Author Topic: Very basic credit card questions  (Read 4921 times)

citykid3785

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Very basic credit card questions
« on: June 25, 2015, 10:09:09 AM »
I grew up in a generation that was told credit cards are the devil.  Obviously true for people to can't manage money, but as I'm starting to learn, that might not be the case for people who will never have an issue paying their balance on time (like me).  In other words, I'd love to cash in on rewards.  In fact, learned to shun them so well that despite my strong financial knowledge in other areas of money and finance, my credit card questions are going to be embarrassingly elementary. For reference sake, I've been using a debit card to ~10 years. Hoping some credit card veterans can help a guy out here:

1) One uses a card to pay for things, and gets a bill at the end of the month.  Then you pay this bill via a check or debit card, correct?
2) Switching to a credit card to get points will involve changing all of my autopay bills (netflix, gas company,etc.) from my current debit card to said credit card, correct? (This might sound preposterous, but that was such a hassle to change when my wife and I got married, I don't know that it's worth a couple hundred bucks in points?)
3) Do you feel having a credit card has psychologically caused you to spend more [than using debit or cash]?
4) Did you pick a card and stick with it (maybe netting $300 - $500/pts/yr.), or do you card churn for more points?  And if you churn, that means you are constantly changing your autopay card, correct?
5) has the work associated with managing the card(s) been worth the effort (extra spreadsheets, autopay changes, avoiding yearly fee, making sure to spend $X in first 3 months, etc.)
6) Have you been burned by having a credit card. i.e. you thought you would be responsible and use it for the points, but you had an unknown late charge, a dip in credit score, forgot to cancel after a year and got charged the yearly fee, etc?  In other words, despite you efforts, have you been "gotcha'd" in any way by the negative side of credit cards?

Thanks in advance for the help, these are very sincere questions from a simple man that wouldn't mind a free flight/yr.

Tremeroy

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Re: Very basic credit card questions
« Reply #1 on: June 25, 2015, 10:19:51 AM »
1) There are a variety of options; generally you can pay by check, by automatic debit from your banking account, or by online bill pay. In general, you would not be paying a "card" with a "card," (i.e. you would give the CC company your bank account number, not your debit card number).

2) You do not have to switch your autopay bills from your existing payment method. Some companies will not accept credit cards as payment. I would generally switch whichever ones are easy, bearing in mind that the "cost" of not switching this month rather than next month is quite low.

3) CCs have not made me spend any more than I would have otherwise. Your mileage may vary. I would start small (one card, only specific types of transactions) and see what your results look like in practice.

4) We have 3 cards that we use regularly, based on rewards categories. I am not willing to do any "churning" because I want to avoid an excess number of hard pulls until I have a mortgage. I think that churning can lucrative in the short term, but it is a constant cat-and-mouse game. If you are churning, you're likely going to be pre-purchasing things (like giftcards) to meet your spending requirements & then stopping using a particular card. It probably isn't worth switching autopay information if you're going to be a churner.

5) I haven't put in too much work, but I do appreciate getting some of the cash-back rewards. It's really minimal extra effort for me at this point.

6) The only "gotcha" I ran into was my plan to use a CC to pay my student loans (via a Target Prepaid Redcard). Target stopped allowing credit card loads the week I received my Prepaid Recard in the mail, so I am not getting any points on my accelerated student-loan payoff.

NotJen

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Re: Very basic credit card questions
« Reply #2 on: June 25, 2015, 10:29:53 AM »
1) You can use a check.  Not sure about a debit card (I'm anti-debit cards!).  You can pay directly through the CC website by linking your bank account info (an ACH transaction, I believe), or even through your bank's billpay service.  Lots of options.  Also, you don't have to wait until the bill comes to make a payment.  I pay my CCs to zero every payday, because that's what works for me.

2) Yes.  That's why I don't do autopays if I can avoid it.  I go to each service provider's website each time a bill is due, and pay from there with my credit card.  This allows me to easily switch CCs whenever I want to maximize rewards.

3) No.  I think I'd spend the same with cash.  I still see all that money coming out of my checking account, so it's just as painful as any other method of payment.

4) I have a ton of credit cards.  I love getting free money.  Like I said, I don't do autopay (even before I got into credit cards).  I'm not sure if I churn, because I haven't gotten the same card twice yet.

5) It hasn't been much work.  I use MS Money to keep a "check register" of all my credit card accounts (as well as checking and savings), so it's all the same amount of work anyway.  I make sure the initial spend requirement fit into my usual spending patterns (I know these very well), so I've never had an issue with tracking it or meeting it.

6)  Never been burned.  I'm good at keeping up with my finances, so I have never paid a late fee or interest charge, or anything.  I love keeping up with that stuff.

My credit score went up when I first started opening up new credit card accounts because my available credit went up a lot.  It's started dropping now (a lot of that had to do with paying off my mortgage, though), but it's only wavering by 5 points or so when I open or close a new account.  Credit is still excellent.  I never paid attention to my credit score before I got a card that constantly shows it to me.

Also, if you do get charged the annual fee by accident, you should have 30 days or so to cancel the card and get the fee refunded.  Some cards even warn you before it is charged.  I've not found this to be a problem.
« Last Edit: June 25, 2015, 10:34:31 AM by NotJen »

cripzychiken

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Re: Very basic credit card questions
« Reply #3 on: June 25, 2015, 10:31:23 AM »
1) Most common is linking your bank and paying directly.  You could mail checks or pay by phone as well, but those aren't automated.

2) I would switch over everything you can, but leave the old card open for 2-3 months just to make sure nothing is missed.  And like Tremeroy said, a missed month of reward points from a single bill will be on the order of pennies, so don't worry.

3) It's all self-control.  Some people who have issues with impulse buys will find it harder since they don't have to hand over money right then.  For a debit card, it's about the same.  Personally, it didn't affect me going from cash to credit cards, but YMMV

4) I pick and stick.  If you want to churn, I would leave all the autopays on a single card and move spending like gas/food to the new card for points.  If you need more spending at the end of the month, there are churning tricks (haha) to "manufacture spending".

5) Not worth it to me, but a lot of people love it.  See if you are good at it and how much time it takes you to do it.  Another good thing would be to just set reminders 8months after you get the card to cancel it.

6) No gotchas that weren't completely my fault (like cancelling a card before moving my auto insurance payment over).

expectopatronum

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Re: Very basic credit card questions
« Reply #4 on: June 25, 2015, 10:38:57 AM »
My input too.

1) One uses a card to pay for things, and gets a bill at the end of the month.  Then you pay this bill via a check or debit card, correct? Yep. My CC is held at Chase, for example. I sign into Chase Online and can see my balance, then I can pay my CC off using a transfer from my checking account. This was seriously the #1 thing not explained to me in college that I felt dumb for not knowing once I got a card. Lol.

2) Switching to a credit card to get points will involve changing all of my autopay bills (netflix, gas company,etc.) from my current debit card to said credit card, correct? (This might sound preposterous, but that was such a hassle to change when my wife and I got married, I don't know that it's worth a couple hundred bucks in points?) You don't have to switch them. My gas company only pays from debit or checking transfer because they tack on extra to use credit; same with rent. I autopay car insurance, internet, amazon prime, and more from credit. It was totally worth the points and takes not very much effort with the internet.

3) Do you feel having a credit card has psychologically caused you to spend more [than using debit or cash]? No, because it was functionally the same as a debit card for me, and I DON'T look at my checking acct balance....so there was never risk of spending $1000, but my checking acct not reflecting that and therefore I go out and spend more. People who live paycheck to paycheck with their checking acct balance as their guide to when they have leftover money...they may struggle.

4) Did you pick a card and stick with it (maybe netting $300 - $500/pts/yr.), or do you card churn for more points?  And if you churn, that means you are constantly changing your autopay card, correct? I picked two cards. One was Chase SW, which has a fee but credits me 6,000 RR points annually in the value that offsets the fee. I've kept it because I spend those points anyway to see family. If you didn't, it wouldn't really be worth the fee. The other was Chase Sapphire Preferred, with a fee, and most of our spending goes on it now. The value in points greatly exceeds what we pay for the card.

I don't churn because I don't know how much you can do that without affecting your credit score, nor if that presents a risk to you later (e.g. Chase sees that I apply and cancel cards within a year and turn me down for a new one?). I also like to pick a card wisely, then hold onto it to increase my available credit (for low utilization is a factor in credit scores) and length of credit history. My first CC was student card with a $1000 limit, no fee. I don't use it but once every few months because that credit history is so much older than my others. Therefore, I technically have 3 cards, but put most spending on 1.

Again, if you churn I would still hold onto at least ONE card rather than try to switch payment methods every few months...


5) has the work associated with managing the card(s) been worth the effort (extra spreadsheets, autopay changes, avoiding yearly fee, making sure to spend $X in first 3 months, etc.) I think you are making it out to be more "work" than it actually is. I can see my points value on both cards when I sign in to pay the bill. The rest is minimal effort too, when you consider that I don't churn. I would not start out using credit cards by churning. Pick something with a low or no annual fee that you can see maybe sticking with long-term and learn to use it first. After a year or so, you can evaluate whether you want to add/churn cards. Keep in mind if you live a very pared-back lifestyle, then you aren't going to reap the rewards as much as someone who spends $10K/month. In my mind, rewards are for money I'm already planning to spend, not something I try to "earn" by spending more (that's their marketing technique).

6) Have you been burned by having a credit card. i.e. you thought you would be responsible and use it for the points, but you had an unknown late charge, a dip in credit score, forgot to cancel after a year and got charged the yearly fee, etc?  In other words, despite you efforts, have you been "gotcha'd" in any way by the negative side of credit cards? No, but remember accounts are usually easier to open than close.

If you use someone's referral link for some of these, they can benefit from extra points, btw.

slugline

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Re: Very basic credit card questions
« Reply #5 on: June 25, 2015, 10:41:28 AM »
Best suggestion to avoid overspending with a credit card: Keep some sort of ongoing register of transactions (just as you should be doing with a debit card). Also, if you use use personal finance software/website that computes your net worth, you will "feel" the impact of your spending the same no matter which account is used for payment.

NotJen

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Re: Very basic credit card questions
« Reply #6 on: June 25, 2015, 10:45:59 AM »
Thanks in advance for the help, these are very sincere questions from a simple man that wouldn't mind a free flight/yr.
I also should have mentioned, sign up bonuses are really where you get the most bang for your buck.  And the offers can change - so watch what is out there, and pick carefully.  I'm traveling with a friend next year, and we want to fly on Delta.  My friend didn't have any Delta miles yet, so I watched and waited until there was a 50k mile offer on the Delta credit card, and told her to apply for it.  I think the previous offer was 30k, but that wasn't enough to get us to where we want to go.

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No, but remember accounts are usually easier to open than close.
I have not found this to be true.  I have not had any problem closing a credit card account (I've closed three so far this year).  Some can be closed by using the websites "Secure Message" feature without ever having to talk to a person.  I do this for cards I am certain I want to close.  I will call in to others and ask if they have any retention offers (more free stuff, or fee waiver) before I cancel.  So far, I haven't gotten any offers to keep the card open.  Never had a hard sell not to close.

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If you use someone's referral link for some of these, they can benefit from extra points, btw.
True, but usually the person applying for the card gets a worse 'public offer' than the best offer that can be found through other links.  FlyerTalk is a great resource for finding the best sign-up offers available.

little_brown_dog

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Re: Very basic credit card questions
« Reply #7 on: June 25, 2015, 10:47:44 AM »
Just wanted to reiterate what previous posters already mentioned.

Overall using the card is as easy as managing your own debit account. We use our cards for material expenses like gas, groceries, etc. and some bills, but you don't have to switch all of your bills to it. I only have one card in my name because the limit is way more than I'd ever need and I like the simplicity and safety of only being responsible for one credit card bill each month. Without trying to max rewards money, I manage to make back $100-200 per year in rewards dollars (my husband makes more given he puts more of our expenses on his card).  It's not a goldmine strategy but it's still free money (I don't have an annual fee and I never carry over a statement balance).

Definitely work your way up since this is new for you - open one card, stick with it for a while and see if you feel comfortable with the process before looking into the more complicated dance of opening and closing accounts to max rewards.

EllieStan

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Re: Very basic credit card questions
« Reply #8 on: June 25, 2015, 10:48:41 AM »

1)You can also make your payments online, if your bank offers this option. For example, at the end of the month, I add my CC bill on my online bank account (like I do for other bills), and just make the payment from my online chequing account. It's done within seconds, no stress about sending a cheque by mail or having to go to my financial institution to make the transaction.

2) Depending on your CC, the reward can be worth it. For example, my CC offers 2% cashback for those recurring payments. It adds up! A debit card will probably not offer similar cash rewards. Plus, you probably have to pay in order to use it (transaction fees).

3) Not at all. I use a budget spreadsheet to keep track of ALL my spending, and I pay off my CC balance entirely, each month. I don't consider a CC ''free money'', nor do I consider it my emergency plan. It's a tool that I use to pay for my living expenses, but I make sure to use it responsibly. Also, you can lower your credit limit to an amount that's comfortable and coherent with your monthly budget, and psychologically it can help you because you know you won't exceed that limit.

4) I personally don't churn...yet? I think it's safer to start with 1 CC, get used to it, make it work for you. Then you can try another strategy.

5) To me, yes. This is how I learned to manage my money more effectively, especially because the interest rates are so high. I didn't want to waste that much money.

6) In my late teens and early twenties, being a student and all, yes. I used it as my emergency fund, basically. I often carried a balance, but paid off more than the minimum each month, which didn't affect my credit score negatively. I have learned over the years how to manage a budget spreadsheet and now I refer to it on a daily basis. I made changes to my routine and payments. It took time but I learned how to use my CC as a strategic tool. I haven't carried a balance in years now, and I've used all the cashback rewards so far to pay off my student loans faster.

Also, I think the key is to know what are your needs. Mine weren't air travel points or shopping/coffee/entertainment points. I wanted more money to pay off my loans. I chose a card that paid off more in the areas I spend more on a monthly basis : groceries, gas, drugstore and recurring bills (electricity, Internet). If you travel often, have family out of state that you visit a few times a year, etc., then a card with air plane points might be best suited for you. It's really about making it work according to your needs.
« Last Edit: June 25, 2015, 10:52:13 AM by EllieStan »

citykid3785

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Re: Very basic credit card questions
« Reply #9 on: June 25, 2015, 11:39:09 AM »
I'm sincerely thankful for all the replies, thanks for taking out the time to answer my questions!

expectopatronum

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Re: Very basic credit card questions
« Reply #10 on: June 25, 2015, 12:09:47 PM »
Thanks in advance for the help, these are very sincere questions from a simple man that wouldn't mind a free flight/yr.
I also should have mentioned, sign up bonuses are really where you get the most bang for your buck.  And the offers can change - so watch what is out there, and pick carefully.  I'm traveling with a friend next year, and we want to fly on Delta.  My friend didn't have any Delta miles yet, so I watched and waited until there was a 50k mile offer on the Delta credit card, and told her to apply for it.  I think the previous offer was 30k, but that wasn't enough to get us to where we want to go.

Quote
No, but remember accounts are usually easier to open than close.
I have not found this to be true.  I have not had any problem closing a credit card account (I've closed three so far this year).  Some can be closed by using the websites "Secure Message" feature without ever having to talk to a person.  I do this for cards I am certain I want to close.  I will call in to others and ask if they have any retention offers (more free stuff, or fee waiver) before I cancel.  So far, I haven't gotten any offers to keep the card open.  Never had a hard sell not to close.

Quote
If you use someone's referral link for some of these, they can benefit from extra points, btw.
True, but usually the person applying for the card gets a worse 'public offer' than the best offer that can be found through other links.  FlyerTalk is a great resource for finding the best sign-up offers available.

What I meant by "easier to open than close" was emotionally/mentally and in terms of inertia - convincing yourself you need it, that kind of thing. The actual logistics, not so much. But that's me. I guess I get attached to my accounts...

For the Sapphire Preferred, the referral is currently the same as publicly offered. I guess you just need to do your research and google a specific card before you sign up to make sure you get the best deal.

MoneyCat

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Re: Very basic credit card questions
« Reply #11 on: June 25, 2015, 07:05:05 PM »
I haven't changed my spending since switching from debit cards to credit cards, other than reducing my total spending.  I have six different credit cards, because they all have rewards programs that can be maximized in different ways.  You just need to have a lot of discipline not to chase rewards.  Just earn the rewards for what you are already doing.

chucklesmcgee

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Re: Very basic credit card questions
« Reply #12 on: June 25, 2015, 10:16:07 PM »
5) has the work associated with managing the card(s) been worth the effort (extra spreadsheets, autopay changes, avoiding yearly fee, making sure to spend $X in first 3 months, etc.)

You make a lot out of changing autopayment. It's not really that hard and you don't have to do it every time you get a new card.

There really aren't extra spreadsheets or too much else to worry about unless you go absolutely crazy signing up for cards. Which you don't need to do.

Making sure you spend $X in the first 90 days also isn't hard. Just don't sign up for cards you know you can't hit the spend on.

I'd suggest you just start slow, with some solid no annual fee, no hassle cards that you'll keep around for a long while. Pick up a Citi Double Cash and maybe the Sallie Mae Mastercard. Use the Sallie Mae card on gas, groceries and Amazon.com. Use the Double Cash on everything else. That's it. You'll get 2-5% back on your expenses. Do that for a bit, and then maybe look into other cards if you're feeling adventurous.


okits

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Re: Very basic credit card questions
« Reply #13 on: June 25, 2015, 10:26:25 PM »
I do find it's easier to spend if you're just whipping a credit card out (can't compare it to using debit as I'm all about getting the Visa cash-back.) But give it a try and see how you personally behave. Being aware of the pitfalls is half the battle.