Managing Credit Cards

As you may know, the average American has consumer debt. Quite a bit actually. You see, the American education is great in a lot of ways except for one. No actually taught anybody how to handle their finances. In an age were high school graduates go into college with credit card companies knocking on their doors, the uneducated easily makes unwise decisions and winds up graduating from college with student loans and consumer debt. I am one of them.

I have since read a lot about personal finance and have taken steps to pay off my debt. It helped that I was interested in passive income ideas and that I majored in Economics (taking classes in Finance and Accounting helped a lot). The concepts of cash flow and credit management eventually helped me to implement the system I have now.

So what do I do with my credit cards now? I know some people cut up all but one. Some people leave their credit cards at home and use cash or debit cards only. Some even freeze all but one card in a zip lock bag so in order to use it, you have to wait for it to defrost, which can give you time to think over any impulse purchases. I think it is a waste not to use credit cards.

With a lot of credit cards offering cash back, miles, or rewards, one would be foolish to not take advantage of them. What you have to do, however, is treat it like a debit card. You have to remember any credit purchases must be paid back, and if you can't pay it back within the month, then you will just be giving free money to the credit card company. So what I do is, I keep one or two cards in my wallet with my debit cards. I revolve them every few months with the ones I keep at home to keep them active and reporting to the credit agencies (to build credit). The biggest thing is that when I make a purchase with a card, I remember to create a fake payment entry in my checking account to cover that amount. Next time I spend, I add to the amount of that entry. This gives me a true value of my checking account and prevents me from over spending. When it comes time to pay the bill, I send the payment over, remove the fake payment from my checking account, and presto! my balance is the same as they cancel each other out. There is no way I can't pay the bill, because I always make sure to cover the purchase with the fake payments.

What happens when you don't have the money in your account to cover for a purchase? The better question is why are you buying something you don't have the money for? Is it really necessary? If it's a repair for a car that can't wait, then you dip into your rainy day savings...that's if you have one. If not, then you will unfortunately have to let the balance sit while you pay it off. We'll talk more next time about how important it is to have $300-500 saved aside for a rainy day.