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Personal Finances / Credit Cards and Consumer Debt
|Subject: Re: Thoughts on credit (long)||Date: 5/30/2001 3:07 PM|
|Author: aja91||Number: 73295 of 311661|
Here's what I do with my credit card. Some of this will make more sense if you understand how I budget and track finances (http://boards.fool.com/Message.asp?mid=15000513).
(1) Keep the limit fairly low. Even if I'm tempted to buy $10,000 of furniture, I can't use my card for it.
(2) I keep my checking, savings, and credit card with one bank with online banking capability.
(3) When I make a purchase on the credit card, I transfer the amount of the purchase to the savings account immediately, and record the purchase on the credit card and transfer in Quicken.
(4) In Quicken (where I track everything), the deposits for the credit card are kept separate from other short-term savings.
(5) When the bill comes due, I make the payment online from my savings account to my credit card account. I do not have my card set up to automatically debit my savings account in the event a disputed charge shows up.
The benefit here is that I can earn some interest on the funds I will use to pay off the balance (hence taking advantage of the "float" the card offers). Since I keep all accounts at the same bank and take advantage of online payments, I don't have to be worried about whether the transfers to savings went through, or mailing a check far enough ahead of time to avoid late fees. I'd eventually like to repeat this process somewhere where I can earn slightly high interest on the funds in savings, but for now this works well. In the event there is a problem with the purchase I can dispute it via the credit card company (my bank), which is an advantage over using cash. In practice, we use our cards very infrequently (usually just $100-$200/month), so it's not a huge money maker for us.
The other benefit to having a card is that it can serve as an emergency fund mechanism. That is, if an emergency occurs and you do not have a checkbook handy, the credit card can serve as a temporary means through the emergency (obviously, pay the balance off due off at the end of the month).
Hope this helps.
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