What is the best way to use a Credit Card? Is the answer DON'T?

glewis

I've been asking myself what is the best way to use a Credit Card and even if I should use one. There appear to be a number of reason why people use them (lets call them pros)

1. Getting cash-back or loyalty/reward points
2. Play the Credit Card Co at the money game [use their money whilst I get % on my money]
3. Help manage money and cash flow
4. Improve Credit Rating/history (for when applying for a loan/mortgage)
5. Added protection on purchases over £100
6. Proof of purchase - record of transaction for tax, for faulty goods
7. Help pay for unexpected expenses like car repairs
8. It easier than carrying money that burns a hole in your pocket and you kids & other half can't borrow/spend it from you
9. Security/Fraud - easier (less hassel) if credit card is cloned to cancel, than a debit card, like a first line of defense against identity theft
10. Convenient way of paying for goods over the phone and internet.

The problem is I'm human and on a day-to-day basis not that sure to what i have spent, I do make mistakes from time to time [please don't tell my wife and especially not my kids ] but am prepared to go through my accounts once a month and would say I am savvy with my money, a bit frugal but do like some of the finer things in life (like a good freshly ground coffee with a rich chocolate).

What is the best way to use a Credit Card? easier said than done I feel.

For example:
========
Banking setup: I have a saving account with BankB (with on-line access only to get a good % rate) and I can only transfer monies out into my current account. I have a current account that is where my salary is paid into and DD for things like utilities come out of but I don't want to keep most of my money in it because it pays no interest, so want to keep as much money in the saving account as possible. So lets say the spend on the CC can vary between £200-1000 per month, over the year.

Process to play the Credit Card Companies at there own game of making money by using 'their' money for the 30-60days of free credit is:-
1: Open the CC bill find out total amount due (456) by when (28th of the month)
2: Immediately (by internet or by phone)
i. setup a transfer from saving -> current account for ~ 20th of the month
ii. setup a payment from the current account (for ~21st of the month) -> Credit Card company that may take upto 4 working days.

All well and good if is all works smoothly, but there has been a number of occasions when I think I have setup a payout but have failed to say 'click on the confirm button' after entering all the details (you fool I hear you say :-) but even people that think they are smart with money make mistakes.

An alternative is to keep more money in my current account (larger buffer) and setup a DD to pay off the CC in full asap, so then I loose the % as not so much money is in savings and I also end up paying the bill earlier. If the saving account gave me 4% and every month I spent £1000, then over the year I'd lose out by £40 (is the maths correct here). Is it worth trying to play the Banks & CC companies at there money making scheme for £40/year? What if it where £100/year? Is life too short to bother with this sort of game?

The Alternative I had been thinking of was to not bother with a CC and just use a debit card, to keep things simple. But people have pointed out that there is a couple of levels of protection with a CC, the protection on purchases over £100 and in the case of Identity Theft and Fraud, the nasty people don't totally freeze your financial liquidity as you still have the bank account and debit card, if the CC and details are stolen.

On a week by week basis do you know how much debt is on your credit card?

It's easy to say don't buy it if you can't afford it but how sure are you of what you can afford? When does a CC get out of control?

Kind Regards
Giles

david_hellier

This is a debt free wanabee site. Best not to use credit cards at all.

Jesthar

to the pound

I'd have to respectfully disagree with David - credit cards have their place.

I only have one credit card, which I use for the cashback. I still don't buy what I can't afford, and keep a savings stash to cover emergency bills. The bill is paid off automatically in full each month, so interest isn't a problem.

The extra protection when buying expensive items and online is also a good reason to use them. If a genuine emergency arose, it would be annoying to have to use the card to spread the pain, but it is at least a viable backup. And they are one of the easiest ways to build a good credit rating, which you need for things like mortgages.

Problems arise when they are mis-used, or if situations change abruptly. They are not (as has often been implied by advertising) free money, but it can take time to come to that realisation. I am thankful that my parents drummed it into me that you should save up to buy things first, but many have to find out the hard way. Even more simply get caught by a sudden calamity, such as a job loss or injury, and sometimes all the safety nets and planning in the world aren't enough.

In summary, if you treat them sensibly, they are a useful financial tool. If you have trouble doing that, then best to steer clear of them.

But whatever approach you take, ALWAYS keep a full spending diary - that way you will control your money, rather than your money controlling you.

~Jes

MultiDropper

to the penny

As already mentioned, this is a debt free site so credit cards can be a non starter!

After saying that, I do tend to use mine for purchases over £100, paying for fuel for the cars and emergencies. No other reason.

The balance tends to be paid in full though, but if I can't pay it in full I ALWAYS pay way above the minimum payment to get the balance down quickly.

I'm not a great fan of credit cards, but I'll admit that if used wisely they can come in handy.

hastie

on balance I would say don't use them.
The credit card companys are aware of all the tricks and don't close the loopholes. Why is that? Because they know people are weak.
If they weren't making buckets of money they wouldn't keep offering these seemingly great deals.

glewis

Hi all

I am now planning to jsut set up a DD to pay the CC companies in full as soon as they want it :-)
And the cards I use are:-
1. 1% cashback for me
2. tesco club card for wife
3. Halifax clarity card £5 for spending £300 a month

So the idea is to split the spend so we know how as spent what and get cash back and tesco club card rewards, and use the Halifax clarity for fuel with gives me £5 for doing so. They only issue I have with this is:-
- its seems complex
- halifax clarity CC has very poor on-line down load capability - i.e. you have to cut and paste into a text editor!

I need to find out how to setup the DD with the CC companies.