Credit card selection

[Skylark]

What should you look for when selecting a credit card for use while saving for ER?

My goal is to avoid use of credit cards, and use a debit card instead, however I think we need at least one credit card.

Until I can get an emergency fund saved up I need to be able to get loans for emergency home improvements, car problems, etc. Also online purchases, hotels and car rental are tough with no credit card.

I still have a couple of credit cards with balances (oops) but I do have a plan to pay them off and I try not to use them. I would like to consolidate them into a low interest rate card as I get into the final stretch of paying all credit cards off and switching to using an emergency fund to cover the emergencies that we used to use credit cards for.

I am hoping to find one credit card that is a good one to keep for a long time. A teaser interest rate on balance transfers would be good but really I am looking for a card to hold and use only if absolutely necessary. Eventually I can see using it for purchases but we need to learn a little more discipline first by sticking to a debit card with a limited budget in the debit checking account.

So what things do you look for when selecting a credit card?

 

[renferme]

I would recommend that whatever card you use, pay it off when the bill comes. Don't use a card that begins to charge interest at the time of the sale.
If using a debit card, I would only use it locally at merchants that I trust; never use it out of town.
If traveling overseas, have 2 credit cards with you. I was in Scotland one time and tried to use a credit card to secure an automobile. The credit card's computer system was down, so the card was rejected. I had no other card with me (stupid). Had to call the credit card company and get them to authorize the card manually.
A real pain !
I highly recommend joining a credit union and I never use a bank anymore. Credit Unions usually have good rates for their credit cards. One nice thing about my credit union, is that I can charge on my Visa, then go online, and pay it off as soon as it appears on my account. Don't have to wait for the bill. That's virtually as good as a debit card.

 

[TheFIREman]

Two cards: one with 0% on balance transfers, so you can pay off your existing debt, second card offers cash back on all your purchases, just make sure you can pay them off every month. Once your initial debt is clear, you really don't need the first card, but a backup is always nice.

 

[John Galt]

GDER has got the credit/debit card thing just right.
I would agree with his entire post.

John Galt

 

[newellcr]

skylark,

You are right to ask the question about what to look for in a CC. First the discussion needs to move past the interest rate because you can't really pay off one CC and add to the balance on the new card with a lower interest rate. So if you are really in a position to pay off the cards (and you say you are), interest rate is only of secondary importance, unless you make the mistake of getting a revolving credit line. Revolving credit lines aren't too popular anymore. The revolving credit charges interest from the day you buy. Department stores were big in revolving CCs. Don't get a revolving CC.

The interest rate will only make a difference if you miss a full payment, fall of the no-balance wagon, or have a true emergency. This is why I say it is of secondary importance.

Benefit cards are great. Look for one that pays cash or equivalent value to you. FF miles are worth about 2.5 cents each (from memory) so a "Free" flight in the lower 48 (assuming you are in the lower 48 ) is worth about $625. The kicker is that you have to want to fly and these cards usually have annual fees. I get ff miles from work flights so I don't need any more and don't follow the travel card offers. Discover has long given cash rebates and it is free to carry, it is almost universally accepted with some smaller shops excepted. American Express offers different cards - I carry and use the Costco-Amex card. It rebates 1-2% annually and is "free" with Costco membership. The Amex card is not as universally accepted, but I carry three cards and use the others when the Amex card doesn't work. There may be other Amex deals, I don't know.

The three cards that I carry listed in order from most to least preferred are the Costco-Amex card, Discover, and a Hilton hotel VISA. All are "Free" and all provide some benefit.

Cheers,

Chris

 

[BigMoneyJim]

I'm 33 and paying down CC debt. My strategy the past 2 1/2 years has been this:

All my debt is consolidated one card. In my case, this is a relative's card with a low fixed interest rate. I haven't added any debt to it.

My second card I called and set the limit to $500. My thinking was that if I was bad and kept a balance it wouldn't get out of hand. That's happened once or twice and I was able to bail myself out in just a month of tight budgeting. This second card is in my name and is a credit union fixed rate card.

I'm a procrastinator, so nowadays I mostly accept that and choose situations where I can forget about things or slip past deadlines without dire consequences, so I avoid the special limited time deals and cards with interest rates that zoom to 20%+ if I miss a payment or don't move balances at just the right time. So in the future I will always look for fixed rate cards. People who like to micromanage can take advantage of the special offers, but I always get burned on them so I just don't do it anymore.

(Begin Discover / Delaware rant) Another tip: Avoid cards from banks in Delaware. They have the loosest usury laws in the country. Discover Card is based in Delaware. I used to like Discover, but they really, really P'ed me off a few years ago. Yeah, it was my fault for getting into that situation, but I had a situation where my cash advance balance was at about 20%, but all my payments--even though I was paying way over the minimum--were going only towards the lower balance and interest. I can sort of understand that except that I wasn't even allowed to pay the periodic interest on the cash advance until the principal on the purchase balance was paid off!! So the "cash advance" portion of my card kept growing, as in the bad side of compound interest!! I'm still not sure that was legal. (End Discover / Delaware rant)

 

[Bob_Smith]

Interesting posts about debit cards. Are you referring to the debit card with the VISA logo? I'd be interested in your sources of info, experiences, etc. I had heard that about the risk of fraud a few years back, but I checked with my credit union and they told me (in writing) that their VISA debit cards have the same protection credit card holders have - a maximum $50 loss, etc. Is that generally not true?

I should be using a credit card anyway, and these posts will motivate me to do that. I've been meaning to for years. But I'd be interested in knowing if my credit union is just blowing smoke about the debit card protection.

 

[ordway]

I never carry a balance (and never have), so interest rates are irrelevant to me. So first, pay off your card(s) and stick to paying off the balance in full every month! The next most important thing is that there's no annual fee. Even if there's a reward that you get with that card, I'd rather go for the "bird in the hand" (not spending the annual fee) rather than the one in the bush (potentially getting a reward that exceeds the value of the fee).

I do like reward cards. I switched around between a couple of them (Waldenbooks, Barnes and Noble) before settling on the Amazon Visa. No fee, and you earn gift certificates. Since there are plenty of things I can get from Amazon, both practical and for entertainment, this is as good as cash to me, and the percent given in rewards is higher than any of the straight cash-back cards I've seen.

 

[John Galt]

Once again I agree with GDER. Credit cards can be
a tremendous asset, but you need to understand
what you have, and have some self-control.

Back when I owned my own business, I bought what
for us was a major product line, financed 100% by
credit cards. On the way to the closing, I stopped at a
bank and maxed out one after another until I had
enough to do the deal. I told the teller she wouldn't have another customer do that for the rest of the day.
She agreed. After the deal was closed, I went to the
bank and got traditional financing.

John Galt

 

[Skylark]

Credit cards and budgeting

Our problem with credit cards is that we never kept a record of how much we spent each month. We were not really going overboard but still were spending more than we could pay off on a monthly basis and it kept adding up. I have been saving for investment for a few years but frankly we never really had a handle on how much we were spending for what until this year.

Since the beginning of the year we have not used credit cards and are using cash and debit, and the debit account gets the budgeted amount each month and when its gone, its gone. It is easy to find out how much money is left in the budget for this month, either online or at the atm machine, and then the next reaction is to start thinking about what you want to spend that remaining amount on on, prioritization.

We need to learn what the limits are to our budget, and learn what lifestyle we can afford, so we will probably avoid credit cards for a while. The problem with credit cards is the lack of feedback between impulse purchasing and its effect on the budget. After a couple of weeks the statement comes with the bad news: OOPS we spent part of our budget twice!

There is a place for credit cards, we just have to learn what kind of spending lifestyle we can afford before we start using them again.

Its good to be reminded of the debit card security problem. It is probably a good idea to phase out the debit card eventually and use cash and credit cards.

 

[Dogcliff]

Assuming one doesn't have a 'problem' with using (abusing) credit cards, even feecharging reward cards can have their rewards (and conveniences). I use my BOA/Alaska Airlines card to not only pay all of my outside purchases ('kept Costco(AMEX/Costco Executive), but have my water, natural gas, elect, phone/cable/internet, car insurance all paid automatically via the card. Extra miles from the phone folks. Card auto debits from Credit Union, so ZERO checks to write. Most convenient. I am hauling my family of five (& a guest) to Orlando next week, thanks to FF miles. Nice ROI

dc

 

[Whakamole]

Re: Credit cards and budgeting

Our problem with credit cards is that we never kept a record of how much we spent each month. We were not really going overboard but still were spending more than we could pay off on a monthly basis and it kept adding up. I have been saving for investment for a few years but frankly we never really had a handle on how much we were spending for what until this year.

This is one reason why I love money management software. I'm using an old (2002) version of Microsoft Money which tracks everything - I can see how much I spend on groceries, entertainment, etc., how my investments are doing, and how my net worth took a nosedive today because of the stock market :-/

 

[Skylark]

Money Management Software (Credit card selection)

How much work is it to use Money, or Quicken to monitor your household budget?

I set up a few household budget spreadsheets early this year and I'm trying to work out a process of tying specific savings and checking accounts to expense types. The income goes into one checking account, and budgeted amounts are transferred each month to checking or savings accounts for various expense types.

It seems to be working pretty good and so far we have kept to the budget. The best part is that we know right away if there is an income shortage, or an expense overrun and we can react immediately. Also knowing when bigger expenses will show up during the year has made my life a lot easier.

I thought about getting a software program but decided I could just use spreadsheets and set it up exactly the way it fit our situation. It is not too hard to keep the budget updated but you do have to remember how to do it right. Sometimes the transfers can be confusing. So far it is working for us.

 

[BigMoneyJim]

How much work is it to use Money, or Quicken to monitor your household budget?

As much or as little as you want.

I can be analytical, but I quickly lose interest, and Money and Quicken aren't useful if you don't keep them up to date. Plus it's easy to go overboard with the features.

A few years ago I whipped up a simple Excel spreadsheet with an income column and expense colum for each month. I have one sheet for each year. At the top, for each month, is the sum of the income and sum of expenses. There is also a calculated field in the income column that has the leftover money from last month as "income".

It's so simple that if I go a few months or a year without updating it I just balance my checkbook and hardcode that amount in the "leftover from last month" field so I can start over yet still have the old budget info in there for reference. It's obvious which parts were maintained and which weren't.

That's just an example of a very simple budget sheet. It's not useful for much analysis because deposits to savings are "expenses" and monthly leftovers are "income", but it works great to make sure I don't run out of cash. About the only analysis you can get out of it are things like "gee, when I limited my cash withdrawals to $x00 per month I spent $200 more on my check card and $100 more the next month paid to my credit card."

At the other extreme you could use all of Quickney's investment tracking and expense features or create your own spreadsheet or database with account codes for various investments, incomes and expenses and do cash flow analysis and ROI calculations.

 

[ordway]

Re: Money Management Software (Credit card selecti

How much work is it to use Money, or Quicken to monitor your household budget?

Well, my husband is updating Quicken even as I type this, and he just commented a moment ago about how great it is

We track everything to the penny (as much as possible), using credit cards for almost all purchases (and paying them off when they come due, of course!). My husband likes how easy it is to handle this in Quicken - he can download transactions and match them up easily, so reconciling things is fast, and he also handles our investments through Quicken. He doesn't spend much time at all doing it - just 10 or 15 minutes every week or two.

We don't use lots of little sub-accounts, but we do have a second checking account (linked to a Paypal account, so we can use Paypal without giving it access to more than a little bit of our money) and a money market account; Quicken does a fine job of handling transfers among these, as well as direct deposit and automatic withdrawals.

It's quite helpful in showing how much we spend in particular categories, and tracking net worth and expenses overall. It does have its quirks (some of the interface stuff is a little clunky) but I'd definitely recommend it.

 

[RedOscar]

Re: Money Management Software (Credit card selecti

How much work is it to use Money, or Quicken to monitor your household budget?

I would venture a guess that I spend 30-60 minutes per week to track my finances using Quicken. Most of this is spent entering transactions or reconciling account statements. I track all spending in great detail, using many categories. All investment accounts are also tracked in detail. I chose to enter all transactions by hand rather than rely on downloading from the various institutions.

The feature I value the most in Quicken is the ability to calculate investment returns in the portfolio using any manner of data combinations (security/accounts/dates/etc). I have investment data going back to 1977 in my database.

Quicken really is a wonderful tool for managing my finances.

Red

 

[Bob_Smith]

I do like reward cards. I switched around between a couple of them (Waldenbooks, Barnes and Noble) before settling on the Amazon Visa. No fee, and you earn gift certificates. Since there are plenty of things I can get from Amazon, both practical and for entertainment, this is as good as cash to me, and the percent given in rewards is higher than any of the straight cash-back cards I've seen.

Hey Holly, you got me fired up to get Amazon's credit card. I checked it out, liked what I saw, and applied. Problem is, I haven't used credit in so long that they turned me down!! During my accumulation years I simply had no need for credit, so I literally dropped off the radar screen. Anybody know of a hassle free way to get it back (that doesn't involve paying interest)?

 

[wzd]

BOB - hmmm....BIG RED FLAG!!! Credit card qualifications are usually not that exclusive. I would recommend you get the free credit reports (at least in CO, they are free if your are turned down for credit) from the big 3 credit agencies, and review them. Maybe something is wrong there; I would worry about both simple errors and identity theft if it happened to me. Also look around for another one and apply in case Amazon is more selective than others. There are lots of no fee ones out there that cost nothing to use as long as you pay them monthly.

Also, to add to the original thread, we have moved toward using credit cards for almost everything, and I download the report monthly into Quicken. It gets the categories right based on the payee once you have done it once. I am not picky enough to breakdown "Safeway" to anymore than "groceries" even though it included other household expense. It's very nice to have the reports to look back at for recent years when thinking about the future.

Wayne

 

[Bob_Smith]

Wayne, they do tell me the reason in the denial letter:

"Few revolving accounts opened long enough to establish a credit history. Not enough accounts opened long enough to establish a credit history."

But I sent for a free copy from Trans Union just to be sure. I'm sitting on a pile of money and have no debt - they just don't have any way of knowing whether I'm a good risk. I paid off the house over a decade ago and haven't borrowed a penny since. I hate to borrow some money from my bank just to get a credit history again, but I may have to do that. I want my free books from Amazon.

 

[Cut-Throat]

Wayne,

I do the same thing with Quicken. I group Grocery and Household stuff together also. I have expenses going back the last 8 years. It is usefull stuff!  And it's automatic and don't have to think about it.

Bob,

I'd try to get in touch with Amazon directly and try to straighten it out. I'm sure that if you explained your situation and provided some proof of assets, you'd be approved. Remember a computer turned you down.

 

[wzd]

Bob - I guess 8 years with no credit is too long for them. I would second Cutthroat's suggestion to try to talk to a person there. If you have not success with that, I would check with your credit union or bank where you have accounts and ask them to open up a credit card. I guess I am still amazed that they would turn down someone who has paid off a mortgage.....

I used to pay most expenses with cash when I was single. But then I got married, with instant kids(step kids), and between increased costs (Subway for 5 vs. subway for 1) and the fact that my wallet became "the bank", I switched to plastic. It has real advantages in being able to track expenses easily as long as you have the disipline not to abuse it.

Wayne

 

[wabmester]

It's unlikely anybody at Amazon would be able to help you.  They just put their brand on the card.  The rejection letter should tell you the name of the issuing bank, and that bank may be able to get you going.

 

[Bob_Smith]

Thanks all. I do want to use a credit card now just to get the perks. I hadn't thought of just getting one through my credit union. That would be easy. Then I'll switch to Amazon. Wab, you're right - it is Bank One that issues the credit. I'll call them them - maybe I can skip the local credit card.

 

[wzd]

it is Bank One that issues the credit.

If I recall correctly, they issue that card and a wide number of other reward cards. Look at the bankone web site and I think it is there. I'm so sick of customer service phones, I usually use online communications when possible, and they respond promptly.

I have the bankone business rewards card for my LLC which was formed to manage my apartments. 1% back on everything and 3% on certain "business supplies" including building materials. Now if I could find a personal one with that level of rewards!

Wayne

 

[cute fuzzy bunny]

Money and quicken (i've used both) can be good and bad.

Depending on which banks and investment firms, the updating can be a click of a button or a fairly lengthy process. I use an old east coast credit union that used to be part of my company; company died but the credit union lives on. They dont allow direct quicken or money downloads, you have to open quicken, go to the bank web site, pull up account history, and click a button to make it get vacuumed up into quicken.

Some problems I had with it, and I'm sure they're solutions to them but I hit the wall with "this is taking more time to do than its saving me or offset by quality information".

- Many vanguard admiral funds internal information is not available or incorrect. For example the Wellesley fund I have shows its asset allocation as 100% "other", and the historic distribution information is not accurate. I've entered the asset allocation information manually, but periodically it gets reset.

- My former brokerage (ameritrade) didnt report dividends paid out correctly, instead it told quicken that a $3000 dividend payout in cash was a zero dollar dividend reinvestment. This was more ameritrades fault than quickens, but neither was much interested in resolving the problem. In fact quicken never even answered any of my emails. This caused me to have to refile a tax return when I fed quicken to turbotax and a single large dividend payment at the end of the tax year was recorded as zero. After that, obviously I didnt feel I could trust any accounting or tax software without analyzing each piece of information a line at a time. Which sort of makes them not very useful, at least to me.

- Monies moving between accounts at different institutions are problematic. If I do an EFT of 10k from vanguard to my credit union, each institution reports this as an unlinked transaction...one has 10k beaming out to oblivion, the other has 10k beaming in. I can manually correct this by changing each transaction in quicken to be an inter-account transfer, but the very next time I link up and download transaction histories I end up with the withdrawal from one and the deposit in the other re-entered, creating double entries...the 'proper' transfer one and the two distinct transfers. Failure to fix the original lack of interlinking the transactions causes inaccuracies in balances.

- Holdings of accounts arent always right. Even now that I'm 100% vanguard on my investments, after a month or so I'll notice that what vanguard reports as number of shares in a fund differs from what quicken thinks, and I'll always find some small gaffe and have to correct the transaction. And as above sometimes the correction can be undone by the next download.

So my summary is that the software is useful if you

- Have an account with a company that provides high quality linked quicken data rather than downloads, or you're willing to change financial institutions to one that does. Quicken offers brokerage, credit cards and banking and I'm not sure if they're focus on their own causes small 'problems' with others, or if the lack of attention to non-quicken financial entities is intentional to gently drive you into their services when you get sick of little this and that problems.

- Ideally you have everything...checking, savings, money market, investments, credit cards, etc with the same linked institution. Very ideally quickens own.

- You're willing to put some time into categorizing, correcting or at least looking over what quicken *thinks* has happened to make sure a mistake or unlinked transaction set hasnt occurred.

I'd probably prefer that instead of spinning out a new version every freakin' year that is only marginally better than the year before, that they work to resolve some of these problems. Because I think they're largely resolvable. A nice toolkit and support for banks and financial institutions to make linkage a no-brainer. Looking for same dollar transactions that happen withing a day or two of another between institutions, asking if they're linked, and doing so internally to keep balances correct. Working with other financial institutions to quickly resolve small discrepancies and bugs.

As of now, I'd rather not spend several hours a week in this direction. All my investments are at vanguard, all my other financial stuff is at my credit union. Simple for tax time. I spent a few hours putting together a strawman budget and just eyeballing it I can see that I was as conservative as I thought with it and that my spending is in line. I'm not sure I need any more information than that.

My ex girlfriend was a double analytical though, and she spent an hour a day with a fistfull of receipts, entering and categorizing, downloading and verifying, balancing and correcting. She felt very good in being able to chart how much cat food her cats ate month by month, subdivided into canned and dry. Some folks heads just work that way.