5 Times You’ll Be Glad to Have Paid Using a Credit Card

Owning a credit card is a big responsibly that can sometimes be confusing for those with little experience. There are several situations where credit is a great option, but there are many in which it may hurt you in the long run. Here are some of the best times to use plastic when you want to get the most in return.

Rewards

If you have a rewards card, it may be beneficial to use your credit card even when cash or debit are available options. Using your card when possible will help your reward total add up more quickly. Only use your card responsibly when you are fully capable of paying the charge.

Repairing Credit

If you need to build or repair your credit, using your card at these times is a wise decision. Just like your rewards card, you can choose to do this even when other payment options are at your disposal. Make sure that the benefits of using your card in this way are worth the potential risks.

Large Purchases

Though it may seem risky, buying items such as high-end electronics may best be paid using credit cards. Most credit card companies provide protections that can be advantageous when making large purchases. Such protections may include fraud coverage in addition to the chance to dispute any charges in the event of errors. Many cards may even provide automatic extended warranties on some purchases. For rewards cards, large purchases can also significantly help add to the rewards total.

Travelling

Hotels often require credit cards to hold reservations, and your card may feature travel insurance coverage. If you have a frequent flyer card, the distance you fly will be rewarded to you upon future travels. You may also get cash rewards for any travel-related purchases.

Online Purchases

When shopping on the Internet, using your card makes the process easy, but it may also protect you from fraudulent activity. Many cards protect you in the event your card or information are stolen, and they may provide additional coverage if your items arrive damaged or don’t come at all. Be sure to use your card only on secure sites, and be careful when providing personal information.

There are many situations when using your credit card will bring significant benefits, but remember a few rules before you get too excited. First, check your credit card policies before attempting to use your card in any scenario as not all cards can be used the same way. Also, remember to pay off every charge by the end of the payment period to avoid paying big time for a small forgotten purchase.

Removing a credit card late fee was too easy

I received an email yesterday from Bank of America informing me I was charged a $25 late fee on my Alaska Airlines credit card for having a past due balance.

I pooped myself when I saw the email.

Literally.

Mostly because I was on the toilet when I was checking my email, but that’s beside the point.

I made an oath to myself a long time ago that if I ever incurred a late fee, penalty, or interest charge on any of my credit cards, I would immediately cancel them and limit myself to only using my debit card. Credit cards are awesome, but only when used responsibly. Fees and interest negate any benefit they may provide.

I pride myself on being responsible and always paying my bills on time. I knew I made a huge credit card payment recently so I had no clue why I was being charged a fee.

Turns out, I’m apparently a little too responsible. 

My credit card statement ends on the 2nd of each month. In May, I made a payment on the 2nd that I thought would cover my June bill. Submitting that payment a full 30 days earlier than I needed too.

Or so I thought.

I guess my payment, was a few hours too early and was applied to my previous bill, since the new statement had not finished processing. Basically, while I thought I was paying my June statement off early, Bank of America thought I was just submitting an extra payment for my May statement.

This resulted in an $89 balance due on June 1st that I didn’t know I had. I was charged a $25 late fee (that’s a 28% penalty) for not making that payment.

I had read blog posts before about people who have had success getting late fees or interest charges dropped from their credit card, but had no experience with it myself since I’ve never been late on anything. I decided to give Bank of America a call to see if I could persuade them to remove the fee.

Here is how that conversation played out…

BoA: Thanks for calling BoA, how can I help you today? 

Me: Um, I noticed I was charged a $25 late fee on my credit card balance this month. I’d like that removed. 

BoA: I’d be happy to look in to that for you, but first need you to verify your identity.

[we discuss my personal information to verify the account]

BoA: Okay, Mr Ninja. I’ve got your account pulled up here. I’ve just removed the fee. Is there anything else I can do? 

Me: Uhh, nope. Thanks. 

It was actually that painless. He didn’t ask me why I incurred the penalty. He didn’t ask me why I thought they should remove it. I didn’t have to threaten to cancel my card or take my business elsewhere.

I simply asked to have the fee removed and he did it. 

I always hear horror stories about credit card fees and late penalties, and I’m sure they are all justified, but so far my only experience with them was shockingly positive.

Have you ever incurred a fee that you tried to have removed or reduced? Were you successful in your endeavors? 

Keep your credit card debt. It’ll be good for you.

Do you have an income?

Do you have expenses?

If you answered yes to either of those questions, you darn well better have some financial priorities in place.

While there are a million different things we could talk about in regards to financial priorities, today I want to focus on just one.

Which comes first: investing or paying down debt?

I think financial priorities are something most of us think we have figured out, but don’t always truly understand.

Today I’m going to show you why investing in your 401K is often a better option than paying down high interest credit card debt.

Let’s look at an example:

Jane, makes $50,000 year. She’s 30 years old and her employer fully matches 5% of any contributions she makes to her 401K plan. Jane also has $5,000 in credit card debt, at 15%. What should Jane do, pay down the card as quick as possible, or start building up a nice little nest egg for retirement?

A 15% APR, on a $5,000 balance, means Jane will be paying about $62/month in interest. If she made nothing, but minimum payments, it would take her a little over 22 years to pay that sucker off. She’d also pay $5,729 in interest over that time resulting in a total payment just shy of $11,000. Yikes, that $5,000 original bill became a whole lot more expensive. Better pay that sucker off ASAP, right?

Now let’s examine the investing route.

Jane would be investing $208/month in her 401K if she contributed 5%. Her employer matches that and gives her another $208. If she earned a doable 6% return on this money, and never got a raise in her life, she would end up retiring at age 67 with $683,030 in her 401K. Not bad at all.

If Jane decided to postpone contributing to her 401K, she could use that $208 to make accelerated debt payments each month. But let’s not forget, that 208 number is pretax, so in reality she’d have about $175 extra to throw at her credit card. With the additional payment, Jane will now be credit card debt free in 20 months and will have only paid about $673 in interest. Sounds a heck of a lot better than the 22 years it was going to take in the first example.

Here’s where it gets interesting.

Wanna know what Jane’s 401k would look like if she didn’t start investing until after she became CC debt free? She lost nearly two years of company matching and compound interest, resulting in $596,388 in her 401K. That’s $86,642 less then if she started investing at age 30.

Guys and girls, this point is SOOOO important it can not be overlooked. It is absolutely in Jane’s best interest to start investing in her companies 401K, even though she is not debt free. If she waits until she has her credit card paid off, she loses a crap load of money. I know this seems to go against the grain. Credit card debt is evil, don’t get me wrong, but that doesn’t mean it should always be at the top of our financial priorities.

Obviously, in a perfect world you will have enough discretionary income that you can not only contribute to your retirement, but also pay down your debt quickly. I always have been, and always will be a DEBT PUNCHER, but only when it is in your best interest.

Does your employer offer a 401K match? (I’d like as many people as possible to answer this question since I’ve heard a lot of the retirement benefits in the private sector have been getting cut left and right). Are you taking full advantage of that match? If not, you’re crazy. I’m sorry, you just are. You are literally giving up FREE money. In Jane’s situation would you go the way of Dave Ramsey and still pay down your credit card first, or would you let number’s guide you and start contributing to your retirement?

Did they forget to charge me?

So Girl Ninja came out and visited me in Europe over the last week. We rented a car for personal use and spent the last 10 days playing tourist whenever I didn’t have to work. We spent time in Bruges, Aachen, Maastricht, and Amsterdam.

It was glorious. 

On Friday morning, we dropped our rental car off at the airport in Amsterdam and spent the weekend wandering the city (Girl Ninja didn’t fly out until Sunday).

Side note: In case you were wondering, you don’t even have to be in the Red Light District to happen upon mostly naked women dancing in front of windows, attempting to solicit customers. Definitely made the after-dinner-walk interesting as Girl Ninja kept saying, “Ew, don’t look.” Haha.

Anywhoozle.

Like I said, we dropped the car off on Friday morning, and here I am typing this, Monday Night, and I still haven’t been charged for the rental.

What gives? 

When I picked the car up a pending charge was placed on my card immediately. The agent explained it was customary for them to place a hold for double the cost of the rental until the car is returned.

There is no hold. There is no pending charge. Did the rental car agency forget to charge me? 

I did forget to top the car off before I brought it back to the airport. Instead of returning her with a full tank, she sat at about 3/4. Perhaps they delay the billing until they get around to fueling her? But it shouldn’t take them four days to get around to that, should it?

What if I never get charged? 

Must I tattle on myself and demand they let me give them my money? I mean, I’ve given them my credit card information three times now. Once when I booked the reservation, once when I picked the car up, and again when I dropped it off. What more could I possibly do aside from go to the ATM, take money out, put it in an envelope, and mail it directly to the European rental car agency’s HQ with a note explaining why they are getting $500 mailed to them?

I suspect in the next few days the charge WILL appear on my statement. I still want to know why it’s taken so long. I make thousands upon thousands of transactions each year, but I’ve never had something like this happen before.

Have you?

p.s. Here’s some shots of our trip 🙂

Screen shot 2013-12-09 at Dec 9, 2013, 2.05.21 PM

Screen shot 2013-12-09 at Dec 9, 2013, 2.05.08 PM

p.p.s. Yes Girl Ninja’s name is Lauren, but if you saw us on the Steve Harvey Show, you already knew that 😉

Keeping a credit card I don’t even use

When I left for college in 2003, my mom signed me up for my first credit card. Since I was going to school in San Diego, but my family was in Seattle, the thought was I could use this credit card if I ever needed to purchase an emergency plane ticket home. Fortunately, I never had to use the card.

Fast forward to last week. I get a letter in the mail from Chase. The letter informs me my account is going to be closed, citing a lack of activity over the last two years as the reason. At the very bottom of this two page letter there is a short blurb providing contact information to appeal the closure.

Normally I wouldn’t care. They can close my account. I don’t use the card, keeping the account open costs them money (albeit probably a negligible amount), and I don’t have any other accounts with Chase. But, even though I have no desire to ever use this credit card I really wanted them to keep the account open.

Why?

We want to buy a house. When we were pre-approved for a mortgage last month, we found out my credit score is 750, Girl Ninja’s 790. Since my credit score was slightly lower, banks would be using my score to determine what rate they would give us for a loan. Higher credit score’s get better rates. For reference, my 750 score is on the low side of “very good”. 

The Chase credit card I mentioned above is my oldest standing credit account. Did you know one of the determining factors in the credit score calculation is length of credit history? It makes sense, someone who has a ten-year track record of paying off debt on time, is probably more “safe” than someone who only has a six-month track record.

If my Chase account closed there is a very real possibility my credit score could drop to 730 or even 700.

This bumps me out of the “very good” credit standing and puts me in the “good” category. Theoretically a bank could decide to give us a slightly higher interest rate since we are no longer seen as “top-tier” loan applicants. Moral of the story, let an account close, pay thousands more in interest over the course of a mortgage. How lame is that?

If we weren’t currently in the house hunting process I’d be totally cool letting the account close. Aside from this pesky mortgage, I have no plans to borrow money, and therefore could care less about my credit score. Unfortunately, it is the standard and having a great score makes life significantly easier.

I’m being nosey…again.

Every now and again I like to pick your guys/gals brains. It’s not only helpful for me to see if I am at relatable to the people who read PDITF, but hopefully it’s also helpful for you to see where you stand against the masses. Since the value in today’s post is probably coming from the comments section, and not these words, I’ll cut right to the chase.

What is your total credit card debt? 

It’s really that simple. Apparently the average household (that has at least one credit card) has nearly $16,000 in CC debt. Let’s see if that rings true for this community.

I’ll get this party started. Our CC balance currently stands at $3,505, and like always, will be paid off at the end of the month. What’s depressing is that our most expensive purchase included in that balance was $140 for car insurance. That means we have a ton of freakin’ small purchases that amount to a rather large balance. Dang.

Your turn. What’s your balance (and why is it what it is)? 

extra credit questions: What is the interest rate on your card(s)?

The truth behind the credit score

I’m on my way to the airport to go visit Girl Ninja in San Diego, which means I’ve got a guest post for ya today. I’ll be back and in action next week. Enjoy your weekend suckers. I know I will 🙂

Hi, I’m Ed and I’d like to punch TWO people in the face with one swing. Just line them up (if they were still alive), and beat some sense into them. I’m referring to the two gentlemen behind the idea of the credit score, Bill Fair and Earl Isaac, collectively known as the Fair Isaac Corporation (FICO), where your credit score originates. These guys purposely sold Americans to the mercy of financial institutions and unless you’re a multi-millionaire that can pay cash for everything, you’re going to have to participate in their insidious game.

FICO was founded in 1956 by a couple of mafia godfather wannabes that were unwilling to be fully transparent in their methodology. It’s not that I necessarily disagree with the ideas of checking a person’s credit history before loaning to them, but more that these scores are based on a fairly secretive formula.

Your credit score is a three digit number ranging from 300-850 that serves as a numerical representation of your credit risk and trustworthiness. If you’ve ever been late on a credit card payment by more than 30 days or applied for “too many” credit cards at once (how many is too many? Your guess is as good as mine!), your score most likely took a hit. Luckily, there are aggressive and passive strategies one can implement to work their score back to a preferable number.

These days, you can’t secure a loan, let alone an apartment without a good credit score. And what’s worse, is the standards of what’s considered “good” are constantly changing. For instance, before the Financial Crisis of 2008, a score of 680 was good enough to get you great rates on credit cards, installment loans and mortgages. These days, lenders are looking for 730 or better to give out the best interest rates. They keep pushing it higher and higher and soon enough, I’m sure you won’t be able to purchase a home without a 95% down payment.

So in short, we are all subjected to this game of cat and mouse because two guys who thought it would be cute to enslave the Western world to a seemingly ambiguous system. We’re all tools getting screwed and abused. So if you’re ever turned down for a credit card, a rental lease or an auto loan, just know that there’s someone in your corner yearning for an after-fight suckerpunch.
Bill Fair and Earl Isaac: I’m calling you out from your graves — Bring it on, ladies.

Ed O’Brien is a writer on personal finance, specializing in credit repair. You can find more of his articles located at CreditRepair.org.