How to Streamline Your Finances with Credit Cards

 

How to Streamline Finances with Credit cards

Credit cards are often pegged as high-interest debt traps, but if used wisely, they can actually help you save money and streamline your finances.

I use credit cards regularly as part of my monthly cash flow. As a freelancer, my variable income means that I don’t always get paid the same time each month. There are times a client who regularly pays within five days of receiving my invoice suddenly takes 15 days to pay an invoice. This can cause stress since the rent is deducted the same time each month, bills need to be paid and groceries need to be bought.

Advantages of Using Credit Cards

There are a number of ways to use credit cards to better manage your regular finances. Your use of plastic also comes with protections and benefits.

“In the wake of recent retail security breaches, consumers need to be careful when swiping their debit and credit cards,” says consumer expert Andrea Woroch. “Credit cards offer several layers of protection against fraudulent activity.”

Woroch points out that, even though debit cards have liability protections, they are still connected to your bank account. “Thieves can get direct access to your cash funds,” she says. It can take time to have that money returned to you, and it’s unsettling to know that someone else can access your bank account. With credit cards, the money accessed isn’t yours. Also, your liability for unauthorized use on your credit card is limited to $50 under the Fair Credit Billing Act , while your liability with your debit card, per the Electronic Fund Transfer Act, depends on how quickly you report unauthorized use.

On top of that, many cards offer extended warranties and return protection. This allows you to work with your card issuer to return big-ticket items and other purchases that the merchant may not be willing to accept.

One writer for MyMoneyDesign.com, with the handle MMD, also points out that it’s easy to track purchases and set up alerts to keep you on top of your spending. “When spending starts to reach a certain limit, automated services can let you know you are almost maxed out for the month,” he writes.

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How to Make the Most of Credit Cards

I use my cards to pay most of my bills. I automate payments for gym memberships, satellite TV and even my charitable giving. I don’t have to worry about this money coming out of my checking account and putting my student loan payments and monthly rent payment at risk. On top of that, I also receive rewards because I use my credit cards for these expenses, as well as common expenses such as gas, groceries and entertainment. MMD claims that he logged more than $1,000 in cash back last year by using credit cards, and I believe him. When I add up my cash back bonuses, plus the free travel and discounts I receive, the value of my card use is also pretty close to $1,000.

Woroch warns that you need to be careful when using your cards to generate points or cash back. “You shouldn’t go on a shopping spree to rack up extra points or cash back,” she says. “Always pay the balance off in full each month to avoid interest fees.”

Using your cards for most of your discretionary costs is a good way to ensure you have money in your checking account for mortgage payments and insurance premiums — no matter what financial setback comes up. Plus, using your card in this manner means that you pay fewer bills each month. With nearly everything on one card, you have only to pay off the balance at the end of the month, making your budget management simpler.

Business Spending

For those with businesses, business credit cards can streamline your company’s budget and help you keep better records. “I have a credit card that I only use for my vacation rental property and one I use solely for business purposes,” says Woroch. “I can categorize spending and expenses based on those separate accounts instead of fishing through one card to pull information.” This makes things easier at tax time when it’s time to tote up all your expenses.

As long as you keep your credit card spending within the confines of your budget, these handy pieces of plastic can serve as convenient financial tools. “The key is disciplined spending,” writes MMD. “As long as you’re smart about how you use your card, it can work to your advantage.”

Miranda Marquit writes about building credit for Credit Card Guide, a site that educates consumers on improving financial habits.

7 Credit Card Practices You Want to Implement to Simplify your Finances

credit card flying with you

 

We all love to use credit cards for their convenience but are you using them to help simplify your personal finances or is your credit card usage making your personal finances more difficult.  For example, we sometimes forget to make that monthly payment or our balance keeps getting larger and larger and we feel overwhelmed.  The only way to stop the bleeding is to stop using the credit card completely.  However, if you use your credit card properly you will not have to stop using the credit instead you can use the credit card to your advantage.  It can even become a valuable tool to use to simplify your personal finances.

Here is what you need to do to make sure you are practicing good credit card usage:

Payoff your balance at the end of each month

This is a must do every month.  If you want to simplify your finances as well as avoid unnecessary debt you must pay off the balance each month.  If you do not you will be paying unnecessary interest payments.  So only charge what you can pay off at the end of each month.

Spend within your budget

Do not charge things that you are unable to pay off.  If you did not budget for the purchase this month do not use a credit card to pay for it.  Yes, I know it is very easy to just use your credit card because of the convenience.  But think before you use it.  Also you do not want to spend more than your credit card limit.

Pay on time

Make sure your credit card payment is paid on time.  If not you will incur those dreaded late fees.  One way to avoid this is to set up auto pay from your checking account to pay your credit card to make sure it is paid on time.

Avoid applying for unnecessary cards

Yes you may receive an offer for zero interest for six months or receive ten percent off on your purchase.  But think before you say yes to this offer.  Why do you want to add an additional card to your existing credit cards.  That is just another card payment you have to keep track of.  Before signing up for new credit card call your existing card company to see if they will match the offer you received.  Think before you say yes and ask yourself does this card fit my lifestyle and do I really need another card?

Limit the number of cards

You do not want to carry more than two credit cards with you.  Why would you need more than two cards?  The more cards you carry the more likely you are going to spend.  Also if by chance you lose your purse or wallet that’s one more card someone can have access to. Limiting the number of cards will also help your credit score.  Having too many card can have a lower your credit score.

Monitor your interest rate

Know how much interest your being charged.  Many times you do not know the interest rate you are paying because the balance is paid off at the end of each month so you are not charged interest, which is a great reason.  However, if you are carrying a balance you may be charged a high rate of interest when it’ not justified.  Also your credit card company may raise your rate from the time you initially signed up for the card so you want to monitor the rate.

Reduce your credit card debt

If you do not have any outstanding credit card debt congratulations but if you do have outstanding debt you want to reduce this debt as quick as possible. Getting out of credit card debt is not easy so set a goal to begin reducing this debt.  You will be amazed at how much you can accomplish by simply setting a goal and taking action to reach your goal.

If you want to simplify your personal finances take action now by following these simple tips to make sure your practicing safe credit card usage.

Which tips do you plan to implement now?

Do you have other tips which have helped you simplify your credit card usage?

Is Rate the Only Thing That Matters?

SFL rate question

 

We make financial decisions all of the time.  Are you making your financial decision solely on the rate that you will receive? Are you considering other factors when making financial decisions?  If you are trying to simplify your finances, don’t let the interest rate be the determining factor in your decision:

New Deposit Account

You see an offer for a higher yielding account.  Before you decide to open the new account because of the interest rate you will receive ask yourself a few questions:

What other services or benefits will I receive from this new account?

Do I need another account?

If I open this account should I consider closing one of my other accounts?

Is this rate just a teaser rate to get me to open a new account with this institution?

How long will I receive this rate?  Six months, One year, or longer.

Why do I need this account?

Is the rate worth the time and effort to manage this account?

How much more is the rate compared to my existing accounts?

Should I consider consolidating my other accounts with this bank?

Why is the bank offering a better rate than all of the other banks?

Consider these factors before you decide to open a new account which tempts with a better rate.  You may thank yourself later because if you decide not open the account that will be one less account you will have to keep track of as well as one less statement.   If its a good rate see if your existing bank will match the offer for you or if they have similar type of account.  This way you do not have to move your relationship and still benefit with the better rate.

New Credit Card

You receive a credit card offer in the mail that looks very enticing. The new card offers a lower than you are currently receiving.  Here are a few questions to ask yourself before you apply for the new card:

How long will I receive this lower rate?

How much will I really save by having a lower rate?

If I do not carry a balance what other benefits will I receive from the new card?

Could I receive this rate from one of my existing cards?

Should I close an existing card to replace the new card?

How will this card impact my credit score?

What will I use the card to purchase?

Do I really need another credit card?

New Mortgage

You are looking to purchase a new home or considering refinancing your existing mortgage.  Will you chose the mortgage provider who offers the lowest interest rate? Remember this decision will be a long term one since you will have at least a 10 year relationship with your mortgage company.  All rates are not the same.  Ask yourself these questions before accepting the lower rate:

Am I paying other fees to make up for the lower rate? Some mortgage providers will offer lower mortgage rate but will charge other fees such as orgination, application fee or lender fees

What is the reputation of the mortgage provider? You want to work with provider that will be able to close your mortgage in a timely manner. If not that lower rate will not be worth it if not able to close on time.

Does the rate come with prepayment penalty?  You may have to pay a penalty if you pay the loan off early.

What are their underwriting standards?  Are they the same as other lenders.

Will my mortgage be sold to another mortgage company?

Doing a little research on rate on the front end will simplify the process on the back end.

New Investment

Did you just see an advertisement to receive a set rate of return which is great rate and sounds like a good deal.  Here are some questions to ask yourself before you make this invest:

How risky is this investment?

Is the expected return higher than other similar investments?

How long is my money locked up?

How quickly can I liquidate the investment if needed?

Does this investment fit within my current investment goals and objectives?

What fees do I have to pay for this investment and what commission does the sales person receive?

Asking yourself these questions will help you save some future headaches and prevents you from investing in some investment just for the rate.

As you can see taking a minute and asking yourself a few questions may prevent you from opening a deposit account that you really did not need, obtaining a new credit card that you did not need, find the right mortgage provider, or make the right investment that meets your investment objectives.   Doing this will also help you simplify your finances because that will be one less deposit account, credit card, or investment you have to manage.

Which of these questions will you ask yourself next time  you see that higher interest deposit account, lower rate credit card or low rate mortgage offer?

Til next time take one step at a time to simplify your finances.

If you enjoyed this post and would like a simple checklist of questions to ask before you open that next account, sign up for my newsletter and you will receive a free eBook as well as an easy checklist of questions to ask before you open that next account.

 

 

Copyright: timbrk / 123RF Stock Photo

I want to simplify my finances but where do I begin?

Begin to Simplify

As I have state before simplifying your finances is a process.  It is not something that you can do overnight.  One question I hear often is where do I beginning?  It is a valid question.  So I have come up with 5 simple questions you can answer to help you get started with simplifying and organizing your finances.  By answering these questions you will immediately identify where you should begin.

How many do you have?

How many credit cards do you have?

How many bank accounts do you have?

How many retirement accounts do you have?

How many investment accounts do you have?

Asking how many is the first step to begin simplifying.  You can not really know where you are going to begin until you find out exactly how many and how much you have.  Sometimes we forget what we have and where its located.  So good way to do this is to gather your most recent statement.  Once you have all statements, you can beginning reviewing them.  The next question is a little harder.

How many do you really need?

How often do you really use that credit card? How often do you use that second checking account? Can you consolidate those retirement or investment accounts?  Frequency of use can be used as a way to decide what you can keep or eliminate.  Some things may only be used every once in a while and others may not be used because you may have forgot you had it.  If this is the case now is the time to decide if you really need to keep the account active or open.

Why are you still holding on to it?

You do not need to just start closing accounts without asking yourself why do I still have this account.  There was a reason why you opened the account.  Did the account offer a specific benefit that you liked originally?  For example, you opened a new credit card account to receive a specific discount at the time of purchase.  Do you still receive the benefit?  Maybe you opened a new deposit account because it was paying a higher rate of interest but you no longer receive this benefit.  So decide what is the reason for each account.  This will help you begin to eliminate unnecessary accounts.

Does it currently fit your lifestyle?

Now consider your current lifestyle.  Do you travel more now?  If  you are traveling more maybe you need a National or Regional bank account instead of your local bank.  Also if you are traveling more you may only need the credit card that provides you with mileage points or special airline privileges.  Have your banking needs changed?  Maybe you are looking for more online capabilities?  So the local bank is great but there online capabilities are not as good as the other account I have?  Reviewing your lifestyle will help you determine which accounts maybe eliminated that do not fit your lifestyle.

Now what do I do with the extras?

After answering the above questions, you now should have identified a few accounts that you can eliminate that you do not need, does not fit with your current lifestyle or  you just forgot you had.  Now what do I do with them.   The banking accounts if they are with the same bank you can consolidate them. If they are with another bank you should close the account and transfer the funds to your primary bank.  The credit card you can close them but look to see how long these account have been opened.  The reason for this is because you may not want to close a credit card account which you have a long history with it could possibly impact your credit score.   The investment and retirement accounts should consolidate them if possible.  For example, you are not able to consolidate traditional IRA accounts with Roth IRA accounts.  Before you begin consolidating retirement accounts check to make sure they can be consolidated.

So now take action by asking yourself these 5 simple questions.  Answering these questions will help you identify where you should begin simplifying your personal finances by eliminating or consolidating various accounts.

Til next time take one step at a time to simplify your finances.