The CEO of Capital One made CRAZY money on your love of debt..."but Dave, credit cards are tools to be used wisely", I can hear the replies now. Apparently at least a few of us are not being Foolish with our tools....me, I'd rather bury my stupid tools in the back yard and only use what works well-cold hard CASH!!! I can even negotiate with the sales person to get a discount when I flash $100 bills in front of him and he is struggling to make quota. Try doing that with PLASTIC!

Capital One Financial (COF, news, msgs) Chairman and CEO Richard Fairbank earned $280 million, according to Salary.com's CompAnalyst

http://articles.moneycentral.msn.com/Investing/CompanyFocus/...

have a GREAT holiday weekend yall!

Dave

KB Home (KBH, news, msgs) Chairman and CEO Bruce Karatz made $164 million last year, or $630,516 a day.

By your logic, we should all stop buying houses because people make money building them.

So, what did you make last year on your CC?

Last year around $600, this year it will be over $1000.

- Megan

By your logic, we should all stop buying houses because people make money building them.

um, no...just pay CASH!



OK, seriously, on a house, putting your money/payments in things that go UP in value is not a bad plan. If that is your house, well OK then. I'd rather consider my house as a HOME, not an investment and actually OWN the place my FAMILY lives in...I like that sense/level of security...knowing that no one can come and take my home from me (of course as long as I keep the taxes paid)This is not for everyone, I get it, I understand that. I keep throwing it out there so maybe someone else might get to thinking it is actually possible to have a life WITHOUT having to make payments.

But to finance that late night cheese burger you had 5 years ago in college is just plain silly. To make payments on a big screen TV is NUTS! To make payments on your car while it depreciates is not smart. To borrow $23,000 to make what amounts to $80 something dollars is CRAZY!

But, to make steady "payments" into a mutual fund, savings account, or even on a reasonable house payment plan is smart.

That is all I am trying to say...

Dave

I'm up to about $233 in reward dollars in less than a year on my (going away now :-( ) Universal card. DH gets back about, hmm, $8 per statement (we mostly use my card) so call it $72 for him for the past year, for a household total of about $300 in about a year.


--Booa :-)

But, to make steady "payments" into a mutual fund, savings account, or even on a reasonable house payment plan is smart.

That is all I am trying to say...

I think people can and do think it's possible to have a life without having to make payments. I just think that running around telling them that credit cards are EVIL INSTRUMENTS means that you're just as controlled by CCs as when you are in debt.

Being afraid of the hammer is just as dumb as trying to use the hammer for everything.

..."but Dave, credit cards are tools to be used wisely",

Some people get hurt badly by tools.

foolazis

Wow! Megan - What card are you using?

Is it a card used for travel and entertainment through your company?

Curious.

d.

Last year, I received around 700 dollars in Cash Back from cards. I paid around 600 in interest (low apr balance cards, paying off debt). I had a lot of expenses last year like moving, so that raised my amount of cash back. This year, I am spending less and it shows as my cash back isn't as high.

I will admit that when I first tried to get in control of my debt, I had to stop using credit cards altogether. I used either cash or my atm card. Once I was figured out how to budget things in some manner, I was able to switch to a cash rewards card. I haven't paid interest on my daily expenses since then.

If you can't figure out how to control your spending, then I don't recommend using a credit card at all. If you can monitor your spending properly, then I would recommend a cash back rewards card.

The CEO of Capital One made CRAZY money on your love of debt...

The article doesn't bother to mention that the money Cap One's CEO made was mostly on stock options that he cashed in. Ever since Cap One was formed, the CEO has been taking most of his compensation in stock options, and now he's cashing in some of them. So this is 15 years or so of compensation. Yes, it's a lot of money, but he also made a lot of money for his stockholders. And if you hold any S&P 500 fund or ETF, among others, you are a stockholder.

Credit Cards ARE NOT evil in and of themselves. They are a tool that can be used for either building or destroying, just like hammers and saws. If people cannot use them constructively, they shouldn't use them. For people who can use them constructively, they are a great tool. Apparently, Lubbockdave, you have an issue with using them constructively, so DON'T USE THEM. But don't assume that nobody else can use them constructively.

AJ

Let's see. We cashed in our Driver's Edge rebates this year when DH bought a motorcycle. That was $1359 - but was admittedly accumulated over 3 years. I received about $200 cash back on another card. I used my Old Navy card when buying my kids' school clothes and received 20% off. I also used my Kohl's card when making some clothing purchases partway through the year and received 20% off. Most sales people I know are trying to make credit card quotas - so they'd rather see you use their store's credit card anyway. Some of them have some pretty good discounts with them.

Also, I've never paid a penny of interest or fee of any sort to a credit card company. I know that your next argument will be that I am spending more than I would if I used cash. Everything in my household is run on a strict budget and those budgets determine what we spend - not the method used to pay. We max out our 401(k) and Roth IRA and have a savings account that would easily cover 6 months - 1 year of unemployment. I don't think that our almost exclusive use of credit cards to make purchases is hindering our financial picture.

Yes, credit cards are dangerous for some people, but for me they really are a tool.

-4

"The huge gain by Mr. Fairbank, who is 55 years old and earned $56 million in 2004, reflects his move since 1997 to give up all salary, bonuses, retirement-plan contributions and most other forms of compensation in return for stock options or performance-based shares. During the 10-year period of the stock-option grants that Mr. Fairbank exercised last year, total shareholder return by Capital One was 802%, or about 25% on an annualized basis, according to the company's proxy filing."

When he stopped taking pay, I believe it was after the stock tanked 50% in three days.

Please google stock options if you're unfamiliar with their premise.

-MF

What card are you using?

Over a third of this year's money will be interest from the money to pay for the charges I put on a 0% balance transfer offer on a new card (it was quite a rare duck, absolutely no fees, so I charge them on the rewards cards and then transfer the balances.

Here are the other cards that give us good cash back:

- Citibank dividend. 5% on groceries, drugstore, and gas stations, 1% on everything else. We have two of these cards because of the cashback limit of $300.

- Discover card. up to 1% (tiered) on all purchases, an additional 4% on that month/season's "get more" reward. I have a lot of flexibility to clump my purchases when they're running a promotion (and this year I happened to have a lot of medical expenses when that was the bonus cashback category, so I maxed that reward.)

- Amazon. This gets me 2 or 3% cashback on amazon purchases, in cash

We have a couple other cards, but they're mostly used for other conveniences.

Is it a card used for travel and entertainment through your company?

Nope, for the most part these are not reimbursed expenses (some exceptions; I bought a thousand dollars worth of movie passes which I'll resell at face value to my friends. That's on a 1% cashback card, so that's ten dollars. Last year $800 of grocery expenses were reimbursed, so that was forty dollars. Things like that.)

We spend somewhere around $18,000 per year on credit cards (I don't track it that way, but that's the sum of the budget categories likely to be charged). We charge as many bills as possible (public radio membership, cable, DSL, cell phone, newspaper, charitable contributions, magazine subscriptions).

Honestly, if I were working I wouldn't spend my recreational time tracking which card offers which reward (I know that other people do so, it's just not how I would spend my time.) But it's one of the ways I cut our expenses.

- Megan

Apparently, Lubbockdave, you have an issue with using them constructively, so DON'T USE THEM. But don't assume that nobody else can use them constructively.

Never said I have a hard time using them constructively-In the past 15 years of using CC's I never missed making a payment, I never paid more than 10% interest, but I also never had any extra $$ to save, invest or have much fun-all my fun was financed-since paying off the CC's we have built a substantial E-fund, have 2 vacations scheduled we are paying cash for and a substantial next car fund started.

15 years of compensation equates to 280 million?? WOW, am I in the wrong profession or what! I'm not mad about it-good for him, but for the handfull of you folks who "make" money using your CC there are many more who pay 18 and 29% interest payments... there are enough in the latter group that the CEO can make 280 million in a year-WOW!


Credit Cards ARE NOT evil in and of themselves.
I don't know, but I have read somewhere that the borrower is servant to the lender ;)

Dave

OK so Mr. Fairbank (that a fake name?) worked hard for the money.

What about all the CSR satff who put up with all of us over the years?

What kind of compensation to they get? After all, they are in the trenches, doing the crap work no one else - including the Fairperson - would do.

Do you think he gave out bonuses to his employees or rewarded the shareholders?

: |

d.

We're kinda slacking so far this year. Between cash back and gift cards, we've only made around $250. Guess I'd better go drive around in circles so I can rack up more of that sweet, sweet 5% on gas purchases.

I made around 100 on my dividends car, 500 on my Thank You cards and 700 in interest from 0% BT

LubbockDave,

Last year I made over $1,000 dollars in interest on money I borrowed from credit cards at 0%. I also earned $200-300 in cash-back rewards - though I didn't cash those in.

- Joel

In the past 15 years of using CC's I never missed making a payment, I never paid more than 10% interest, but I also never had any extra $$ to save, invest or have much fun-all my fun was financed

This says to me you were not using cards constructively - you were using them to finance your lifestyle, not using them and paying them off every month to gain additional rewards.

since paying off the CC's we have built a substantial E-fund, have 2 vacations scheduled we are paying cash for and a substantial next car fund started.

But since you are not using CC's, you are still not using them constructively. I applaud that you have determined that it is difficult for you to use CC's constructively, so you do not use them.

I have read somewhere that the borrower is servant to the lender

Well, if they pay me well enough, I am willing to be a servant. There is nothing wrong with serving others. In fact, I read somewhere that serving others was a good thing to do.....

Serving others is how many people earn paychecks, including me - I work in the customer service industry.

AJ

What about all the CSR satff who put up with all of us over the years?

What kind of compensation to they get? After all, they are in the trenches, doing the crap work no one else - including the Fairperson - would do.

Do you think he gave out bonuses to his employees or rewarded the shareholders?

Actually, I had a boss who worked at Cap One prior to being my boss. He indicated that they were pretty good about giving stock options out to employees, including CSRs. The 401k matching was also initially in company stock, although at some point you could change it over to other investments if you wanted to. They also had a pretty good ESOP plan - 15% discount from the lowest of either the beginning or the end of the quarter, I think - or it may have been the low of the quarter. I just remember that when he described it, it was better than the company we were both working for at the time.

Therefore, the employees who were stockholders (most of them) and the stockholders were rewarded with the 25% annual returns on the stock that MFEaves mentioned, including the 'tech wreck' years.

AJ

Well, if they pay me well enough, I am willing to be a servant.

Really? See, I guess that is where you and I differ...I'd rather be the one being served, but that's just me ;)

Dave

Really? See, I guess that is where you and I differ...I'd rather be the one being served, but that's just me

I didn't say I disliked being the one served, but I don't see how, unless you are financially independent, you can NOT serve someone in this world. Since you spoke about getting a good start on a new car fund, I am assuming you are not FI and that you are working.

If you work, you have customers, or a boss, or subordinates that you serve. If you are the CEO of a company, you still serve the board and your company's customers.

That's why I said I was willing to be a servant, if they pay me enough.

Besides that, that book that you read about being a servant in also indicates that it's a good thing to serve others, doesn't it?

AJ

but I don't see how, unless you are financially independent, you can NOT serve someone in this world.

and this is my goal-financial independence, and yes, even then I will be "serving" someone...it depends on how you define servant I guess. I believe in Proverbs servant=slave...but the way you can also define servant is I serve the community by making significant charitable donations, which I will be in position to do when I become financially independent.

I guess it boil down to choices-you choose to "serve" (be a slave to) the CCC's-I choose not to so one day I may better serve my family and the community in which I live-

Dave

Lubbockdave,

aj485 wrote, but I don't see how, unless you are financially independent, you can NOT serve someone in this world.

To which you replied, and this is my goal-financial independence, and yes, even then I will be "serving" someone...it depends on how you define servant I guess. I believe in Proverbs servant=slave...but the way you can also define servant is I serve the community by making significant charitable donations, which I will be in position to do when I become financially independent.

I guess it boil down to choices-you choose to "serve" (be a slave to) the CCC's-I choose not to so one day I may better serve my family and the community in which I live-

So do you get her point now? It's not simply who you're serving - we all must serve others at times, even when we'd rather not. What's really important are the terms of service.

Credit card companies aren't evil in and of themselves - they're just large, publicly owned banks trying to make money by providing you a service. For most credit card users, the terms are not so onerous; but when you become over-leveraged or over-extended and breach the terms of the account, the credit card company's terms can become very onerous and punitive indeed.

But believe it or not, there are loopholes in their terms. Sure, they're trying to bait people into using their products with the hope that a good portion of them won't be able to repay the loan at the drop of a hat. But for those of us that can and otherwise meet their nominal terms, the relationship can actually be quite profitable...

- Joel
Happy to be serving as aj485's Cabana Boy... :-)

I guess it boil down to choices-you choose to "serve" (be a slave to) the CCC's-I choose not to so one day I may better serve my family and the community in which I live-

Dave, I respect and admire your opinions generally and your strength of mind. I'm not sure if its intentional or not, but I think the above kind of remark is what gets to people. Its clearly a twist of terms that does not match the topic being discussed.

In this case, we are discussing 'serving' the credit card companies in such a way that it allows you to make a profit and also better server our families and communities - or just ourselves depending on properties.

You clearly imply through the remark I quoted above that people are paying the CCCs and thereby hurting themselves. This is clearly a mischaracterization of the discussion to prove your point, and as someone who uses credit cards for the benefits and flat out cash that I personally receive, its at least mildly insulting.


Don't get me wrong, I respect and applaud your understanding your influences, limits, and making your own choices. The world would indeed be a better place if more people made those choices. But that doesn't make it the right or correct choice for everyone. While I believe you generally understand that, twisting the point to basically insult people and imply that we're making ourselves slaves, when in fact we're doing nothing but making the best choices for ourself that actually earn us cold hard cash, is at least mildly insulting.

Deltaone81,

no insult is, was intented and if it comes across as such I do apologize. I felt like the poster was twisting the meaning of the word servant and twisting the manner in which I believe it was intended. I felt like clarification of the intent of the term was necessary. As I said before, I believe servant in Proverbs is the same as slave. So, if my reply came across as insulting I apologize.

I guess the point of view I am coming from is much more like the folks here who post regular updates about their debt snowball progress, since I was there not too long ago. What helped to motivate me to pay off as much as I did is realizing how much control I was giving up to the CC companies, how much of my financial freedom/future I was giving away to buy stuff I probably did not need, or maybe I did need "right now" with the thought that "once I get out of school I'll pay it off later". I can even remember a time when I felt so hopelees after looking at the pile of debt we had accrued once I started working that I thought the only way I'd ever pay all this stuff off is if a rich relative dies and leaves us a substantial inheritance...a fact I reluctantly admit and am very ashamed of.

Anyway, I can see where those of you who use CC's to get your "rewards" or free bonus miles find my point of view difficult to understand or accept-you have control of your situation and you are using your tools in a way that is of some benefit to you, and I applaud you for that. To me it seems like you folks are playing with matches, and I hope you do not end up burning your houses down over the course of time. Just go back and look at all the "snowball" updates that litter the boards and think about how they got there...probably not all at once. I never knew anyone who became financially independent on CC reward programs, but if playing the games with the CC's makes you happy, I say go for it. It makes me smile to read how Megan and the others walk away with $100's or $1000's yearly on those programs, but there HAS TO BE so many more that end up paying 18 to 29% interest rates, late fee's etc... And the way the CCC's change the rules at the drop of a hat is shamefull. You also can read about how some folks are having their CC's closed because the CCC's are not making a profit on them or the users are costing the CCC's $$. They have the power to do so-they are a for profit business. I just don't like the idea of doing business with these kinds of folks-they pretty much hold all the power. So I choose not to. If you want to keep playing the game, by all means do so.

As I said earlier, if what I said came across insulting, I am sorry-

now off to the BBQ!

Dave

I never knew anyone who became financially independent on CC reward programs, but if playing the games with the CC's makes you happy, I say go for it.

Greetings, Dave, I am in this category. I have been a cardholder for over 25 years and have a FICO score northward of 800. In my entire credit life never once have I been late with a payment. In fact, I used reward cards (most specifically 0% balance transfer offers) to truly become financially independent by leveraging student loan debt, and mortgage debt, onto offers that let me pay back what I owed by saving literally thousands of dollars worth of interest that I would otherwise have had to pay on interest-generating loans if I did not have the option to pay off the exact same amounts under a 0% arrangement. I have done this at least 3 times, for at least $90,000 total and somewhere I calculated that on one transaction alone, I saved well over $2000 in interest owed. Given I've done this three times in the past 4 years, I would say by now that I ended up saving over $6000 in interest NOT OWED. My student loans have been paid off and I now own a home (whose downpayment was made by a 0% credit card balance transfer, paid off before the promo rate expired) which has appreciated by over 40%, conservatively. (Yes, I have a mortgage but am paying it down at an accelerated rate.) So these financial outcomes ARE a cornerstone of my financial independence, and they were fostered by judicious credit card use.


It makes me smile to read how Megan and the others walk away with $100's or $1000's yearly on those programs, but there HAS TO BE so many more that end up paying 18 to 29% interest rates, late fee's etc... And the way the CCC's change the rules at the drop of a hat is shamefull. You also can read about how some folks are having their CC's closed because the CCC's are not making a profit on them or the users are costing the CCC's $$. They have the power to do so-they are a for profit business.

The key to not becoming one of these statistics is NOT to allow credit card usage to overtake. I know you are very wary of card use because this was true of you in the past. But some of us have never been bitten because we never went "into the jaws" in the first place. For instance, 2gifts writes how she has never paid a penny of interest on her cards since she makes it a policy never to charge anything she doesn't already have the money for sitting in savings. That kind of card use really does turn the cards into tools. It is difficult to be a slave (or a servant) to the cards when one is not dependent on them, but merely uses them for convenience or for an added benefit not equally available by using cash (cash back or purchase protection, for instance. I would not want to rent a car with a cash deposit and have to pay extra for accident insurance when my credit card provides it at no charge to me AND pays me a bonus for the transaction). What do I care if my creditor wants to raise the interest rate on the card if I never pay interest anyway? Perhaps the creditors are MY slaves; um, servants. It certainly seems it has been that way for me for 25 or more years now.

I just don't like the idea of doing business with these kinds of folks-they pretty much hold all the power. So I choose not to. If you want to keep playing the game, by all means do so.

Seattle Pioneer agrees with you - he is a millionaire who opts not to use credit cards (nor accept them in his furnace repair business) because he also disagrees with the business tactics they employ. And I completely agree that anyone who feels he should not use credit cards is right about that. Those like me, however, who have learned how to harness their power do reap a definite benefit from the leverage. I don't feel insulted by your comments as does DeltaOne81, but I do feel that our experience with credit cards has been diametrically opposite. I have certainly saved my own dollars and have not depended on credit card offers to do my saving for me, but it sure is sweet when use of these offers turbocharges my efforts to save, and to acquire assets that would have been much more expensive to obtain without the advantages of credit card proceeds working on my behalf, under my direction, by scrupulously adhering to the terms and conditions.

xraymd
never once late, never have run afoul and calculably more financially secure because of the card offers put to good use

It is difficult to be a slave (or a servant) to the cards when one is not dependent on them, but merely uses them for convenience or for an added benefit not equally available by using cash (cash back or purchase protection, for instance.

This turns out to improve the daily grind (in a small way) even when purchasing gas. I used to pay cash, and would fill the tank, then go in and pay. But with gas prices shooting upwards, more and more stations are insisting that you pay first, then gas up. (And with good reason: a lot of people gassed up and fled). It's much, much simpler to push the card in and fill the tank than it is to make sure how much money I am actually carrying, hand over more than enough to fill the tank, fill the tank, then go in and get my change.

I have the money in my account, the bill will be paid when it comes, and I don't have to hit the ATM before I go anywhere. If I happen to see something that if the perfect present for someone (at a very good price) I can buy it without worrying about how much money I have on me. (I sometimes shop in places that refuse to accept checks and aren't set up to take debit cards).

There are times when using cash makes you more of a servant than the use of a credit card does. That's why I admire those who are struggling through a payoff period without using the cards.

Nancy

no insult is, was intented and if it comes across as such I do apologize.

Apology accepted, if it was even really needed. Its just that I know people take your comments strongly sometimes, and I felt that one strongly, so I felt I needed to describe why so that perhaps we all could find a better understanding.


I guess the point of view I am coming from is much more like the folks here who post regular updates about their debt snowball progress, since I was there not too long ago. What helped to motivate me to pay off as much as I did is realizing how much control I was giving up to the CC companies, how much of my financial freedom/future I was giving away to buy stuff I probably did not need, or maybe I did need "right now" with the thought that "once I get out of school I'll pay it off later". I can even remember a time when I felt so hopelees after looking at the pile of debt we had accrued once I started working that I thought the only way I'd ever pay all this stuff off is if a rich relative dies and leaves us a substantial inheritance...a fact I reluctantly admit and am very ashamed of.

And that's why I admire you for your strength of will to deal with these things - to admit them to yourself and others. Its very important for debt paydown and I would absolutely advise that those in that stage not charge a single thing ever. You are to be heartily commending for understanding what effects you and how it does you.


Anyway, I can see where those of you who use CC's to get your "rewards" or free bonus miles find my point of view difficult to understand or accept-you have control of your situation and you are using your tools in a way that is of some benefit to you, and I applaud you for that. To me it seems like you folks are playing with matches, and I hope you do not end up burning your houses down over the course of time.

That's basically all I was asking - which is what those who disagreed weren't seeing from you. An acknowledgement that it is possible to have these things under control if you have an understanding of the way they can be misused. A credit card is just a tool. Some people smack their fingers with it and need to go to the hospital... others just build stuff quicker.

Frankly, I think your 'house burn down' example is a bit too far - not on purpose though. You realize those of us who may carry 0% balances have the cash on hand, on the side, in addition to the eFund. If *anything* happens, we can pay it off overnight. Sure, we'd be a little worse for the wear, but its more along the lines of a broken toaster than a house burnt down.

xraymd,

did you really become financially independent on your rewards programs on your CC's? Or was it that fantastic income a xraymd can generate and you used CC's to decrease the interest you were paying from time to time? Just curious...

Dave

did you really become financially independent on your rewards programs on your CC's? Or was it that fantastic income a xraymd can generate and you used CC's to decrease the interest you were paying from time to time? Just curious...

Greetings, Dave, it was a combination of factors. First of all, I am not actually an xray MD since I gave up radiology to enter primary care. And as such, my income is healthy but BY NO MEANS fantastic, and I am certain that while I earn more than many, it might surprise or even shock people to learn how low my salary really is as a physician. Ready? - up until last November, my salary was $125K a year. Now it is $93,750 a year. Not gonna be making any millions of dollars any time soon, especially since I am almost 50 years old and had somewhere in the neighborhood of $140K of student loans to dig out from. Yep, my loans exceeded my salary by a fair margin!

That said, I started on the road to financial solvency even before I was earning a doctor's salary. The first year that I owed $140K was also the first year of my residency, and my income as shown up on the bottom line for my 1040 tax return that year was a (don't blink) gigantic $15,000. No, I did NOT misplace a "0"! Residency starts July 1st, so for the first 6 months of that year, I had earnings of $0 (my salary as a resident was $30,000 prorated that first year). The top salary I earned by my 4th year of residency was $39,000. And not only was I well on my way towards commencing student loan payback, I also made it a point to max out my Roth in each of the years prior to starting practice.

These are some of the things that helped: I lived with my fiance in a cozy townhome whose rent was $650 per month and the rent never went up. For the first year, I did not help pay the rent. But by the last year of residency, I most definitely did since his own work was not steady and he was out of work for some stretches of time. So we more or less traded supporting one another. Another thing, which I have mentioned time and again, is that I continue to drive my 1992 Toyota Tercel, which costs me nearly next to nothing to keep running (insurance and license costs are very low, and maintenance is a budget line item so I am always saving in advance for predictable - and unpredictable - car maintenance and car repairs of which there have been mercifully few). A third thing is that I am not in the habit of wanting to acquire expensive consumer goods. I watch my TV from 1987 which works perfectly well, for instance. If ever we get a big screen or flat screen TV it will be paid for out of money pre-saved.

Also, when it came time to buy a house, we scoured the city for well-kept secret neighborhoods where the price was low compared to value. In 2004, we purchased our 1700 square foot home for $153,900 (listed at $154,900). We were the first people to see it once it was on the market (for all of 2 hours!) and the sellers had put a huge amount of work into it to get it ready to sell. We knew at once that this was it and lost no time making an offer. It was a complete win-win situation since the sellers were about to be first-time parents and needed to be moving to Hawaii so the wife could be taken care of by her mother who lived there. The timelines all matched up and they had no incentive to try to hold out for a higher price because we met all of their terms to the letter. The house has since appreciated to well north of $230,000. My high income did not help specifically here though the down payment was financed on a 0% credit card - what did help was to have large credit lines but I must tell you, those PREDATED my doctor's salary since I have had excellent credit for years before I ever needed to harness it, and I was being granted credit line increases essentially automatically even during medical school years when I had no income whatsoever and relied on my student loans for my living expenses. I will also tell you that had this house not come along when it did, we may very well still have been renting our $650/mo townhome since the landlord had promised never to raise the rent so long as we lived there (and he stuck to his word since we were there for almost 7 years) and since we had our eye on a townhome to purchase for only $131,000 before finding our house. But that townhome fell through due to an issue with mold intrusion that we felt was not remediable and we were not going to get stuck with a bad deal JUST to be buying a house. Of course, on my doctor's salary, the bank would have fronted us the money for a mortgage for a home probably 4-5 times what the one we bought cost, but I did not care what the bank thought I could afford. It mattered only what *I* thought I could afford, and our neighborhood is a well-kept, modest enclave and I could not be prouder nor happier to be a part of it.

What having a large salary has allowed me to do is to ascertain that I can pay back large lines of credit by the promo expiration since I have always chosen to live on a fraction of what I earn and to save the rest. In fact, the first dollars I earn are earmarked for savings right off the top, and they are taken out of my paycheck even before they reach my bank. That's what my retirement savings are all about. But the same principal holds for even lower incomes - if one does the calculation correctly, the advantages accrue of taking out a 0% loan to offset higher interest rate debt, even if the numbers may be smaller than mine were. And there are plenty others whose numbers are quite a bit larger than mine were who still have done well by following the rules.

So I can't say that having some earning power has not helped, for it has, but I began winnowing down on my interest rates well before I had any such salary (I've only been in practice since 2003) and the biggest key to being successful at this is to keep my credit rating pristine, hew to the rules with 100% fidelity, know what my earning power is relative to what I can pay back, live below my means and to recognize when an opportunity to turn these promotions to my advantage really does exist. Notice that I have never agreed to accept terms other than 0% (and others here may have; I am just allergic to paying interest) AND I do not accept balance transfer fees and would decline any offer that made them mandatory - these are just my own personal boundaries. But indeed, as I have written previously, the major purpose of accepting these offers was to replace interest-generating debt with debt that did NOT generate interest so long as I could have it paid back by the deadline and so long as I was certain that my cash flow would cover it. I also have disability insurance for income interruption as well as could tap retirement savings for the most dire of emergencies - though I have not come anywhere remotely close to needing to invoke either of these two protections. Overall, I've just decided that I don't wish to be beholden to consumption that does not bring me the satisfaction that putting myself squarely in the black does. That to me is what freedom is all about and, indeed, these offers have helped to secure my burgeoning freedom.

xraymd

did you really become financially independent on your rewards programs on your CC's? Or was it that fantastic income a xraymd can generate and you used CC's to decrease the interest you were paying from time to time? Just curious...


You weren't addressing me, but I thought I'd throw my two cents in. I think you have this backwards. Credit card rewards don't lead to financial independence, but people who may be headed towards financial independence often choose to use credit cards with rewards because it's adding a little at a time to what they already have.

It sort of like moving your bank account because you can get a sliver more interest somewhere else. Those few pennies are still better in your pocket than in their pocket, and the pennies do add up.

I think using a rewards credit card that is paid off in full each month is just another habit or tool that people who manage their money well may choose to use. I can still remember being a kid and going shopping with my parents to the local Ann & Hope. I don't know if those are around anymore, but they were a discount chain sort of like Wal-mart or K-mart. I can remember my dad commenting one time that my mom had met some wealthy person shopping there, and dad noted that people with money don't waste it and tend to shop for the best prices - that's how they keep their money. They don't spend it wastefully.

I think using a credit card that offers rewards back is another thing that's not only not wasteful because you're not paying any interest, but you're also getting something back on what you're spending anyway.

I find it interesting that I do know a lot of independently wealthy people who have way more money than I can even imagine, but they're spending habits didn't change a lot after getting all that money. Yes, they buy more luxuries now like having a cleaning lady, but that's not universally true, and the one thing I notice is that they do watch how they spend their money and tend to shop at places like Marshall's, TJ Max, and BJ's, where I think a lot of folks would assume that someone with that much money would shop at the higher end stores.

I think some of it, though, has to do with the fact that most of us started our really poor, and we remember our roots and how much work was required to reach some level of success.

I think some LBYM habits are ingrained, and I think those habits probably show up in a good percentage of people who are financially independent. I believe the research noted in "The Millionaire Next Door" actually reinforces this notion.

2gifts,

no, that is exactly the point I was trying to make-financial independence does not come directly from using a rewards card. If you are financially independent and a rewards card played some small role in that, OK then. But xraymd even as a gp still makes more than twice the average family income of around $40k. I would venture to guess that this had more to do with her financial independence than did her use of a rewards card.

Of course she probably would be pretty financially independent no matter what her salary was--prudent use of the resources available have the greatest influence on the outcome, in my opinion. I know some doc's make 4x xray's salary and have not much to show for it. I have a father in law investment guru who has a lot of toys, several houses in florida, NC, and alabama but he does not OWN much really. He is a heart attack away from a financial disaster...

Dave

no, that is exactly the point I was trying to make-financial independence does not come directly from using a rewards card.

I don't recall anyone ever saying that using rewards cards leads to financial independence. You're the only one I recall asking about that and trying to make a correlation. I was simply pointing out that it's all the little things and how they add up as well as managing your money that I think leads to financial independence.

I know some doc's make 4x xray's salary and have not much to show for it. I have a father in law investment guru who has a lot of toys, several houses in florida, NC, and alabama but he does not OWN much really. He is a heart attack away from a financial disaster...


Have you read "The Millionaire Next Door?" If not, I highly recommend it. The book specifically talks about doctors and how a lot of them resemble what you've noted.

I think you'd find it an interesting read, and it goes really fast. Check out your local library for it.

I don't recall anyone ever saying that using rewards cards leads to financial independence.

this was the origional question I asked-yep, read the book and LOVED IT-kind of what gave me hope when I had none.

Also, KUDO'S to xraymd for the long and detailed post-

Dave

Ok, if you've read "The Millionaire Next Door," then you know how a lot of us behave. What's stopping you from doing the same behavior and reaching financial independence on your own?

I notice that you've talked about things like paying cash for a house, or at least paying that off completely in some other posts. What do you do for the rest of your financial house? What are your plans for achieving financial independence?

I, personally, don't like having all my eggs in one basket. I also understand that time is on your side when you're young and starting out, as I believe you are. Here's what we did to get to where we are today, and I'm thinking that perhaps there are some tidbits that could help you as well.

- First, we have always had a plan, and it's included goals right up to retirement starting from when we first got married in our mid-20's. For us, that meant knowing when we'd buy our first house, and how long we planned to live it in until we could get our own single family house instead of staying in an apartment. It meant buying our house in a town that has education as a top priority and is family-friendly because we wanted that sort of place to raise the children. It meant knowing that we eventually wanted children, and saving from even before we had them for things like college, though I admit that we used some of that savings to fund our expenses for those 5 years of infertility treatments just to get the kids. But we've always had a plan, and DH and I have always been on the same page. We've talked about our plan fairly frequently over the years, and made some adjustments, but I have to say that we've mostly stuck to the plan.

- We have always LBYM'd. When we were first married, we did pay cash for everything, but that was right about the time rewards credit cards were coming out, so we didn't use those yet. We also always lived on one paycheck and banked DH's check. My dad advised us to do that and live on the smaller check, but we weren't able to do that [we live in MA, and were in Boston during the early years], so we lived on my check instead of DH's. Dad said that would help us build savings to reach our goals, and not have us living on the edge, one paycheck from the street. Plus, it turned out that DH spent a lot of time unemployed and switched careers twice, so living on one check ended up giving us incredible flexibility as well as financial security. It also let DH find the job that was right for him, which made both of us happier.

- We have always put something aside for us first. In the beginning, I was just saving to build up what I thought of as a slush fund, but in reality, it was what people today refer to as an emergency fund, so that money tended to go into the bank. I joined an investment club at the urging of my brother when I was 22 and fresh out of college, so I learned about investing. It wasn't long before we adjusted our savings strategy and started putting $25 a month away into a DRP stock. That got us started, and then slowly I added to it so that a year later, I had us at $75 per month because I was investing in 3 stocks. That was in 1986, and I've increased our investing savings at least once annually ever since so that we put away a significant amount monthly now. The point is that it doesn't matter how much you have to invest - start small, but start, so in your case, instead of just focusing on prepaying the mortgage, I'd put some of that away into stock, and let it grow for many years. Oh, my very first stock that I still own has returned something just over 15% annually every year since 1986.

- We've never purchased anything other than the house with credit. That means we've saved up cash to buy everything including our vehicles. We do use our credit card extensively to get the rewards, but as I've said before, we won't buy anything that isn't in the budget and for which the money is already sitting in the bank. Period. This has been a key thing for us over the years, I think, because all our money has gone towards our own goals, and nothing [except the mortgage] has been used to service debt or pay interest. I did have a very small student loan, but it was at 3% in the days of 8-10% loans, and I paid $90 every 3 months, so it made no financial sense to pay it early. I took the 10 years to pay that off, and again, followed dad's advice that it was cheap money, and I was better off to have my money in the bank earning more interest than to pay that early.

Anyhow, it seems to me that you can and should start on your own road to financial independence. Start small, maybe with $25 a month, but get started. You're young and you have time on your side. If you do that, you'll be surprised at how quickly you start to reach your own goals.

xraymd,

I thank you for your very detailed post.

I think it reiterates the same point made time and again by Thomas Stanley (author of The Millionaire Next Door & The Millionaire Mind): it really doesn't matter that you make a lot of money. Plenty of people are able to fritter away HUGE incomes without having any savings to show for it.

As you state:
Living below your means AND setting aside your savings before even considering how much you have to spend.

Thanks!

Jim

I guess the point of view I am coming from is much more like the folks here who post regular updates about their debt snowball progress, since I was there not too long ago. What helped to motivate me to pay off as much as I did is realizing how much control I was giving up to the CC companies, how much of my financial freedom/future I was giving away to buy stuff I probably did not need, or maybe I did need "right now" with the thought that "once I get out of school I'll pay it off later". I can even remember a time when I felt so hopelees after looking at the pile of debt we had accrued once I started working that I thought the only way I'd ever pay all this stuff off is if a rich relative dies and leaves us a substantial inheritance...a fact I reluctantly admit and am very ashamed of.

I came from a different background where I had no money, lived very simply on very little money until I graduated from college. I left college with money in hand and no debt (other than student loans), then I realized I had a job that paid good money (more than my parents combined) and it was time to spend. It took me almost a year to realize that my income couldn't match my expenses. The debt I accrued wasn't accrued on cash back/rewards cards thinking that I was at least getting something for my spending. The debt I accrued was on plain old credit cards. It took me a few years to actually figure out what I needed to do to get out of debt and the process has taken some refinement.

I think about my purchases more now than ever. I recently bought myself something (price: ~50 dollars) that took me 3 months to figure out if I really wanted it. So in the past, CCs may have triggered wayward spending within me. Today, as I recognize my goals and needs, it is no longer true. That being said, it also depends on the person and some people are better without credit cards. Others can use them to their advantage.

me, I'd rather bury my stupid tools in the back yard and only use what works well-cold hard CASH!!!

Then use cash.

There is no need to imply that people who do use their cadrs wisely are either deluded or lying.

Really, isn't the air mighty thin up there on your high horse?

--B+C

I guess it boil down to choices-you choose to "serve" (be a slave to) the CCC's-I choose not to so one day I may better serve my family and the community in which I live-

I guess I fail to see how exactly I am a slave to the CCC's if I can choose whether or not to use their services.

And BTW, my own savings and net worth are quite healthy, thankyouverymuch.

I just don't see how this is a question of morality rather than simply a question of mathematics.

--B+C

no, that is exactly the point I was trying to make-financial independence does not come directly from using a rewards card. If you are financially independent and a rewards card played some small role in that, OK then. But xraymd even as a gp still makes more than twice the average family income of around $40k. I would venture to guess that this had more to do with her financial independence than did her use of a rewards card.

Sure, intelligent use of a rewards card is, by itself, neither sufficint nor necessary for financial independence. Nor is reusing plastic bags, tearing dryer sheets in half, combining errands, buying clothes in thrift stores, or any of a multitude of other strategies for lowering expenses.

However, each one helps. To dismiss any one strategy simply because it, by itself, does not grant financial independence is just plain foolish.

--B+C

Oh, and FTR, I don't actually track the amount we get back (except to keep an eye on hitting any rebate limits). Rather, I track the amount we spend. I just deduct the amount we get back from what we spend to get a net spending amount.

Our budget, such as it is, is based on this net (after-rebate) number.

--B+C

What do you do for the rest of your financial house? What are your plans for achieving financial independence?

Since we have no loan payments to make other than our house and have a fully funded emergency fund here is what we are working on:

1. First thing is putting 15% to 20% aside into Roth Ira's. when we limit out on the roth's we are gonna put the same amounts into a traditional IRA. (we are paid bi-weekly so the 15% is when we have to set $$ aside to make a house payment)

2. We sock another 10% to 15% into a separate savings acct for vacations, cash for our next vehicle purchase, and a fat down payment on our next house.


3. Another 10% goes into a taxable investment account.

We have substantial college savings funded by grandma, but by the time the kids turn 5 we will begin contributions to a ESA as well. We are also considering cutting the 10% into the taxable investment acct in 1/2 and putting that $$ into the ESA since the ESA has some tax benefits-money grows tax free.

After that we pay regular bills and sometimes a little extra on the house, but since this house will not be ours in 2 years or less (we plan to move-and our down payment will be in cash out of the separate savings acct and will be more than 20% of the house mortgage) we don't focus a lot of attention on paying it off right now. If there is any way I could talk my wife into staying out here another 5 years, then we would with out a doubt have enough save up to pay cash for our next house, but I think she has had enough of West Texas. So, we will be slave to the mortgage company for a few years longer, but our house will be paid off in the next 5-7 years reguardless of where we move to. I am also trying to plant the seed that 2gifts sent us-you know, buying duplex or multi-family dwelling and live there while the renters make the house payment, but she is not real keen on the idea yet. Once I run some numbers and show her how much more left over we might have if all goes well, or even if it does not, she might be persuaded ;)!After that our income will be mostly OURS! (excpet for the usual taxes, bills, and such). We will be a couple of late 30-early 40 somethings with no debt and another 20-25 years before reaching retirement age!

I think we are gonna be OK, but if you good folks see some holes, punch away!

Dave

but if you good folks see some holes, punch away!

Well, since you asked - you could be making your credit cards work for you...

First thing is putting 15% to 20% aside into Roth Ira's. when we limit out on the roth's we are gonna put the same amounts into a traditional IRA.

You mean when your salary is too great to allow contributions to the Roth IRA? Personally I wouldn't do non-deductible contributions, but that's just me.

If you mean put $4000 into a Roth and $4000 into a traditional in the same year, sorry, that's not how it works.

If you don't already I recommend reading the Tax Strategies board; it's a great place to learn about the tax ramifications of things.

- Megan

If you mean put $4000 into a Roth and $4000 into a traditional in the same year, sorry, that's not how it works...Personally I wouldn't do non-deductible contributions, but that's just me.




no, I mean we Max out our Roth IRA's and the we continue to make the same 15 to 20% contributions to a traditional IRA until the next year rolls around and then we go back to maxing out the Roth's...and I'd rather pay the taxes now when the contribution is $4k/year than pay the taxes on distributions on what will end up being a couple of million...but that is just me ;)




Dave

Well, since you asked - you could be making your credit cards work for you...

How would I get a CC to work for me? I am already saving or investing no less than 35% and up to 45% of my income. Why even bother? If something comes up we need, we will buy it, or we will go with out for a while. For the life of me I can't come up with any circumstance where we wil just absolutely HAVE TO use a CC? Nor can I think of any way to use a CC that will benefit us enough to take the risk of using a CC, but if you got some suggestions, I am listening...

Dave

I think of any way to use a CC that will benefit us enough to take the risk of using a CC, but if you got some suggestions, I am listening...

I haven't read every post in this thread, and I think most of the benefits of CC use have been gone over, but I "earn" $10 to $30 or more a month in cash-back "dividends" (which are paid out in the form of a check for cash anytime I want as long as they can write a check for > $50. I also get a record of my spending with no effort on my part and I get to delay payment until one convenient time per month and so I earn a little interest as my money sits in my checking account a little longer. I earn a credit record (FICO) that lowers my auto insurance premiums as well as the interest rates I might have to pay if I ever have to borrow money.

Even if I had to pay for all of this, it would probably be worth a at least a little something, but they pay me.

The only risk I see in any of this is that I might be late with a CC payment and they get to charge me a little bit one month. That hasn't happened to me in years and years, and I don't mind that risk. I suppose, if you are a credit card-aholic and you fall off the wagon, you could end up hundreds of thousands of dollars in debt and then bankrupt, and if that is indeed your situation, you are wise to avoid using credit cards and to be commended for your strength of character in not doing so. Otherwise, it seems to me that the risk of using credit cards is about equal to the risk of getting out of bed in the morning.

OS

no, I mean we Max out our Roth IRA's and the we continue to make the same 15 to 20% contributions to a traditional IRA until the next year rolls around and then we go back to maxing out the Roth's...and I'd rather pay the taxes now when the contribution is $4k/year than pay the taxes on distributions on what will end up being a couple of million...but that is just me ;)

What NaggingFool said re: IRAs. How are you coming up with this?

If you and your spouse max your Roths at $8K total in 2006, you're done with IRAs for the year. You can then contribute to whatever workplace savings plan(s) (401k, 403b) you have to the federal or employer maximum, but you can't max one variety of IRA and then save to another in the same tax year.

My mistake-should have read SEPP's...That is what I get for trying to type with little to no sleep-

Dave

How would I get a CC to work for me? I am already saving or investing no less than 35% and up to 45% of my income. Why even bother? If something comes up we need, we will buy it, or we will go with out for a while. For the life of me I can't come up with any circumstance where we wil just absolutely HAVE TO use a CC? Nor can I think of any way to use a CC that will benefit us enough to take the risk of using a CC, but if you got some suggestions, I am listening...

I should know better than to enter this discussion but...

I am one of those who doesn't see credit card use as 'taking a risk'. I've never had a problem with credit card debt so getting in over my head is a non-issue for me. Interest rates, late fees, and overlimit fees don't matter at all to me. I don't have any idea how much my credit card companies charge for such things.

Do you ever need to book a flight? Make a hotel reservation? Rent a car? Buy anything online? These are just a few examples of situations where a credit card might be necessary. I don't know - I've never tried to do any of the above without one.

I get occasional cashback awards from my Discover card, but the my main purpose for using a credit card for everything possible is the frequent flier miles. DH and I like to travel. Sometimes we use the miles for international travel that we plan well in advance; sometimes we do spur-of-the-moment domestic trips. Oh sure - we could pay for these flights with actual money but the cost would be pretty significant.

Using credit cards where possible is a system that works very well for DH and me. I don't think anyone here has ever claimed that it's the key to financial independence. It's just another tool.

FTR, DH and I also save a large percentage of our income. We could pay cash whenever we want but we choose not to...

Do you ever need to book a flight? Make a hotel reservation? Rent a car? Buy anything online? These are just a few examples of situations where a credit card might be necessary. I don't know - I've never tried to do any of the above without one.

I can do all the above with a debit card-no need for credit-and yes, I know they "freeze" a larger amount in the acct, but with the balances we carry it never affects us. Come to think of it, I am pretty sure our debit card has a cash back program as well-I'll have to check into it though-never paid that much attention to it, but I do think we get a small deposit each month on cash back rewards...


but still no need for CC's...


Dave

I should know better than to enter this discussion but...

and don't be scared to speak up-;) You still have not shown me how I can get CC's to work for me though-

Dave

Looks like a good plan to me. I do have a couple of comments, though.

1. First thing is putting 15% to 20% aside into Roth Ira's. when we limit out on the roth's we are gonna put the same amounts into a traditional IRA. (we are paid bi-weekly so the 15% is when we have to set $$ aside to make a house payment)


I didn't think you could max out a Roth and still contribute to a traditional IRA. I thought it was a maximum contribution of $4000 to an IRA, but you could choose which type. I'm not sure on this, but I think it bears checking. If it does turn out like I'm thinking, I'd just recommend reallocating that savings to a taxable account that's earmarked as retirement money.

We have substantial college savings funded by grandma, but by the time the kids turn 5 we will begin contributions to a ESA as well. We are also considering cutting the 10% into the taxable investment acct in 1/2 and putting that $$ into the ESA since the ESA has some tax benefits-money grows tax free.


I'd fully fund retirement accounts first before saving for college. Remember that the kids can borrow to fund their college education. You cannot borrow to fund your retirement.

Also, it sounds like you have more than one child, so that will give you some flexibility if the first one doesn't go to college or doesn't spend the money and you can use it for the other child(ren). In my case, I've got twins, and I only realistically expect one child to go to college, though I'll pay for both of them to go, and I'm saving with the assumption that both will go, but having twins adds another level of complexity to how I save for college that you most likely don't have to deal with.

Other than that, I think you have given it lots of thought and have a good plan.

I can do all the above with a debit card-no need for credit

A-ha! Now I see where you're coming from. Debit cards vs credit cards, am I right?

I don't like debit cards and I don't use them. They don't even exist in 'bthomas world'. The pros and cons of debit cards have been discussed ad nauseum on other parts of this board so I won't go into my reasons but there are quite a few...

I have actually had to request that my bank remove the debit card capabilities from my ATM card.

and don't be scared to speak up-;) You still have not shown me how I can get CC's to work for me though

My credit cards work for me in that they accumulate frequent flier miles for me to take trips that I might otherwise not. Or would cost me quite a bit more.

That's the main reason I charge everything I can.

and don't be scared to speak up-;) You still have not shown me how I can get CC's to work for me though-

hit enter too soon-sorry...

what I want to know is how Megan makes thousands of dollars with never paying interest or annual fees. What I am most interested in hearing is how xraymd used a 0% CC to make a down payment on her house and if she had the cash in hand, why this was significantly better than just paying cash? Also, at what point does the 2% interest cash advance become worthwhile to take and put in a 5% savings acct...

Dave

2gifts,
I appreciate the reply-that is the plan-to max out the retirement savings first, then put what we can into college savings-might even plan to cash flow some of it since the house should be paid off by then ;)

Thanks

Dave

How would I get a CC to work for me? I am already saving or investing no less than 35% and up to 45% of my income. Why even bother?

While my wife was still working, we were saving similar amounts of our income. We didn't turn up our noses at the rebates.

FWIW,
B+C

I can do all the above with a debit card-no need for credit-and yes, I know they "freeze" a larger amount in the acct, but with the balances we carry it never affects us.

For someone without the propensity to overspend their means, I would consider a debit card to be much riskier than a credit card, but YMMV.

--B+C

what I want to know is how Megan makes thousands of dollars with never paying interest or annual fees. What I am most interested in hearing is how xraymd used a 0% CC to make a down payment on her house and if she had the cash in hand, why this was significantly better than just paying cash? Also, at what point does the 2% interest cash advance become worthwhile to take and put in a 5% savings acct...

These are all just questions of arithmetic. You could work them out yourself if you were so inclined.

--B+C

and don't be scared to speak up-;) You still have not shown me how I can get CC's to work for me though-

Hi Dave,

I've been enjoying this thread.

The fact that you've decided that credit cards don't play a part in your financial life is perfectly fine. Not everyone feels comfortable using credit cards, and that's what it's all about--comfort level. As we discuss here often, people need to find what works for them.

For many, credit cards have proven a useful tool. Used Foolishly, they build healthy, strong credit ratings and offer financial perks. Used UnFoolishly, they can lead to financial hardship. It's all in how we use them.

Personally, I'm not as comfortable as you are with debit cards, and I certainly don't want to feel the need to carry lots of cash, so credit cards work well for my financial life. Instead of a cash back reward, we choose to receive airmiles which have allowed us to fly to Aruba (where else!) each year for more than a decade.

Of course, perks have value only when no balance is carried and no interest is ever paid. To do otherwise negates any financial benefit.

You've certainly nothing to prove and have a strong grasp of your financial picture. You know what works for you, and I feel your choice to not use credit cards should be respected--it's what works for you. I think discussions like this are worthwhile and they become interesting when we agree to disagree. The important thing is that we all keep in mind that financial matters are never a one-size-fits-all and it's important to respect each others' decisions whether or not we agree with them.

Just some thoughts,

Tony
...but I still am...

Off2Aruba

Why even bother?

Because the money in your pocket is better than money in their pocket. And the cashback can be really significant.

Nor can I think of any way to use a CC that will benefit us enough to take the risk of using a CC, but if you got some suggestions, I am listening...


If you are the sort who thinks that a credit card is free money, then I wouldn't advise charging on it. But you do seem to be the sort who has the budget under control, so if you're going to make an expenditure anyhow, why wouldn't you want to get some amount of cash back, even if it's only 1%?

To give you a nice example of how easily this can add up, when we were building our house, we charged anything not purchased at the lumber yard on our Discover, and got 1% cash back. These were expenses we were going to be making anyhow. The first year, we got back just over $600, and the 2nd year, we got back just over $500. We didn't use the credit card at the lumber yard because they had a policy that if you paid within 10 days of receiving the bill, which they considered a cash customer, they'd discount the bill by 2%. When you're buying $70,000 work of lumber, 2% is $1400. I don't consider that chump change, and in this case, it was certainly better than the cashback.

In this day and age where you can get 5% cashback for some things, there's even more incentive from where I sit to charge and pay off completely when the bill comes in. This does not work if you will not pay off the bill, but if you're that type which I know you're not, then I wouldn't advise using a card anyhow.

In a normal year for us, we get a couple of hundred dollars back from our various credit cards. It's money that I then turn around and dump directly in savings/investments. Why would I not take advantage of any way to increase my savings or decrease my expenses?

I can do all the above with a debit card-

Just the thought of using a debit card sends shivers down my spine. I don't have one, and refuse to take one from the bank. I much prefer what I perceive as more safety with a credit card.

If someone steals my credit card, I'm not responsible for their charges. There is no money missing from my account, and everything gets handled quickly and easily.

If someone steals my debit card, in most cases I am also not responsible for their charges, but the huge and unacceptable difference in my mind is that the money is already gone from my account. Therefore, I can have all sorts of payments and checks bouncing while the bank cleans up the mess. Yes, I will most likely get my money back, but not immediately, and not before other bad things happen.

This risk, to me, is too much, and so I don't use a debit card at all.

what I want to know is how Megan makes thousands of dollars with never paying interest or annual fees.

I'm not Megan, but I know we do it the same way. There are a ton of credit cards that don't charge an annual fee. I've only paid an annual fee one time, and that was something like $50 to get a card that gave me enough bonus frequent flyer miles to put me over the top for 2 first-class tickets to Hawaii. Since that was about $3500 in air fare, it was worthwhile to pay that $50. I've never paid an annual fee on any other card, and that's going back 25 years or so.

As far as how to make money on the rebates without ever paying interest, I believe I've already said that a few times, but I'll say it again. I never buy anything that's not in the budget and for which the money is not already sitting in the bank. I won't buy it if it's in the budget, but I need the next paycheck to finish saving for it because the money is not in the bank, and what happens if I don't get that next paycheck. That means that the money is there when the bill comes in, and I have never not paid a bill in full. As long as you pay the bill in full each month, there is no interest.

Really, it's quite simple to get the cashback rewards without ever paying a penny in interest. It is not a foregone conclusion that using a credit card will incur interest. That only happens if you don't pay it off, and lots of us have simply always paid them off, so there is no interest being accrued.

What I am most interested in hearing is how xraymd used a 0% CC to make a down payment on her house and if she had the cash in hand, why this was significantly better than just paying cash?

Greetings, Dave, the truth is that I actually didn't have the cash in hand. I had at least this much cash in my retirement accounts which I considered untappable for many reasons, one of which would have been the penalty for early withdrawal. But I was able to borrow the full amount needed at 0% and $0 transfer fee and take nearly a year to pay it all back at no cost whatsoever, rather than rolling the downpayment into the mortgage or having to take out a second mortgage, which would have cost $$$.

What I did over the ensuing 11.5 months (allowing enough time for payback of the bulk of that balance remaining on the transfer) is that I paid a shade over the minimum each month towards the balance while oversaving into my high-yield online savings account the difference between the minimum that month and, say, 1/11 of the total balance. In round numbers, I'd borrowed $30,000 and expected to have accumulated $30,000 in, say, 11 months to be able to pay it all back. That meant each month I needed to come up with an allotment of roughly $2727.27 to stash. Say my minimum payment was $600 - that's about what I would send in on time (maybe I'd send in $605), and I would save $2122.27 to my ING Direct account where it would earn money while awaiting repayment. Do this for 11 months in a row and I would end up with a balance of $23,345 on the card (remember it is not accruing interest owed due to the 0%), and would end up with a balance in my ING account of $23,344.97 PLUS all the accumulated interest I'd earned on it that was mine to keep. I would then send in the final payment of $23,345 to the card and, voila, PAID OFF and the little interest premium, of, say, $400 or so dollars was what I EARNED by doing this.

Now, this is because I had borrowed money to pay back. Even if I'd had the cash in hand, imagine instead if I took out $30,000 just to babysit it in my bank account until the promo rate expired (which is known as "leverage"). In that case, I don't even have to come up with any kind of monthly hit like $2727.27. I simply pay the minimum out of the proceeds patiently awaiting payback, while the residual balance keeps earning me money so long as it is sitting in my account. Then at the end I pay off the lump sum and am sitting on a tidy bonus of the interest *I* earned on the creditor's money. In effect, I became the creditor's banker for the promo period and I am the one earning the interest. Pretty sweet deal. Of course, my credit score takes a hit for doing this while I have a transfer out there, but since I am not shopping for loans, I don't mind the hit since my score is high enough to absorb it and I have seen first-hand that it recovers completely within about 2 months of having this kind of balance transfer paid off.

Now I am not advocating that everybody do this. I've simply found that it's worked for me, and I end up more solvent, with a preserved credit score, than when I started. Solvency is a pretty good result! I for one have not minded a whit avoiding owing interest on a $30,000 downpayment, since paid off at 0%. Nor have I minded at all not owing upwards of 5.95% interest on $60K of my student loans, since paid off at 0%. I am just about done with owing money and may decide to retire from this balance transfer game - its biggest benefits were in the huge sums of interest AVOIDED rather than the modest sums of interest earned, but I don't sneeze at earning, say, $400 or $500 a year and if I can find a sufficiently attractive offer that lets me park their money in my account and earn this dollar amount, well, maybe I will yet again.

Notice that I personally have not agreed to accept any such offer with a mandatory balance transfer fee, nor have I accepted any such offer that has any interest rate of an amount greater than 0%. But that's just me, and others have done this and succeeded at doing this. I know I could, too, because I can do the math, but that is where it enters into diminishing returns for me, so I don't. But I don't see why not, if the numbers work out. I've been dealing with credit in one form or another for 25 years so I feel comfortable with it. And since the math worked out, with these offers, to allow me to avoid upwards of $6000 on interest I would have owed on monies already borrowed, I consider these offers to have been a blessing, and not just a "shell game."

xraymd

You still have not shown me how I can get CC's to work for me though-

Let's say you pay $3.15 a gallon for gas at the place that takes only cash. Let's say gas at the place that takes CCs is $3.21. (yes, these are real numbers. I weep every week when I fill up.) If I use a no annual fee CC that gives me cash back on my gasoline purchases, I would get 16 cents back, making the effective cost of gasoline $3.05 a gallon, or ten cents less than paying cash.

I already think $3+ a gallon is a lot for gas, so I'm not tempted to use more gas. I'm still trying to conserve gas, and trying not to spend in the first place. But if I must spend, why spend more to pay cash?

You still have not shown me how I can get CC's to work for me though-

I know I should wear a helmet while writing this post because I'm likely to be pounding my head against a wall.

Example:

1. Open an ING account. Have a subaccount called Citibank Rewards (CR for short).

2. Acquire Citibank Dividend Platinum Select Mastercard.

3. Purchase gas for car. For this example, $40 of gas.

4. Move money to ING CR subaccount. For this example, move $40 to CR account.

5. Purchase $100 in groceries.

6. Move $100 to ING CR subaccount.

7. When $140 Citibank CC bill arrives, use money in ING CR account to pay bill.

There is no annual fee for the card. At 5% cash back, your CC has worked to get you $7 extra dollars that you wouldn't have by paying cash. This also ignores the interest you earn in the ING account until the CC bill arrives.

What is the risk? There is no risk that you don't have the money to pay the bill since you moved money to the CR subaccount everytime you made a purchase. There is the slight risk of computer hackers stealing your CC number or ING account but likely far less than a pickpocket stealing your wallet.

Please don't say unemployment risk. If you made your purchases with cash, the money is gone. If you become unemployed before the CC bill comes, you use the CR subaccount to pay the bill. You end up at the same place - the money gone to pay your purchases. Actually, you'll be better off with the Citibank card because you'll have $7 extra dollars from the example to use while unemployed.

IF

no, I mean we Max out our Roth IRA's and the we continue to make the same 15 to 20% contributions to a traditional IRA until the next year rolls around and then we go back to maxing out the Roth's.

Sorry, you can't do that. Once you put $4000 in your Roth, you are done for 2006. You can put $4000 more in your wife's Roth - so you can squirrel away $8K (more if you are over 50). The $4000 limit is the total for both types of IRAs.

foolazis

what I want to know is how Megan makes thousands of dollars with never paying interest or annual fees.

As 2gifts said above, and as many of the rest of us have said in other threads, it's a matter of money management. We're not spending what we don't have and don't plan to spend, but we ARE spending, because we all have expenses. Those expenses add up over time, and some of us have decided that if we have to spend the money anyway, and those expenses can be put on a credit card, and if there are credit card companies that are willing to give us some cash back or other incentive to do so, AND if we're going to pay off those expenses every month without fail, then why WOULDN'T we use our credit cards and take the incentive freely offered to us? DH and I pulled in around $625 in cash and gift cards last year from CC incentives. It was effortless on our part, we paid our balances in full each month, and spent nothing we hadn't planned on spending. Our retirement and personal savings didn't suffer for it, either.

That said, it's also possible that some folks are earning more than others in cash back awards and other incentives because they have higher credit limits and spend more, and they might be spending more because they have more income to spend.

What I am most interested in hearing is how xraymd used a 0% CC to make a down payment on her house and if she had the cash in hand, why this was significantly better than just paying cash?

Obviously, she answered this, and I have to say that I'm really impressed at how skillfully she's leveraged her balance transfers.

Also, at what point does the 2% interest cash advance become worthwhile to take and put in a 5% savings acct...

Are you talking about a balance transfer offer, as opposed to a cash advance (which can be a very expensive way to use a credit card)? Me, personally, I wouldn't leverage anything except a 0% offer, because it's not worth THAT much to me, though theoretically I'd be making 3% on the deal.

Lubbockdave,

You wrote, ...and I'd rather pay the taxes now when the contribution is $4k/year than pay the taxes on distributions on what will end up being a couple of million...but that is just me ;)

Wow. A 50,000% return on your $4K investment. That's impressive. ;-) Yes, I'd certainly want to pay taxes now rather than later in that case...

But seriously, you're comparing apples and oranges. If I understand you correctly, you hope to turn $4K/year into a total account balance of about $2M around retirement - not an unreasonable goal if you started early enough in life. The problem with the comparison is that taxes don't accrue on a tax-deferred account until you withdraw the money - not all at once when you retire.

Since the investments available to tax-exempt (Roth) and tax-deferred (Conventional) IRAs, 401(k) or whatever are generally the same the returns (growth) should be the same. The only real difference is the tax bracket you're in when you make the contribution vs. when you make the withdrawal.

So if you think you're going to be in a higher tax bracket at retirement you should be throwing everything you can at Roth accounts. If you think you'll have less taxable income than you do right now in retirement, then you should be throwing everything at conventional accounts. If you're like most of us and you can't predict the future, you split what you can afford into both of them (as far as the law will allow) and hope for the best...

- Joel

Do you ever need to book a flight? Make a hotel reservation? Rent a car? Buy anything online? These are just a few examples of situations where a credit card might be necessary. I don't know - I've never tried to do any of the above without one.

------------------------------------------------------------

I can do all the above with a debit card-no need for credit-and yes, I know they "freeze" a larger amount in the acct, but with the balances we carry it never affects us. Come to think of it, I am pretty sure our debit card has a cash back program as well-I'll have to check into it though-never paid that much attention to it, but I do think we get a small deposit each month on cash back rewards...


but still no need for CC's...


Dave

Dave, it seems to me that you are not comfortable with CCs, and that's fine. Not everyone is comfortable with their use, and if you're not comfortable with them, you can choose to not use them, as you are doing. If you are worried that you cannot control your spending with them, then no amount of cash back or rewards is worth it. I think for you, probably, the best answer is not to use CCs.

Everyone is different. And that's okay.

I do wonder why you've got so much cash sitting in your bank account--I hope it has some kind of interest earned on it, but I hope that you do have an ING or Emigrant Direct or Presidential Bank account where your money can earn more interest...


--Booa

and don't be scared to speak up-;) You still have not shown me how I can get CC's to work for me though-

hit enter too soon-sorry...

what I want to know is how Megan makes thousands of dollars with never paying interest or annual fees. What I am most interested in hearing is how xraymd used a 0% CC to make a down payment on her house and if she had the cash in hand, why this was significantly better than just paying cash? Also, at what point does the 2% interest cash advance become worthwhile to take and put in a 5% savings acct...

Dave

Surely this has been asked and answered already?

xraymd needs $30K downpayment for her house. She takes out a CC BT at 0%, no fee, and uses it to pay for the house. She saves up the money to pay off the 0% BT before the rate expires. Contrast with taking a second mortgage at 6% or so for thirty years...yeah, that's a fairly big savings, right?

Or, you run all your expenses through several cards that gives you 1% to 5% cash back for different charges, and you get money back, in proportion to what you spend. Megan gave you more details in the post when she said how much she got back from her credit cards last year.

Or, as xraymd and others have done, you take the $30K in a 0%, no fee BT, put it in ING at 4% for the year (I know it's higher now, and higher at other banks, I'm keeping the numbers simple), take the money out to pay off the BT before the rate goes up, and for a BT of a year, that's almost $1200 right there.

But, it comes with the caveat, "Don't try this at home, kids." You know? It's not risk-free, and you have to pay attention. And it's probably not the kind of thing you're comfortable doing, *which is okay*. But the "how" of it...I think that's been explained quite a few times.

And you ask, at what point does a 2% cash advance become worthwhile to take and put into a 5% savings account, the answer is probably never, strictly from a *cash back standpoint*. But without knowing more about the situation, it's impossible to say. I've done it, but it wasn't to earn the cash back, but rather to borrow money at a cheap rate while it was available. I would have gone the student loan route, but my DH and I both exceeded the time limit for student loans, so there you go. It's almost all paid off now, and I don't regret it. At any point I could have gotten a job that paid enough for us to live on, but I wouldn't have finished my Ph.D, and it was worth it to me. Really, having both my DH and me in grad school at the same time is a choice that is pretty much our biggest LBOM choice, like the way the Uncle was a farmer in that e.e. cummings poem.

That's not something I can put a dollar amount on, since I have probably limited my job opportunities somewhat with the Ph.D, but it will result in increased income, offset by the years of low earning, but offset by living in cheap housing in a great school district during a time really important from my son (people move to this school district from all over the country because of the quality of their programs for kids with autism), but offset by...I mean, I can go on forever. It's not a situation with obvious math analysis.

I doubt you will agree with my reasons for using CC BTs as loans, but that's okay. We both have to answer to ourselves and God, right? Not each other. :-)


--Booa

what I want to know is how Megan makes thousands of dollars with never paying interest or annual fees. What I am most interested in hearing is how xraymd used a 0% CC to make a down payment on her house and if she had the cash in hand, why this was significantly better than just paying cash? Also, at what point does the 2% interest cash advance become worthwhile to take and put in a 5% savings acct...

-------------------------------------------------------------------

These are all just questions of arithmetic. You could work them out yourself if you were so inclined.

--B+C

They're even answered *in this thread*.

Dave, read the thread in "whole thread" mode, and you'll see where Megan, xraymd, Joel, and others I have forgotten (sorry!) explain how they do it.


--Booa

Nor can I think of any way to use a CC that will benefit us enough to take the risk of using a CC, but if you got some suggestions, I am listening...



Why do you think there is a "risk" associated with using a CC that you are paying off every month?

I have a Target Visa. I buy a lot of stuff at Target anyway, and if I use their Visa, I end up getting 10% an entire order every so often. It pays off--I recently took advantage of a deal they had--I got 10% off a Dyson Animal Vacuum cleaner ($50 off $500) and they had a deal where you got a $100 Target gift card when you bought that vacuum.

The bill came in yesterday, I paid it off, incurred zero interest and effectively "made" $150 on something I was going to buy anyway.

What I am most interested in hearing is how xraymd used a 0% CC to make a down payment on her house and if she had the cash in hand, why this was significantly better than just paying cash?

I don't know about xraymd, but I don't understand why you don't get the logic of this.

If your house purchase downpayment is... $50,000, and you charge it on a CC that gives you 5% cash back.... you just came out $2500 ahead, as long as you don't end up paying any interest on your CC.

Why not do it? Where else can you get an instant 5% return on your money (in this example).

Even if you don't get cash back or bonus points or whatever, if you can pay 0% interst and have your money in an instrument which earns significant interest during that period of time, you are effectively making money that you otherwise couldn't.

More money--good
less money--not as good.

what I want to know is how Megan makes thousands of dollars with never paying interest or annual fees. should have read Megan and company-anyone to reply


Dave

xraymd,

I see, but I don't know that I'd be comfortable looking at a $30,000 loan without having the money on hand to pay it off if I had any mis-step with sending in the payment.

persomal finance is a personal thing I guess-

saintjoan,

I can see your point as well-but why not use a debit card with a cash back deal on it-then you are not using borrowed money at all---

I don't see the risks everyone else does in using a debit card-keep what you "need" in the checking account and keep the rest in a savings acct-someone comes and cleans out your checking, transfer what you need over to savings until the bank makes it right-which they are required by law to do. That's why you have a good, healthy e-fund.

Dave

xraymd,

I see, but I don't know that I'd be comfortable looking at a $30,000 loan without having the money on hand to pay it off if I had any mis-step with sending in the payment.

Greetings, Dave, I wouldn't have been comfortable either but for two important safeguards:

1) I DID have the money to pay it off - in my retirement accounts. I just wasn't willing to have to touch those accounts unless under a dire threat, and I never ever have touched them

2) I have disability insurance, also known as income interruption insurance, and it is in an amount sufficient to allow me to have met my then-current obligations. In fact, I would not accept such a balance transfer without having predetermined where ELSE that money to pay it back would have come from had I had such an income interruption. And that has never happened so far, but I was prepared if it should have.

Belts and suspenders - worked for me!

xraymd

Wow. A 50,000% return on your $4K investment. That's impressive. ;-) Yes, I'd certainly want to pay taxes now rather than later in that case...

Joel,

let me explain something-my wife and I do things together-this is not a mine and hers things, this is a we thing-we will maximize out retirement roth's-$4,000 each for a total of $8k. We then continue our contributions into a sep until we get to the next year or max it out as well (probably get to the next year).

Now, assuming a starting point of $50,000 and a contribution of around $10 to $12K/year for the next 30 years and a 12% compound interest rate gives us a return of in the neighborhood of $4.2 million-and I know that might be assuming quite a bit, but even if the interest rate is only 6% we still end up with $2.1 million-I think we will make it! Especially since our house will be paid for and we can "downsize" if need be and collect more dollars that way as well.

Dave

I do wonder why you've got so much cash sitting in your bank account--I hope it has some kind of interest earned on it, but I hope that you do have an ING or Emigrant Direct or Presidential Bank account where your money can earn more interest...

we cash flow our checking acct-never having more than $3k in it-no less than $300

the bulk of our e-fund is in savings earning 3% at the local bank until we get enough cushion to take 6 months of expenses shifted over to a higher yeilding savings acct and still have 3-5k in the local savings acct.

Dave

I can see your point as well-but why not use a debit card with a cash back deal on it-then you are not using borrowed money at all---

But using borrowed money isn't a bad thing so long as you're guaranteed not to pay interest on it. Which is the case when every dime you spend is covered by an amount in your bank account and you pay before the deadline. Its not really borrowed money at all. So you're even.


I don't see the risks everyone else does in using a debit card-keep what you "need" in the checking account and keep the rest in a savings acct-someone comes and cleans out your checking, transfer what you need over to savings until the bank makes it right-which they are required by law to do.

There's two parts. One is fees, the second is hassle.


First, as you say, you can cover it with your eFund in the meantime, but what if you have a mortgage or rent payment (either ACH or check) about to clear. What if you have an auto-debit payment from a monthly bill the next day? There's no way the money is going to clear in your checking account in time - unless you have your checking & savings at the same bank - which many of us do not due to high yield online savings accounts.

Sure you say, the bank has to reimburse the money. But they don't have to reimburse the late fees and rejected payment fees from your mortgage/auto/phone/etc companies. I'm not even sure if they have to reimburse the bounced check fee on their end, though they may.


Second, the hassle. If a thief got into your checking account, there's a pretty decent chance that they have the checking account number. So the only way to be safe now is to close the checking account and open a new one. This requires 1) opening a new account, 2) getting new checks, 3) shredding old checks (maybe), 4) stopping payment on any outstanding checks & writing new checks to replace them (maybe), 5) resetting up online BillPay (maybe), 6) entering new information to all your ACH sources (external savings account, brokerages, other accounts you pay electronically), and 7) getting a new card (did I miss anything)?

While with a credit card, we're only talking about 5 & 6. No need to open a new account, deal with checks, stop payment, etc.

With a credit card its simply "I lost my card"/"that charge is fraudelent", "okay sir, we'll deactivate your current card and send a new card out to you".


Oh and P.S. you can usually get much better rewards on a credit card.

$50,000, and you charge it on a CC that gives you 5% cash back.... you just came out $2500 ahead, as long as you don't end up paying any interest on your CC.

Why not do it? Where else can you get an instant 5% return on your money (in this example).

I get the math, I guess I don't get how anyone can be confortable looking at a $5 with 4 zero's on the end of it on a CC statement and not want to vomit-just the very thought of it makes every orafice I have pucker up!

I guess it is more of a comment on where I came from than anything else-just paying off some much so recently. I am wondering if anyone else who is currently snowballing sees it from the same angle as I do.

As for the cahs back stuff-it looks like I am getting 5% on debit card purchases-so yea for me! And I am doing this on MY money, not borrowed money...weeee

Dave

1) I DID have the money to pay it off - in my retirement accounts.

see, I consider my retirement dollars as that-only to be used for retirement or in case of extreem emergency-not as collateral for a loan on a CC for a downpayment for a house. I am glad it worked out well for you. I'd have waited until I had the 30k saved in cash, then maybe take the loan, if I was inclined to swing that way. In reality, I'd have just paid it in cash. But personal finance is personal.

BTW, where are/did you get your LTdisability insurance from? We are looking into some, and I need to get some as the only source of income at my house. Please feel free to e-mail me a response at your discretion.

Dave

Also, one more question-many of you say you pay the balance when the CC send you the bill-my cc has already charged the interest if they send a bill???

Dave

Also, one more question-many of you say you pay the balance when the CC send you the bill-my cc has already charged the interest if they send a bill???

should read, "My OLD cc has already charged"


;)


Dave

I can see your point as well-but why not use a debit card with a cash back deal on it-then you are not using borrowed money at all---


Do they make such a debit card that offers a rebate?

And the answer to why use the credit card instead of the debit card, ignoring the reasons I've already given, is that when you use a debit card, the money is taken from the account right away. When you use a credit card, you get to play the float and collect interest on that money until it comes time to pay the bill. Yes, that's a very small amount, but very small amounts add up. And although you keep insisting it's borrowed money, I don't see a problem as long as I'm not paying interest.

I don't see the risks everyone else does in using a debit card-keep what you "need" in the checking account and keep the rest in a savings acct-

I still see this as risky. In a month where I pay taxes, my mortgage, and my credit cards, that's over $10k flowing through the checking account that's sitting there waiting for someone to access it via a stolen debit card. As you're not willing to risk using a credit card, I'm not willing to bounce things like the mortgage and taxes. If I don't notice the card is gone and money missing, which I admit is highly doubtful, then having an efund is pretty useless while my checks and payments are bouncing all over the place.

I'd rather not have the mess to clean up.

Also, one more question-many of you say you pay the balance when the CC send you the bill-my cc has already charged the interest if they send a bill???


I've never had a credit card that charged interest if you've paid the balance in full, so there has been no interest charged when I get the bill. Is that the problem? Do you not believe those of us who are saying THERE IS NO INTEREST CHARGED if you pay the bill in full each month? I've never seen or had a credit card that charged interest from day 1 of a purchase UNLESS YOU ARE CARRYING A BALANCE. As I've never carried a balance, I've never paid a penny interest.

I don't understand why you keep insisting that 0 interest is really some number, and that I'm just making this up.

I get the math, I guess I don't get how anyone can be confortable looking at a $5 with 4 zero's on the end of it on a CC statement and not want to vomit-just the very thought of it makes every orafice I have pucker up!



Build a house. Seriously, when we were building the house, I used to run down to Sears to pay off the Discover. I always had to write 2 checks because their registers can only handle amounts up to $9999.99, so when you go over that, which we did every month, you have to pay with 2 checks if you want to pay at the store.

Then there were the months that I wanted to charge more than my credit limit, so I'd run down to Sears, prepay a huge amount to have a negative balance, charge building materials, and get the rebate on the full amount.

But it goes back to rule 1 - I never charge anything for which I don't already have the money sitting in the bank.

I've never had a credit card that charged interest if you've paid the balance in full, so there has been no interest charged when I get the bill.

Actually, my very, very first credit card started charging interest the moment they received the charge, even if I'd paid in full the month before. That was when I developed the habit of slightly overpaying the account every month, just to stop the interest charges.

Then they switched me to a card that didn't do that, but required a $15.00 a year fee, and shortly after that I got another card and dumped them.

And that was a credit union, too.

Now I just get the cashback, have no fees, and never pay interest.

Credit cards have improved.

Nancy

But it goes back to rule 1 - I never charge anything for which I don't already have the money sitting in the bank.

I can live with that, but I'd rather pay with the cash I have in hand-personal finance again

Dave

Do you not believe those of us who are saying THERE IS NO INTEREST CHARGED if you pay the bill in full each month?

no, the way I was reading it was I pay it off when they send the bill...sorry for the confusion (it is bath night tonight, so I am doing my replies in pieces;))

Dave

I can live with that, but I'd rather pay with the cash I have in hand-personal finance again


I'd rather get the interest on my cash.

Also, one more question-many of you say you pay the balance when the CC send you the bill-my cc has already charged the interest if they send a bill???

This is true if you're carrying a balance all along and paying it down.

If you read the terms of your card though, there's a grace period (until the due date) if you always pay your balance in full.

Here's the wording from my AmEx, whos terms I happen to have easily available:

Finance Charges:
A. Finance charges begin to accrue for each Charge as of the date the Charge is added to the daily balance, as described below... In addition, Finance Charges will not accrue for Purchases during a billing period if (a) the Previous Balance shown on the billing statement for that billing period is zero or a credit or (b) payment in full for the New Balance, if any, shown on the statements covering the two immediately preceeding billing period is credit to your Account by the respected Payment Due Dates show on the statement.


This is actually one of the less friendly versions as it appears to be two-cycle billing (am I reading that right??). If you either have no previous balance, or have paid the 'new balance' on each of your last two bills in full on time, then you will be charged no interest.


If your card was charging you interest when you were paying off the balance in full each month, then you have one of those awful immediately-interest charging companies. Chances are though, as I know you were paying your way out of debt, that you've just never been in a situation when you were paying your bill in full each month to experience that.

Man, if this really just came down to you not being aware that paying your bill in full generated no interest... well... man :)

no, the way I was reading it was I pay it off when they send the bill...sorry for the confusion (it is bath night tonight, so I am doing my replies in pieces;))

Yes, that's correct. If you pay it off in full - which means before the 'due date' on the bill - not before they send the bill. And your previous balance was zero, then you will not be charged any interest.

And although you keep insisting it's borrowed money, I don't see a problem as long as I'm not paying interest.

See, I do see a problem using borrowed money-you are depending on all things to flow flawlessly when you play the float. I'd rather just pay it off and see if I can work a discount by using cash-often times I can.

I still see this as risky. In a month where I pay taxes, my mortgage, and my credit cards, that's over $10k flowing through the checking account that's sitting there waiting for someone to access it via a stolen debit card. As you're not willing to risk using a credit card, I'm not willing to bounce things like the mortgage and taxes. If I don't notice the card is gone and money missing, which I admit is highly doubtful, then having an efund is pretty useless while my checks and payments are bouncing all over the place.

Again-personal finance is a personal thing...you see debit cards as risky, I see CC as risky. If it were my 10k flowing, I guess I'd need about 60k e-fund-I highly doubt either of us would ever go more than 24 hours-48 tops before we noticed someone draining our accts...;)

Dave

See, I do see a problem using borrowed money-you are depending on all things to flow flawlessly when you play the float. I'd rather just pay it off and see if I can work a discount by using cash-often times I can.

Not if you already have the money in a bank account in addition to your normal eFund. You're not depending on anything other than the cold hard cash you already have.

This is no different than a debit card. I could say that using a debit card requires you to make sure everything 'flows flawlessly', otherwise you could overdraw and be hit with fees. But it'd be silly because you (hopefully :) ) already know you have the cash available before you make the transaction.

Well same exact thing with a credit card - you already have the cash available *before* you make the charge. Never would I charge something without knowing that I have the money specifically set aside to cover it as part of my checking account balance or a designated portion of my savings account. Its no different.

See, I do see a problem using borrowed money-you are depending on all things to flow flawlessly when you play the float. I'd rather just pay it off and see if I can work a discount by using cash-often times I can.


Um, no, I'm not counting on everything flowing flawlessly. I know where my money is going, and I manage it including by using a credit card. If I were counting on that, I'd consider that living paycheck to paycheck which is something I have never done.

Even last year when I was out of work for 8 months [DH is self-employed, and I typically make 2/3-3/4 of our household income, and we live on my paycheck], we didn't change our spending patterns. We still used our credit cards to pay for everything, and we still paid them off in full each month. This is what I mean about managing how we spend our money and not living on the edge, which is how I'd be living if I were depending on everything flowing flawlessly.

As far as getting a cash discount instead of using a credit card, that is against the rules of the credit card vendors.

Again-personal finance is a personal thing...you see debit cards as risky, I see CC as risky. If it were my 10k flowing, I guess I'd need about 60k e-fund-I highly doubt either of us would ever go more than 24 hours-48 tops before we noticed someone draining our accts...;)


I don't typically check my bank accounts more than every 2 weeks when I get paid and am doing things like scheduling payments online. Other than that, unless I'm looking to see if something has cleared, I'm not checking for activity, so it's entirely possible that I wouldn't see something for 2 weeks. That's a really long time to have an account be compromised.

I get the math, I guess I don't get how anyone can be confortable looking at a $5 with 4 zero's on the end of it on a CC statement and not want to vomit-just the very thought of it makes every orafice I have pucker up!

I guess it is more of a comment on where I came from than anything else-just paying off some much so recently. I am wondering if anyone else who is currently snowballing sees it from the same angle as I do.

Well, I recently paid off all my debt (YEAH!), thanks to some very generous bonuses from my employer.

I am not planning to get into any real debt again, but I have no problem using the leverage that credit gives me, or cashback bonuses, and what have you.

As for the cahs back stuff-it looks like I am getting 5% on debit card purchases-so yea for me! And I am doing this on MY money, not borrowed money...weeee

Well, that's good... but I'm getting my Discover cashback money with my money, too. You don't have to use a debit card to do the same thing (and I'm with everyone else on the debit card issue--mine stays in the jewelry box these days). I have the money to pay my Discover bill every month, so the net result is the same as it is for you.

Good for you--do what works for you. But it's not the only path.

I guess it is more of a comment on where I came from than anything else-just paying off some much so recently. I am wondering if anyone else who is currently snowballing sees it from the same angle as I do.

And building on my previous reply to you...

My own personal experience is that, having paid off so much debt (especially in pretty much one fell swoop), I realize that I am now in a much, much better position to take advantage of the offers and special deals that come with credit cards. In the past, the cashback bonus meant little because I was still paying interest.

Now, it's real money.

And congrats paying off debt, by the way. However you got there, and however you are managing your finances to avoid more... it's a good thing.

what I want to know is how Megan makes thousands of dollars with never paying interest or annual fees. What I am most interested in hearing is how xraymd used a 0% CC to make a down payment on her house and if she had the cash in hand, why this was significantly better than just paying cash? Also, at what point does the 2% interest cash advance become worthwhile to take and put in a 5% savings acct...

-------------------------------------------------------------------

These are all just questions of arithmetic. You could work them out yourself if you were so inclined.

--B+C

They're even answered *in this thread*.

Dave, read the thread in "whole thread" mode, and you'll see where Megan, xraymd, Joel, and others I have forgotten (sorry!) explain how they do it.


--Booa

Booa my sweet (and everyone else)

Troll

I've been enjoying this thread.


Tony,

It is fun isn't it...'cept maybe one or two of the posters getting a little chippy. I appreciate it anyhow.

Dave

Now, assuming a starting point of $50,000 and a contribution of around $10 to $12K/year for the next 30 years and a 12% compound interest rate gives us a return of in the neighborhood of $4.2 million-and I know that might be assuming quite a bit, but even if the interest rate is only 6% we still end up with $2.1 million

Dave, Dave, Dave....certainly you know the benefits of compound interest. Certainly you know that one of the benefits is the...COMPOUNDING.

Certainly you know that if the interest rate is "only 6%" you will NOT end up with $2.1 millon. Shave another million off and you're in the ballpark.

Compounding is non-linear.

BTW, where are/did you get your LTdisability insurance from? We are looking into some, and I need to get some as the only source of income at my house. Please feel free to e-mail me a response at your discretion.

Greetings, Dave, I understand about pre-saving for a downpayment but I also understand about assessing opportunities and I saw one and went for it, which did end up working out for me financially, but I could also sleep at night due to my safeguards. I never intended to use my retirement savings and indeed I did not, but it helped me rest knowing they were available and I wasn't going to have to come up with $30,000 out of thin air if I were pressed.

My LT disability is from UNUM Providence, formerly Paul Revere. I am not an expert in this but the good folks at the Insurance board may be able to help:

http://boards.fool.com/Messages.asp?bid=100156

xraymd