Credit Card or Debit Card? Use the Power Tool!
Are you savvy and shrewd with your method of paying for your purchases?
The majority of us are consumers who regularly spend money in one fashion or another, whether it is by cash, check, money order, credit cards, or debit cards.
Credit cards have presented a problem for many in that they give the user the easy ability to spend beyond their means. Debit cards were designed to prevent this abuse. A debit card is like using a check forcing the user to be more careful. The money is immediately removed from your account when you use a debit card. Most debit cards should not allow you to make a purchase if funds are not available. However, sometimes things fall through the cracks and you can easily find yourself paying insufficient funds fees just like you wrote a check even though you chose to use a debit card. I’d rather make a donation to my favorite charity rather than the bank. Debit cards can be a reasonable choice for those who cannot control their spending impulses. By chosing a debit card you can avoid a huge mountain of personal credit card debt that currently seems to plague our society. However for those who can control themselves, credit cards provide a significant advantage that can s!
et you above the pack when used appropriately and not abused. In this article I will share the techniques that can make you a savvy and shrewd user of credit cards instead of an abuser.
The credit card is the “power tool” as long as you can keep from abusing it. If you are a consumer you have to spend money on a whole assortment of things from utility bills, auto gas, and groceries to other necessities and desires. A problem with using a credit card is that we can easily lose track of how much we spend. When the credit card bill arrives it is easy to go into balance shock over the cards current balance. Then we can easily find our selves paying only the minimum due and watching our credit card debt grow over time sometimes reaching levels we can no longer service. OUCH!
So, how can you keep from abusing your credit card?
Here are the rules:
1) The first and most important rule: Make up your mind that the first time you can not pay off your current credit card balance in full each and every month that you will cut the card in half and return to the ranks of the less savvy, less shrewd debit card users.
2) Use only a credit card that does not charge an annual fee and does not charge any interest when the current balance is paid in full each and every month. This can actually give you a beneficial float on your money. See advantage #3 below.
3) A CRUCIAL RULE ALMOST AS IMPORTANT AS THE 1ST RULE: Treat your credit card like it is a debit card or you just wrote a check. How do you do this? Each and every time you use your credit card write the usage in your check book ledger like you just wrote a check. Use the last four digits of the card number as the check number to identify the card usage and deduct the amount spent from your check book balance just like you had just wrote a check or used a debit card.
4) Except for bona-fide emergencies, only use your card for purchases less than or equal to the amount of money your check book balance indicates you have available after following rule #3.
5) When your monthly credit card bill arrives, sit down with your check book ledger like you are reconciling your monthly bank statement and verify each and every use on the credit card bill against the ledger checking them off as you go. When you are done write a check for the full current new balance shown on the bill, NOT the minimum payment due, and be sure to mail it in time to arrive by the due date. With this check there is no need to adjust your checking account balance because that has already been accomplished with each use of your credit card if you diligently abide by rule #3 above.
Following rules 1 thru 5 will help keep you from abusing your card. These rules, especially rule #3, will prevent you from experiencing Balance Shock when the credit card bill arrives. You will confidently know you have the money available to pay the bill in full giving you added advantage. Keeping these rules diligently will make you a savvy and shrewd credit card user instead of an abuser with a mountain of debt. Next we will look at the advantages you will reap.
Here are the advantages of using the credit card power tool:
1) Being a credit card power user instead of an abuser will help you avoid accumulating mass amounts of credit card debt. The first rule of investing is eliminate your debt. This technique can keep you from ever getting into debt in the first place positioning you to be an investor instead of a debtor.
2) This technique will provide an artificial but real buffer (is that an oxymoron?) in your checking account that will help prevent you from ever accidently bouncing a check and incurring insufficient funds fees.
3) If you have an interest bearing checking account, your account will make money for you while the money spent on a purchase you would have made anyhow now quietly sits in the account building interest up until the check that pays the credit card balance in full clears. If you are not eligible or your bank does not offer an interest bearing checking account, you may be able to open a money market account that allows limited check writing privileges yet pays a higher interest rate on money sitting in the account. Use your credit card for every purchase you can and to pay every bill you can. You could quite possibly have only one check to write a month; the check that pays off your monthly credit card balance.
4) You will easily be able to confirm each purchase on your bill as yours; further protecting yourself from identity theft or fraudulent charges.
5) Many credit cards give you cash back, rewards, or free air miles for using them. Chose a card that offers what you need and desire the most to end up ahead of the game.
6) Your credit ratings will soar giving you the ability to easily purchase that new home or other significant item when the time arrives.
7) Using a credit card often gives you protection and advantages over other means of paying.
8) You will quite possibly feel a new sense of power, as I have, enabling you to continue to improve your financial position.
A debit card offers none of the above mentioned advantages.
As far as disadvantages, the only one I have experienced is that I go through check book ledgers faster than I go through checks. My bank was kind enough to give me extra ledgers which solved this disadvantage for me for now.
Welcome to the world of the savvy and shrewd credit card user instead of abuser! May you prosper financially and I hope you find this article quite useful and enlightening. I use my financial “power tool” ,a credit card, for all my purchases large and small to my advantage. Now, you may join me armed with this powerful information. To your success!
Disclaimer: the author is not a financial advisor and the suitability of these techniques for any particular person is the responsibility of each individual to determine. The author is a regular consumer that has used these techniques favorably for some time now and wishes someone whould have shared them with him when he was young. He has shared them with his children and enjoys watching their success as they become adult consumers.