances and the closing dates.   The entire process, helps evenly distribute outflows so no single card has a huge balance, and it also gives you a little more time to shift things around, if you need to transfer cash from an investment account to your checking account.   If you use a consolidated money management system like Mint, Betterment or Wealthfront, you can keep an eye on the balances, without logging into each account all the time.   Overall, this system works nicely for us and can help you build a good credit history over time.

How do you use points?

How do you leverage any points programs that you use?  Purchase new items? Apply cash to your balance? Buy more from the cards brand, such as Marriott hotel rooms or airline tickets?