Credit Cards & Frugal Living

Credit cards issuers have gotten a very bad rap for their aggressive tactics. Even President Obama has gotten into the act, pressuring credit card issuers on rates. As far as I am concerned, credit cards are like guns, i.e., you can either use them to your benefit or abuse them at your peril. In the industry parlance, I am what the credit card issuers call a "deadbeat," i.e., someone who pays the entire monthly credit card bill on time, i.e., I do not carry a monthly balance. In my opinion, carrying a credit card balance is like entering Hotel California, you can enter but you can't leave :-)

Having said that, let me share my ground rules on my credit card usage:

1. I draw up a monthly budget for my expenses, allocating funds for recurring expenses (e.g., utility bills, groceries, etc.) and giving myself a reasonable allowance for unexpected expenses.


2. I divide up my monthly income to cover my expenses. If I don't have enough funds for a specific expense, I either postpone that expense until I have saved enough funds, or I cut my discretionary spending to cover that.


3. I keep my funds in my ING online high yield savings and use my credit cards to pay those bills.


4. In other words, my credit cards function like a monthly float, allowing me to earn some interest, albeit a pittance as a result of the Fed's generous bailouts to banks.


5. I keep track of all my daily credit card expenses in my Excel spreadsheet. If I made any unexpected credit card expense on a specific day, I immediately readjust my monthly budget in my Excel spreadsheet accordingly. This way, I never spend more than what I allocate. In other words, I have trained myself to treat my credit cards as if they were like cash. It requires discipline and over the years I have gotten better at it.
   


6. When the time comes to pay my monthly credit bills, I transfer the funds from my ING online high yield savings to my ING Electric Orange checking account and arrange for payment of my credit cards.


7. This way, I not only avoid carrying cash but also earn a monthly interest float and also the purchase protection that credit cards issuers offer.


8. In addition, I use only fee-free premium credit cards, aka rewards cards. I avoid all credit cards that require me to pay an annual fee or credit cards with no rewards. In addition, I have no use for credit cards with low interest rates, since I pay off my monthly credit card bill in full.
   


9. Currently, I am using Citibank's Diamond Preferred Mastercard with Thank You Rewards and American Express' Blue Card with Membership Rewards. My Citibank Diamond Preferred Mastercard is my principal credit card. I normally redeem the Thank You points for statement credit. For a long time, I used this card regularly because it offered me 5 Thank You points for gas, drugstores and supermarkets. This would mean that I not only earn interest on my monthly float, I also get regular and bonus points that I redeem for statement credit, thereby lowering my monthly credit bill even further.
   


10. A few years ago, Citibank reduced that to double Thank You points for those categories. Early this year, Citibank eliminated those bonus points. If I get a better credit card deal, I would definitely consider switching to a different credit card.


11. I used to have a AAA Visa with Gas Rebate (then issued by MBNA). After Bank of America took over and got rid of the gas rebates, I stopped using my card and last year Bank of America unilaterally closed that card without notifying me. I only found out when I did a routine quarterly check on all my various dormant account and discovered that Bank of America closed my AAA credit card.


12. My Amex Blue card is my oldest credit card, dating all the way from my college days. This card started out as an Amex Blue credit card for students that Amex upgraded to a standard card once I graduated from college. I keep it alive to maintain my FICO credit score, since a portion of a person's FICO score is determined by length of credit history. After my bad experience with Bank of America closing my AAA credit card unilaterally without prior notice, I use my Amex Blue card once or twice a month to keep it alive.

If you have any good credit card tips, please let me know.