It’s time to clean out your wallet full of credit cards (and your sock drawer, too.) No excuses!
When it comes to dealing with credit cards, it almost reminds me of that old nursery rhyme, “Old MacDonald.” It went something like this, “Here a cow, there a cow, here a pig, there a pig,” and so on. Now we deal with credit cards and many people have so many cards that to me it seems like Old MacDonald when they open their wallets. “Here a Visa, there a US Airways Visa; here a MasterCard, there a Citibank MasterCard; here an American Express, there an American Express Optima!” I think you get my point. We almost have more cards around now than we have cows or pigs. They come in all colors and limits, and have so many different terms and fees, that like Old MacDonald, it’s difficult to keep up with what is best. I hope I can help eliminate some of the confusion.
First of all, cards can get you in a whole lot of trouble very quickly. Don’t ever forget that. They are not magic, and despite the credit card companies’ best efforts to show you how magical their card is, you still have to pay off whatever you charge to the card. The ads and mailers make it sound as if you can use the cards free. There are no free lunches and no free credit cards. This is a Greenfield Hard Rule of Economics. Don’t forget it.
Too many people get caught up in the wonderful scenario of seeing something they want and immediately satisfy that need by laying down this little piece of plasticalmost as if by magic, they can walk out of the store with whatever they want. Amazing! What’s amazing is they convince themselves that’s all there is to it.
Cards now basically come in two flavors. A regular charge card, and the new kid on the block, the debit card. However, the charge card is just what it says it is; a charge card. You buy it and they charge it to you with interest. All cards have a limit on what they will let you charge. For some of you, that isn’t so bad since you have no self control and need someone to say “enough!”
Interest rates will vary all over the board depending on what you demand. Yes, you can get a rate reduction if you just ask for one. You didn’t know that? Well, now you do, so no more excuses. Just get on the phone, give your cards a call and see what you can do. It’s worth a call. Remember, they haven’t stopped making cardsif they say no, maybe it’s time to look for a better one with a lower rate.
These charge cards usually have an annual fee, too. If you don’t carry a balance each month, don’t worry about the interest rate because you won’t be paying it. Get a card with no fee. If you do carry a balance, get the lowest interest rate and don’t sweat the fee.
Some cards give you all kinds of goodies, but again, remember: there is no free lunch. You don’t get something for nothing. Frequent flyer miles are one goodie, but are the high fees on these cards worth it? Maybe it’s time to evaluate those cards. The same is true on all the goodies these card companies are just dying to give you. Look at the annual fees and the interest rates and see if it’s worth it. Sit down with a calculator and figure out how long it takes you to “earn” any goodies on your card. Now add up the annual fees, plus the interest rates and see if the goodie is overpriced. If it is, then maybe it’s time to get rid of that card. You might save some money by cancelling the card and using the savings to buy the goodie that you really want.
Debit cards do just what they say they do; you buy something and they debit your bank account. I am not a fan of these cards because they give you no “float” time. If they debit your account, then the money is gone right then and there. At least with a regular credit card, you get a statement at the end of the billing period so you have some float time before you have to hand over the money.
I am a firm believer in using “OPM,” better known as “other people’s money” for as long as I can provided I can use it without paying anything for it. That’s what the float gives you and debit cards float like a lead balloon! In other words, no float. Some people like debit cards because it’s almost like using a check. You give the card to a merchant and it comes directly out of your account. However, I prefer OPM and just love to float.
Semi-precious metal cards are another breed unto themselves. Yes, it is a nice feeling to pull that gleaming silver, gold or platinum card out of your wallet and watch the waiter’s eyes light up when he realizes just how important you really are. You must be important or just plain stupid to to spend that much money on a credit card that doesn’t “do” that much more than a regular old green one, but charges a lot of money so that you can impress waiters. Isn’t life wonderful? They should be called what they are, “ego” cards because that’s the only purpose they serve.
By the way, if you have a lot of credit cards and are only using a few of them, you might be better off writing some of the companies and getting rid of some. If you don’t, those cards that are just sitting in your sock drawer could really hurt your chances of getting a home mortgage or any loan. Even if you are not using a card, the lenders compute the total “potential” debt on all your credit cards whether they are in use or in your sock drawer. Just because you cut them up doesn’t mean the card company gets the message that you no longer want the card. Send them a letter.
I also recommend you use one card as a “business” card. If you put all of your business charges on one card, at the end of the year you have an easier method of going back to see what was for business and what is deductible for tax purposes. Give that a try. It might make your life and your accountant’s life a lot easier.
Here’s another quick question to ponder: If you lost your wallet today, do you have a list of all of your credit cards and their “800” numbers to cancel them? How about your spouse’s wallet? Your kids’ wallets? Did that question send chills down your back all the way to “L-5?” That’s just about where your wallet sits. Maybe it’s time to do this little project and take some pressure off your L-5. I can help you get some credit card potential problems off your back, but I can’t help you get your kids off your back–you’re on your own for that.
Okay, so now you have some homework to do. I suggest you get out all your credit cards and make a list of them. While you’re at it, this would be a good time to list your cards, their account numbers and the toll-free numbers you need to call in case you lose a card. Also, take note of who has what in their wallets. Then figure out whether there is an annual fee and write it down. Take a look at your most recent billing statement and it will show what the interest rate is. Now you can really compare the cards on an equal basis and determine which cards are good and which are not so good.
Now what? That depends on you. You can call the card companies to see if they will “adjust” the rate or you can write and cancel the card. That is your call. By the way, I suggest you repeat this little exercise every year to keep a handle on what is going on with all those cards that you have in every corner of your wallet and sock drawer. Like I said, “Here a Visa, there a MasterCard…”