Credit Card Debt Management

Not sure of the ethical qualities of this one, but then again I’m not sure of the ethical qualities of raising interest rates on good customers at will. Anyway, the Four-Hour Work Week blog had an interesting post recently about recycling credit card rewards points.

The specific method is a fairly simple three-step process. Set your cash advance limits to $0, in case the credit card company decides to change policy mid-stream. Failure to do this could result in a “nasty surprise,” as blogger Tim Ferris put it.

Then purchase a Visa or MasterCard gift card and use it to purchase a money order that is in turn deposited into your bank account. Alternatively, Ferris suggests that you sidestep the whole giftcard hassle and purchase traveler’s checks at a travel agency, then turn around and deposit the checks in your bank account. Of course, the key is to use the bank account boost to pay off your credit card balance in full. Carrying a balance on the card not only shoots the whole plan in the foot, but it’s financial stupidity.

It seems Ferris’ blog readers are equally crafty. In the comments section, there are other suggestions for racking up points. They include adding other people as an authorized user on your account (actually using the cards when they arrive is optional) and calling your credit card company to cancel your card. According to one commenter, the latter strategy can result in anything from 1,000 free points to one free companion airline ticket. I felt bad for a minute (but only a minute) even spreading this information, because it seems a little wrong. But if you have a vacation or business trip coming up, it just might be worthwhile if your conscience doesn’t get in the way!

There are two ways to maximize the usefulness of your credit card rewards points — by recycling and “piggybacking” the points. Today we will focus on the piggyback method. This can be a highly effective way to pay for daily life or business expenses while simultaneously racking up free flights, merchandise or even cashback.

There are many scenarios where this could be used. A business owner with high expenses may want to deal with a supplier or manufacturer who accepts credit cards. A person may even want to dedicate one credit card solely to gas purchases. If you choose a cashback rewards card, it amounts to a small refund on each gas purchase. Of course, the rewards programs so highly touted by the credit card companies offer dismal returns when you really run the numbers. However, it’s a great perk if you just change the way you look at it.

Instead of buying unneccessary things to rack up points, look at rewards points as a bonus for buying things you need. This system can be a savvy way to stock the savings account or become a jet setter. It can also help you track your spending on business expenses like advertising, and personal expenses like gas and groceries. So piggyback till your heart’s content, and make your rewards points work for you.

The fact is, we live in a credit-oriented society. Even if you loathe credit cards and never want to see one again, you really need them if you ever plan to finance a major purchase like a house, car, higher education, etc. You should have at least one credit card, use it for gas or grocery purchases, then pay it off each month. It’s essential to your financial well-being.

Without maintaining at least one loan, your credit rating goes down the toilet because there is nothing by which a lender can judge your fiscal responsibility and accountability. The easiest loan to obtain and maintain is a credit card, even if it’s a small, low-limit student card or retail card. Sometimes a person reaches a point in their life where they do want to buy a house, but have zero credit rating. It’s simply a thing they never thought about, often because they never had to. This is most common among young professionals, as well as widows or widowers whose late spouse may have been the only name on the couple’s credit cards and loans. If you are in this position, don’t despair — it’s not too late!

As aforementioned, it is relatively easy to build up your credit rating with credit cards. You can start with a retail card. These type of cards are more readily approved and have a low limit, so it is slightly less difficult to get in trouble. The bottom line is to pay off your credit cards each month! Then, when you take care of the small things, bigger things like home financing will be no hurdle at all.