|
Home::Credit
Choosing and Using Credit Cards
Author : Stephen L. Nelson, CPA
Credit cards are convenient, but they’re also dangerous. A lot of people ruin their financial lives by turning the phrase “charge it” into a reflex. It’s a real problem, but this article explains how to make good use of credit cards and how to choose a good credit card. This information, by the way, applies both to using a credit card for personal expenses and to using a credit card for business expenses.
Selecting the Right Credit Card
Selecting a credit card is easy. If you donÂ’t carry charges forward from month to month, choose the card with the lowest annual fee. It doesnÂ’t matter to you if the credit card company charges a painfully high interest rate, since you pay only the annual fee if you pay your monthly credit card bill on time.
If you do carry a balance, it makes sense to choose the card with the lowest interest rate. Some credit card issuers play interest rate calculation tricks that make it very difficult to make apples-to-apples comparisons of credit cards. But if you choose the credit card rate with the lowest annual percentage rate, youÂ’re doing about as well as you can.
The Right Way to Use a Credit Card
You shouldn’t use a credit card as a way to borrow money. That means always repaying the charges within the grace period. You want to be what the bank calls “a revolver,” which is a person who always pays his or her credit card bills on time.
After investments in a profitable business, a 401(k), and a deductible IRA, the next best investment you can make is to pay off credit cards that charge a high interest rate. Earning a tax-free interest rate of, say, 14 percent, which more than what a 401(k) and deductible IRA pay (and probably only slightly less than investments in your business should pay) is too good to pass up.
NOTE While credit card interest on personal charges would not be deductible for income tax purposes, credit card interest on business charges should be deductible as business interest expense. Therefore, the worst kind of credit card debt is personal credit card debt. Business debt isnÂ’t quite as bad.
Do Affinity Cards Make Sense?
An affinity card is a credit card that’s issued by someone other than a bank—such as a car manufacturer, an airline, a professional group, and so forth. Affinity cards typically combine the usual features of a credit card with some extra benefit connected to the issuer. In the case of a General Motors card, for example, you accumulate dollars in a rebate account by virtue of what you spend with the affinity card.
In general, an affinity card—especially one that doesn’t charge a fee—is a good deal as long as the interest rate is competitive. For example, I have a General Motors credit card that includes a 5 percent rebate account. In other words, five cents of every dollar I charge on the card goes into a rebate account that I can use toward purchasing a new General Motors car. How big your rebate gets depends on the type of affinity card you have. For example, as of this writing the regular General Motors credit card lets you accumulate up to $500 a year to a maximum of $3,500. The General Motors gold credit card lets you accumulate up to $1,000 a year to a maximum of $7,000.
There are many different affinity cards. Ford has one. Most of the major airlines have them too. Airline affinity cards let you accumulate frequent flier miles based on the credit card charges. In the plans IÂ’ve seen, you usually get a mile a dollar.
The one sticky part of using affinity cards, however, is that getting even a 5 percent rebate isnÂ’t worth it if having the card makes you spend more money. Some studies show that you spend 23 percent more when you use a credit card. The same is very likely true of affinity cards.
If youÂ’re one of those people who spends more when you have a card in hand, you wonÂ’t save any money by using an affinity card. Even if you get a new General Motors car for free or a handful of free airline tickets to Europe, you pay indirectly for your new car or airline tickets with all the extra charging you do. If you donÂ’t make use of the rebate, the situation is even worse. YouÂ’ve charged more, perhaps paid hefty annual fees, and youÂ’ve received nothing in return.
NOTE One other point to consider argues in favor of using affinity cards for business charges. In many businesses, you will have large business credit card charges—much larger than an individual making personal charges will have. In this case, assuming you don’t overcharge and don’t overspend, you may find that an affinity charge card produces big benefits. In my case, because many of my business expenses can be charged on my frequent flier credit card, I probably get two free airline tickets a year.
Article Source: http://www.articledashboard.com
Kirkland WA certified public accountant & author Stephen L. Nelson CPA has written more than 150 books. His bestselling book is Qu Determining How Much Life Insurance You Needicken for Dummies, which sold more than 1,000,000 copies. His books have sold more than 4,000,000 copies in English and have been translated into more than a dozen other languages. His web site is www.stephenlnelson.com
Spam emails More free articles Related articles
|
More related feeds |
Tips for Choosing (and Using) a College Credit Card
So, you’ve weighed the options and decided to get a credit card. Congrats! This is just one more step into adulthood. Unfortunately it’s also another step into responsibility. Here are a few thoughts on choosing and using credit cards ...Saving Money on Gas
Choosing the type of card is also an important aspect in using gas credit cards to save on gas. Typically, there are two types of cards. One is specific to an affiliated gas station and the other is for general use. ... Orchard Credit Card
If you have discovered all your expenses, you have accounted for all, if mortgages are choosing the home. It online homebuyer education class, it is closing and is maintaining the new home whether car loans and credit cards are getting ... Things You Should Know about Credit Cards
One of the most important things that you can do when you are starting out with credit cards - or even when you have been using credit cards for a long time - is to shop around before you decide on them. Shopping around continuously for ... Choosing a Credit Card
When you compare credit cards, there are a lot of factors to consider, but the most important thing is the factor that's most important to you. Credit cards come with a variety of interest rates, fees, introductory rates, ... Choosing a Credit Card
Confused by the constant bombardment of credit card offers all claiming to be the best offer? Find out how to choose a credit card that meets your needs and how there is no - one card fits all. Choosing and using Credit Cards
Credit Card Terms Before selecting a credit card, learn which credit terms and conditions apply. Each affects the overall cost of the credit you will be using. Under the Fair Credit and Charge Card Disclosure Act, you can compare terms ... Credit Cards & College Students
Credit card companies love college students... but credit card debt can hurt. Students need to learn the do's and don't of choosing and using credit cards. Choosing a Credit Card In the UK
When you decide to apply for a credit card, you should research all of your choices to find the one that is best for you. Once you receive it, you need to be careful in using it or you could find yourself in a financial mess. ... Choosing a new credit card
Low interest rates may offer a good time to apply for a new, or even first, credit card. Several considerations, such as interest rate and fees, should come into play, however, before a consumer signs on to a new credit card. ...
|
|
|
