Hopefully, that got your attention! So many financial talking heads tell you to “cut up your credit cards”, “freeze them in a block of ice”, and other silly suggestions. I am assuming my readers behave as adults. The ability to be responsible has enabled you to get the education that you needed, to land a decent paying professional position and to seek out information from sources (such as Salary Seeds). I will not be condescending and treat you like a child. There are plenty of other information sites where you can obtain such treatment.
Before I get any further, I do believe in the vast majority of cases, it is a bad idea to carry a balance on a credit card. If you have a situation where you believe it is a good situation, please let me hear it in the comments. I am open-minded when it comes to financial strategies. Therefore, I am only going to share my comfort with using credit cards for the benefits they offer, and not as a source of any longer-term source of capital.
Benefits
The benefits that attract me to some credit cards accounts are cash back and very specific mileage and/or points that align with my routine, consistent expenditures. I view the cash back as a discounted price for products and services that I would be purchasing whether I used my plastic or not. The mileage / points cards align directly with my usual airlines and hotels. No complicated underlying strategies here!
I am sensitive to annual fees. With a quick estimate, I can assure myself that the benefits I will likely be rewarded are greater than the cost of the annual membership fee. For the mileage/points, I use the redemption value for something of value – I love the gift card options – for the comparison.
My Cards
I routinely use five distinct credit card accounts. We have three for personal use and two for our management company use. I am a huge fan of the service that I receive from American Express. It’s because of that I use a hotel-branded AX and an airline-branded AX for all my personal or “W2-work” travel. For the rest of our personal lives, we use a cash back VISA card account.
On the management company side, we use a cash back AX business card or a cash back VISA business card. The cards are in the name of our management corporation, which is important for the proper use of an entity. We also have the nearly requisite Amazon-branded VISA that we only use, you guessed it, for Amazon purchases. I have included links to the business cards below:
American Express Blue Business CashTM Card
We appreciate seeing some “Other Income” for our businesses from automating payments using this card and automating the payoff of the balance each month.
Chase InkTM Business Cash Card
More cash back – not every vendor accepts AX!
We use these cards whenever we can. Why would one write a check paying full price when the option exists to use a card and pay 99%, 98% or even 95% of the retail price? We have many automatic monthly charges such as for utilities and subscriptions. All our monthly consumables are purchased using one of these cards. We’re responsible adults and can be counted on to pay off the balance every month.
Don’t Overspend
One of the arguments against using credit cards is that you can overspend as a result of not feeling the payment hit your checking account immediately. If you are also following our recommendation to budget (see Tip: You Have To Budget) there’s no concern. You already will have identified your monthly expenditures in your budget.
Your utilization of credit card accounts should reflect and align with your routine behaviors. Identify two or three credit cards that will realize the maximum benefits for you. I’m trusting that you won’t allow your new card to drive you to spend on new, previously unbudgeted items. You are budget aware and have a goal of increasing your net worth. The use of your cards should effectively lower your expenses, not increase them.
New Income Streams
I enjoy recording our monthly credit card cash back rewards both in our personal and business budgets, as well as in our personal savings and business checking accounts. Because of our limited capacity for personal travel – don’t be alarmed, we’re healthy, we just have two dogs! – I typically redeem mileage and points for Amazon gift cards. In fact, we used a lot of that “free money” to help furnish our short-term rental properties. It’s even better than that – the furnishings purchased with “free money” produce tax deductible depreciation expense! (I’ll cover that in a future post.)The message here is you are a responsible adult. Your responsible use of credit cards can produce additional income streams and should be treated as more Salary Seeds. Pay off the balance, invest these Seeds wisely and let them grow!
