Saturday, May 26, 2007

Credit Cards

With the wide range of bills and purchases that we make it's pretty hard to not have a credit card. It is possible but it means carrying a lot more cash money and sometimes in an emergency you may not have the money on you. For the convenience we choose to use credit cards but use them as wisely as possible:
  • Chose a card with an interest free period giving us the opportunity to pay without penalty
  • Chose a card that allows supplementary cards for free
  • Chose a card that provides an incentive, in our case points towards free flights (this helps us with our vacation planning)
  • Chose a card that allows automatic bill payments
  • If we have a large transaction on our card we transfer from savings to pay it off because credit cards have the highest rate of penalty interest for us.
  • Put any spare cash into the credit card before other debt in order to reduce the interest paid
  • We reduced to only one type of card to avoid the multiple annual fees
  • If we do have the cash at hand we use it
  • Avoid if possible using the card if there is an interest penalty to use it
If I'm unable to pay off the balance before the due date I use a mini plan to pay off the amount as quick as possible. We keep a spreadsheet that tells us based on the current balance how many weeks it will take to pay the balance and the amount we need to pay. For example if we owe $1000 we use a 6 week plan to clear the debt being $166.67 per week.

If we buy something else we'll use a 12 week plan so as to not increase the weekly payment so significantly that we can't live. So if we buy something for $750, we add another $62.50 to the weekly minimum making the new payment $229.17.

It means that we may pay some interest if we don't have much savings at the time however we try and pay off the balance as quick as possible. It's not an exact science however it works for me.

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