What the credit card companies don’t want you to know

AJ: I begged Kirby to write a series on how to use credit cards to your absolute benefit, and I’m so excited about this post. Kirby is an absolute machine at navigating the positive side of credit card and bank account benefits. Heed his advice, the points and cash back benefits are well worth it!

KJ: Beware: the information contained in this post may make you suddenly generate extra cash. This sudden windfall might leave you with a strange feeling of ‘why haven’t I always done this?’

I got my first credit card in my first year of college. There were offers around every corner (something quite disgusting for college students who typically have little wherewithal or knowledge on how to properly manage a credit card), so it was (and is) important to pick a credit card that is right for your lifestyle whether that be mileage benefits, cash rewards, or other rewards programs. At the time, I didn’t even have to provide any documentation showing what my income was in order to determine how much credit I could qualify for. Why is that okay? From the get-go, many companies are setting you up for failure. Why wouldn’t a college student with little income per month not say ‘sure, I’ll take $2,000 of credit!’? ‘It’s okay, I’ll just pay it back when I get that great job’…

My view for the only way to optimally use a credit card is to use it for your regular monthly expenses, earn rewards, and pay it in full at the end of the month. If you instead add expenses and simply make the minimum monthly payment, it would take you YEARS (or even DECADES if you are adding anything to the card each month) to pay it off, and that $1,500 tv that was such a ‘steal’ could end up costing you over $2,800! Since the interest rates that most companies charge are exorbitant (the best rates can be around 9% per year while good rates can still be in the mid-teens), it’s easy to fall victim to credit card companies. Few are designed to actually help the consumer from a long-term perspective, and in fact many keep the consumer indebted for years. When used properly though, you can enhance your savings by gaining some attractive rewards.

Here are the rules and guidelines I live by:

1) Do not get a credit card you cannot pay off regularly.

    The expenses and interest you will pay will FAR outpace the benefits you would have otherwise received no matter how enticing the card’s initial terms or rewards. Some of the best cards available for rewards I’ve found are Chase’s Freedom card for cash rewards as well as some of the Citi American Airlines cards for airline rewards. As unique as a budget, not all credit cards are for everyone, and one size does not fit all.

2) Get the card that fits your lifestyle to maximize the benefits.

    Shop ’til you drop. Not for purchases though! Do your research upfront Bankrate.com is a great resource to evaluate different credit card offers). For us, our preference is for cash rewards.

3) Save most (or all) of your rewards.

    If cash rewards are your elixir, when you come across ‘sudden’ money in the form of rewards redeemed, try saving it all (or at least save an equal amount to what you plan to spend). You didn’t have the money yesterday, and you don’t have much control of when it will hit next, so why tack it on as an increase in your lifestyle and living expenses? Once you get accustomed to a certain lifestyle, it is tremendously difficult to take a step back.

4) Stick to your guns.

    If you open a credit card for the rewards, and you plan to close it after the initial teaser reward, then stick to your guns. Pay attention to minimum holding periods (six months for some cards) where the rewards are eliminated if closed within that period of time. This is particularly important for some of the glamorous first time card offers. Especially with some of the bonus airline mileage cards, they have a fee after the first year of the card, which may make the card become unattractive after the grace period.

5) Credit is better than debit.(1)

    Compared to the debit card counterparts, you often have more protection against wrongful purchases and product returns in the event that something doesn’t work as the merchant promised.

6) Find ‘foreign travel’ friendly cards for out of country visits.

    Certain credit cards are ‘foreign travel’ friendly with minimum transaction costs and exchange rate fees. In my experience, Schwab and Capital One have been good companies for travel protection, access, low fees, etc. especially since they both typically reimburse all ATM fees. If you’re traveling out of the country, be mindful of charges for foreign transaction fees and conversion charges. Foreigners are particularly susceptible to identity theft/fraud, and watching your accounts regularly to see if something crops up is important.

7) Cash advances can be dangerous.

    They start charging you interest from the day you take the cash out. As such, use only as a last resort!

8) Try something new: LOWER your credit limit.

    Contact the credit card companies to reduce your available credit amount. Hear a pause at the end of the phone followed by a ‘what is that you say?’ and you will know it’s not a common question they receive. It’s so easy to fall into a trap of having several credit cards: the access to a higher credit limit and other rewards can be intriguing, but it can get you into trouble. If you reduce your credit available, you will have to rely more and more on your personal savings and cash before making a large purchase, but you will find yourself in a much stronger financial position long-term. Our grandparents used to pay for everything with cash (cars, larger down payments on a home, appliances, furniture, etc.), so why not bring cash back into style?

9) Do the math.

    If you are applying for a card with an annual fee, calculate if the rewards for what you regularly purchase more than offset the annual fee compared to other rewards cards. In order for the math to work, sometimes it entails increasing your expenses to make the rewards worthwhile, and that’s precisely the last thing you should do!

10) Easy isn’t always better.

    Credit cards make access to money easy, but when was the last time the easy route was the best route?

The methods outlined above are really only feasible if you have a good handle on what your income AND expenses are each month (see also our relevant posts: How to build a budget and Budgeting: a very good place to start). Then, you really KNOW what you can and cannot afford. Follow the steps of:

      (1) establish an emergency fund,
      (2) eliminate credit card debt, and
      (3) begin saving for your future goals (vacation or retirement).

You will find you are in a much better position to handle the unexpected that invariably comes up.

For some additional references with comparisons of credit cards versus debit cards:
(1) http://www.cbsnews.com/8301-505146_162-57365965/4-reasons-to-use-credit-cards-versus-debit-cards/
(1) http://www.fdic.gov/consumers/consumer/news/cnfall09/debit_vs_credit.html

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Black Friday madness

AJ: People generally think that Black Friday is insane. Surely it can’t be worth the effort, the late night/early morning and the massive crowds. I’ve worked in retail in some capacity for more than 10 years and in my opinion, Black Friday is awesome. I convinced Kirby to venture into my fast-paced world a few years ago, and he’s now completely on board with Black Friday. Retailers plan major deals and sales for this one specific day in an attempt to beat out other retailers, so there’s always a better deal out there if you’re willing to spend the time looking for it. Your entire purpose on Black Friday should be to save money on items you were already planning to buy or need, not to see how much you can “save” on great deals. It might feel like a competitive sport when you’re out there, but it’s only truly worthwhile if you come out in the black, not the red. Spend wisely and save with a purpose leading up to Black Friday, so when it arrives you have enough set aside to cover your expenses.


    - Research deals ahead of time. There are tons of great sites out there but I’m particularly fond of bfads.net. Several weeks prior to Black Friday retailers will begin leaking their ads to drive traffic and interest about their deals, so you can begin making a plan of attack early on.
    - Read the fine print. Just because it says $200 off don’t assume that you know what that $200 is off of. Most retailers won’t confirm the validity of the leaked ads until the week of Black Friday, but take advantage of customer service features offered on retailer websites and ask questions. I’ve recently had increasingly good service through chat features when available. The service is quick, and when you’re polite, they’re more than happy to give you the information you want.
    - Shop for big ticket items. This year Kirby and I spent $461 less on new phones for ourselves than we were expecting to pay three weeks ago. Search for specific things you’re looking for and keep looking until you find a reasonable price.
    - Know your limits. I don’t get up at 3 am, I don’t camp out with strangers, I don’t fight little old ladies. If getting the $10 Shop Vac means I have to be in line 6 hours, then I’ll wait until I can afford the $50 Shop Vac because that’s just not worth it to me.


    - Show up without a plan. If you show up to Target on Black Friday without knowing exactly where to go when you get inside and what you’re hoping to buy, you’re going to get trampled like those sad people on the news. If you’re not familiar with the store layout, show up a few days early and make sure you know where you’re going.
    - Shop just to shop. Waste is still waste even when you get it on sale. If you truly don’t need it, leave it behind even if it’s 75% off.
    - Camp out all night at a store only to find out they only had 1 of the item you were hoping to buy. Call ahead to make sure they have plenty of what you’re looking for and ask when they expect people to begin showing up. If you’re still interested after that, go for it.
    - Purchase on credit just to hope to pay it off sometime later. If you’re not paying it off in full once that bill comes, then it still isn’t a good enough deal for you to be participating.

KJ: I used to think the whole process was insane, but when I discovered all of the great deals that were available (many without much of a crowd), and the fact that for most of the deals, I just had to wake up at about the same time that I wake up every day. Under those circumstances, why not check it out? And with one day left for Cyber Monday, there’s still time to see what’s available on your need or must-have list. The key to finding a great deal (not just on Black Friday but on Cyber Monday too) is to do your research. Lots of retailers offer similar options with vastly different fine print. For the types of gadgets I like to get, I regularly check Amazon.com, NewEgg.com, and TigerDirect.com to name a few. Google is your friend, and a little research can go a long way.

This year, the items that made it to the top of our list were cell phones. With Angela’s fifth replacement phone no longer even charging and my screen shattering (no, it’s not an ultra-modern etched cover, it’s a broken touch screen mess that now doesn’t register all of my clicks). As Angela mentioned, we saved over $400 on our phones. All we needed was a little patience to not replace the phone immediately and to search for a great deal that was just around the corner. We could have theoretically saved a tiny bit extra had we been willing to camp out at Sam’s Club for hours in the morning of Black Friday 20 miles away, but we much more comfortably got the offer online from the warmth of our own home instead…it’s all about weighing the options of time, hassle, gas, and money in order to get what you want.

This year’s Black Friday seemed to be quite a success compared to prior years, so let’s hope that it kicks off the Christmas season to a good start and gets our economy back on track…that is provided the Black Friday deals weren’t just extended on credit to already strapped consumers.

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Happy Thanksgiving

AJ & KJ: We are so overwhelmingly blessed that we have daily conversations about everything that we are thankful for. It’s incredibly important to us to share as much as possible, and we hope that you all find a way to give back, whether it be with time, money, or both.

We are thankful for three incredible families that we get to share holidays with that are close by. We’re thankful for both having great jobs that make taking a few extra days off to spend with one another possible. We get that extra time to continually fall more and more in love. We’re thankful for our barking, playful dog and our very busy, very noisy kittens, as they make our home so wonderfully warm and unique. We’re thankful for having been raised in families that have built a lifetime of traditions and memories but are still flexible enough to know how much we love each other together and apart.

With this year coming to a close (where does the time go!?), we’re thankful for another year of unknowns, changes, ongoing blessings, and more time to spend together living life and growing ever closer together.

Happy Thanksgiving everyone! Please share with us the things you are thankful for.

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Three money tips for a successful marriage

KJ: Attached to this post is a particularly interesting, short video(1) about the importance of talking about money as a couple (which extends in my opinion to both before and during marriage).

My wife and I have always been very open about money with one another: we discuss our incomes and monthly expenses several times per week. On a quarterly basis (while difficult for most individuals who do not have this particular expertise), I prepare a balance sheet (a listing of assets – what you “own” – less any outstanding liabilities – what you “owe”) to come up with our household net worth, year-to-date income and expense summary, and a performance summary of several of our investment and savings accounts (i.e. IRAs). While almost unheard of for two early-20′s to start this behavior, it has made sure we are transparent with one another on what our financial status is. The purpose of these “quarter-end” sessions is to be educational in nature, and it helps us both know where we stand should something happen (disability or death) to one of us.

AJ: When people hear about our “quarterly presentation” I feel confident they think we’re nuts, but Kirby is right. Were something drastic or tragic to happen to one of us, the other would at least know when to begin to look for our resources, and that’s a huge hurdle for a lot of couples. What makes a quarterly presentation for me is that while Kirby chooses many of the specific components of our portfolio (specific investments, account allocations, long-term strategy), we’re regularly saving for my goals in prominent ways, too, and seeing that quarter by quarter makes me feel equal in the decision-making power.

KJ: Our three recommendations to having an open discussion on money are:

1) Regularly prioritize what is most important to you TWO. The purpose of this exercise is to come to terms with one another about what is most important and valuable as a couple. Sure, there will naturally be items from time to time where you may disagree, but it’s most important to come to a mutually agreed upon solution. Think: have X now and Y later or part of each now and the rest later (if possible).

AJ: My two biggest priorities are living as full and meaningful a life as possible and saving for the long-term. Full and meaningful means travel, wine, being with my family, expanding our family one fuzzy, life-filled fur baby at a time and giving more than we take. Saving for the long-term means spending more thoughtfully and saving even more thoughtfully. Acting like raises and bonuses don’t happen, so that I can breathe a little easier when I think about retiring isn’t quite as fun as taking four vacations a year, but I rest well at night and know that my planning will afford us a comfortable lifestyle forever.

KJ: 2) Know where you stand. Track your combined income and expenses (whether the accounts are combined or separate is a different discussion point) through a tool like Quicken, Mint.com, Yodlee, or other resource.

AJ: Some weeks I ask Kirby the same question about our budget three times before I finally remember how much we have to spend in a certain category, but we talk about it in a healthy, ongoing way, which makes it more approachable. Kirby and I love Mint.com. It was the first tool that worked for both of us in a way that I could really use. Even still, though, I track our food and miscellaneous budgets in a spiral notebook along with my monthly menus and weekly grocery lists. It works for me to see it in two ways. Kirby gets REALLY confused with all of my lists, but at the end of the month, we always wind up in the same place and that’s what really matters.

KJ: 3) Identify what method works on how to own your checking accounts. For some couples, it is optimum to maintain separate checking accounts, while for others (and us) it’s better to have it all commingled in a single ‘pot.’ Neither one is inherently right nor wrong; it’s how well you communicate with one another on upcoming expenses (significant or not) that is most important.

AJ: What works for us now, isn’t what “we” always wanted. I did well maintaining my own checking and savings accounts, and I liked the independence. We began by sharing an “equal” budget comparable to our income percentages and that worked really well while we were dating.

When we were planning our post-wedding lives, it became very apparent that Kirby wanted to merge finances, and I really didn’t see the benefit. I heard a number of marriage-ending horror stories about sharing finances, and I wasn’t sure I knew how to prevent that from happening to us. The reality is that we’re better together through and through and sharing our finances has made us better friends and partners. I’m still not sure how to buy a gift in complete secrecy or save a little at a time for a huge surprise, but for the most part, sharing finances is a great fit for us.

(1) http://money.msn.com/money-video/default.aspx?from=gallery_en-us&videoid=d611200a-ef9b-4000-be78-bd31ca886544

Three money tips for a successful marriage is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.