The Personal Finance Podcast - 10 Rules For Using and Maximizing Credit Cards!

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Starting point is 00:00:52 Learn more at tellus.com slash online security. No one can prevent all cybercrime or identity theft. Conditions apply. On this episode of the personal finance podcast, we're going to be talking about the 10 rules for using and maximizing credit cards. Everybody and welcome to the personal finance podcast. I'm your host, Andrew founder of mastermoney.com. And today on the personal finance podcast, we're going to be talking about the 10 rules for using and maximizing credit cards. If you have any questions, hit me up on Instagram at Master Money Co.

Starting point is 00:01:47 and hit me up on TikTok as well at Master Money Co. We're answering questions via video over there on TikTok. And don't forget to follow us on Spotify, Apple Podcasts, or whatever podcast player, you love listening to this podcast to. And if you want to help out the show, leave a five-star rating and review on Apple Podcasts or Spotify. And don't forget to check us out on YouTube as well at Master Money on YouTube. So today, we're going to be talking about how to use your, credit card because this is an extremely important topic for most people. Now, one thing I want to

Starting point is 00:02:21 hit on right up the bat. If you've had a bad relationship with credit cards, then we're going to talk about something in this episode that you can utilize to still raise your credit score without the use of actual credit cards. Now, making sure that you're responsible with credit cards is incredibly important. And that's one of the biggest caveats you want to understand up front. So you know how you act when you have that credit card in your hand. So it's incredibly important for you to understand, hey, if I've had a bad history with credit cards, then I need to consider some other options so that I don't get myself into a bad financial situation. That's what you want to avoid when you're utilizing credit cards.

Starting point is 00:02:57 So today we're going to be talking about how to maximize your credit cards and some tips and tricks and things that you need to do with your credit cards so that you can get the max potential out of them. So if that's something you're into, let's get into it. So the first one is to choose the right card for your situation. So the biggest thing to understand is when you're selecting your credit card, you want to select a credit card surrounding the perks and rewards that you want to utilize. So for example, if you want to travel the world, then you want to choose a travel rewards credit card. Now we're going to have an episode coming up on how to travel hack where we used to travel the world all the time for free because we utilized credit card points.

Starting point is 00:03:39 And I've been to multiple countries 100% paid by the bank and the credit card companies. because I figured out how to maximize credit card points with travel rewards cards. So if you want to travel the world, a travel rewards card is fantastic for that situation. Now, some of my favorite travel rewards cards are the Chase Sapphire and the Capital One Venture. Those are two great ones to start off with, specifically if you have a credit score above 700, those are great credit cards to start off with because they're very easy to use and you can get a lot of points and sign-up bonuses and things like that. Then there's cash back credit cards. Now, there's a number of different ways that you can look at cashback credit cards.

Starting point is 00:04:18 But if you want cashback, if you do a lot of shopping at grocery stores or gas stations or things like that or dining out, you want to maximize your cashback card towards what you spend the most money on. So for example, some cashback cards pay you a lot back for things like dining out at restaurants. So if you eat a lot of restaurants, then you want to focus on that type of a credit card. Some of them are more for people who shop at grocery stores all the time. So maybe you have a large family. You spend a lot of money on groceries.

Starting point is 00:04:43 then maybe that one is the best for you. But making sure you maximize the cashback options that are out there is incredibly important because one great one is if you shop at Amazon all the time. This is one that I don't hear a lot of people talk about, but the Amazon credit card actually has a ton of great perks. I'll link it up in the show notes. That is an affiliate link. But it has a ton of great perks in terms of if you shop at Amazon,

Starting point is 00:05:06 they have stuff where you get 5 to 10% cash back from Amazon. So every purchase is a 5% cash back on Amazon. but some purchases are even 10% cash back, meaning every $100 you spend, you get $5 back. And if you're like me, your boy spends too much money at Amazon. And so it's a great perk to actually get some additional cash back

Starting point is 00:05:25 if you're shopping there. Now, if you're in debt, there is a credit card for you as well. I'm going to talk about it a little bit later here. But don't fear, because if you're in debt, it doesn't mean that you're out of this situation where you can't earn cash back either because there are cards out there that allow you to do that.

Starting point is 00:05:39 And we have a video that we just released on YouTube. I'll link it up in the show notes as well so you can check it out on all of my favorite credit cards for this year. The second one, have at least two credit cards. Now, there's no perfect number of how many credit cards to have, but at a minimum, if you're going to hold credit cards, you want to have at least two credit cards. And there's a number of reasons for this. One of which is, if there's something like a recession and banks start lowering people's credit limits,

Starting point is 00:06:05 or they reduce or eliminate your access, you have access to another bank's credit card. because you want to make sure this is at two different banks. You don't want to have both credit cards at Chase or both credit cards at Capital One. You want to make sure this is at two different banks to diversify your card usage. This also helps to make sure that you have access to credit if your card gets lost or stolen.

Starting point is 00:06:25 So say, for example, you only have one card. And that card gets stolen. Well, now you're either using your debit card and have no access to credit or you're waiting for your card to come in. So having that second card is incredibly important. This happens to me all the time now where my bank alerts me about a bunch

Starting point is 00:06:39 purchases that I didn't make. So now I have to go in, cancel the card, and wait for the new card to come in. So making sure you have at least two cards helps you in that lost or stolen situation as well. And then it also helps your credit utilization lower, which raises your credit score because now you have more credit limits out there. And we'll talk about credit utilization in a second. But making sure that's lower is incredibly important.

Starting point is 00:07:02 The next one is to pay off your balances in full at a minimum every month, but I like to do it weekly. So here's the reason why I like to pay off my balances weekly is because I have more control over my money when I can see my balances are paid off every single week. A lot of people lose control throughout the month for longer time horizons when they don't pay off their cards more frequently. Now, if you're good with this, if you have a budget and you're managing your money very strictly, then you have no problem probably paying off your cards on a monthly basis. But if you lose control of the credit card bill and you start to see this thing racks up and all of a sudden you have this huge credit card payment, at the end of every month, then paying it off weekly is a perfect hack for you. Because you can see exactly where you are at any point in time.

Starting point is 00:07:44 And throughout a week, you're not spending a ton of money. And you can see, hey, this week I spent a little too much. Maybe I should dial it back a little week to make sure I maintain and stay within the range I want to be in. And also just making sure you're paying off your balance is obviously incredibly important. You should never, ever be carrying credit card debt. Credit card debt is the worst thing that will kill your wealth and personal finance. Why?

Starting point is 00:08:07 because the interest rates with credit cards are so incredibly high. So if you're in credit card debt right now, we have a course releasing that's going to be free to teach you how to get out of debt. So make sure you're checking that out. I'll link it up in the show notes. So make sure you get on the email list so that you can check that out. Because it's incredibly important for you to make sure that you avoid credit card debt. So you need to be paying off these balances in full every single month no matter what.

Starting point is 00:08:33 The next one is to keep your balances low on each credit card. So there's a reason why you want to do this. And a lot of people are saying, well, why can't I just use my credit limit? If my credit limit's five grand, why can I just have one card and utilize that five grand with that credit limit? So there's something called the credit utilization rate. Now, this is about 30% of your credit score. It's a major factor within your credit score.

Starting point is 00:08:55 And the credit utilization rate is something that you want to keep as low as possible. Let me explain it simply. Let's say, for example, for easy math, you have a $10,000 credit limit on a credit card. And let's say you put $1,000 on that credit card. Well, $1,000 is 10% of that $10,000 credit limit. So your credit utilization is 10% of that card. Now, here's why this is important, because the lower that number is, the better off it is for you.

Starting point is 00:09:21 So for example, there was a study done looking at millionaires who had very high credit scores, and all of these millionaires that had high credit scores had a credit utilization rate of 7% or less. So if you have two credit cards, and each one has a $10,000 limit, you have a $20,000 credit limit there. And if you use that $1,000,

Starting point is 00:09:42 all of a sudden, you're using 5% of your credit utilization rate. So this is why you want to keep your balances low because it raises your credit score, specifically if you're trying to increase your credit score, then you want to make sure that you keep those balances low. In addition, keeping balances low, just make sure that your bills are more manageable over time.

Starting point is 00:10:02 So make sure that you're on top of everything by keeping those balances low, which is one of the reasons why I like to pay it off at least weekly, but if not, you have to be paying them off monthly. And if you don't know what impacts your credit score, we've done an episode on it, and we also have a video on this as well, I'll link it up in the show notes. But to run it down real quick, it's your payment history, making sure you pay your bills on time, and your credit utilization. Those two put together are 65% of your credit score.

Starting point is 00:10:25 If you focus on those two alone, your credit utilization and paying off your bills, you have 65% of the battle done right there. And then there's credit history is 15%, which is why I talk about people getting credit as soon as they possibly can. And then credit mix is 10%. And then new credit is 10%. So we're going to jump into a break. And when we get back, we're going to talk about interest rates. I remember when I needed to hire someone fast, but finding the right person quickly felt impossible.

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Starting point is 00:13:46 Get financial advice that puts you at the center. Find your advisor at IGPrivatewealth.com. The next one, know your interest rate. So if you pay your credit card balances in full every single month, the interest rate is not going to matter. and you will not owe any interest. But if you're in credit card debt, what you want to do right now is you want to go figure out

Starting point is 00:14:05 what is my interest rate? Because you're going to figure out what is the number that compound interest is working against me right now because I'm going to go to war with this number. Now, a lot of credit cards have what are called variable interest rates, meaning the interest rate is going to change either month to month or year to year. And if that's your case and they keep raising your interest rate

Starting point is 00:14:23 on your credit card debt, then it's a pants on fire emergency and you need to pay down that credit card debt as fast as you possibly do. can. So making sure you're checking out our free course on how to do that is incredibly important. Because what it's going to teach you is exactly how to do this as fast as humanly possible. Now, if you know you're going to have to carry a balance on your credit card, always spend on the card that you know has the lowest APR. So if you're in debt but you have to use your credit card, you're in a dire situation. I don't advise ever doing this. But if you do this and if you have

Starting point is 00:14:50 to do this, make sure you're at least doing it with the car worth the lowest interest rate. Because that way you can at least clear the debt with as little interest as possible. So that's incredibly important to understand, but making sure you don't do this is even and more important thing. Don't dig your hole deeper when you have credit card debt. Don't keep digging and putting yourself in a larger hole. The next one, if you are in debt, use a secured credit card. Now, if you've never heard of a secured credit card, it is a very cool way to build your

Starting point is 00:15:19 credit back up. And here's how a secured credit card works. What you do is it actually operates kind of like a debit card. So you put money down, and then however much money, you put down, that's how much money you can spend. So for example, let's say you put $300 down as a security deposit towards your secured credit card. That means with a secured credit card, you can spend $300.

Starting point is 00:15:41 It's that simple. So how much money you put into it is how much money you can put on the card. Now, why would you want to do this instead of just utilizing your debit card? The reason why is you can build up your credit score just like utilizing a credit card with a secured credit card. And some of them even offer perks and cash back and things like that as well. One of my favorites is the Chime Credit Builder. And it's perfect for most people who want to do this and make it as easy as possible.

Starting point is 00:16:04 And the reasons why I like it is because there's no annual fee or interest. There's no credit checks when you apply to it. And there's no minimum security deposit. There's no minimum amount that you have to put down to be able to utilize the card. So it's very easy for people just getting into this so they can understand, hey, I can build up my credit by using this secured credit card. And what you're going to do is you're going to impact your credit score tremendously. by doing this. It's going to raise your credit score, especially if you have bad credit,

Starting point is 00:16:30 this is perfect for you. The next one is don't use balance transfer cards for new purchases. So if you're like me, you're probably receiving a ton of new credit card offers in the mail all the time. I get them all the time now in the mail. But it's really important that you don't use bank transfer cards as a credit card. Now, if you don't know what a balanced transfer card is, you're going to see these things come in all the time, where it says zero percent APR for 12 months or something like that. And what that means is that if you have a credit card balance, you can transfer it over to these cards if you qualify, and you don't have to pay interest for a year on that card. Now, this is a way for banks to capture people who are in major credit card debt so that they can start collecting interest after that year. So it's incentivized them to put them into their wheelhouse.

Starting point is 00:17:11 Now, what you want to do is if you are in credit card debt, you could transfer the balance over to one of these and then in 12 months figure out how to pay off the whole thing. So that way interest isn't eating into your wealth. and at the same time you're going to be able to pay that off so much faster because the interest rate is not a factor. But what you don't want to do is open up one of these cards and use it for new purchases because that defeats the purpose and doesn't allow you as many options that you could have if you utilize this the right way. The next one, avoid closing old credit card accounts. So you may have just applied for a brand new shiny credit card and you're ready to just give that thing a good old fashioned swipe. And you may be tempted to just get rid of your old credit card or cut it up. and put it into pieces and just throw it away.

Starting point is 00:17:52 But you want to pump the brakes on that because once you have a new card and it's open for a period of time, what you're building there is you're building credit history with that card. And if you throw that card away or you cut it up and you just close that credit card, what's going to happen is that that is going to poof, go away. And this could negatively impact your score. Now, if your credit card has fees on it, like when we talk about our travel hacking strategy, you're going to be opening and closing cards.

Starting point is 00:18:17 And if those cards have fees on them, that's an exception. If you have a card with a $100 fee, then you should be closing that card. But if your card does not have a fee, it doesn't hurt you at all to just leave it open so that you can utilize the benefits that that card's history has provided you. Not only will impact your credit history, it will also lower your credit utilization rate, which you just talked about is a major factor. And it can be up to 35% of your credit score by doing this. So just making sure that you understand, hey, if this card doesn't have a fee, why not just leave it open?

Starting point is 00:18:46 Now, the next one goes hand in hand with this, because what you want to do is devise you, buys a plan to keep all credit card accounts active. So in a lot of cases, keeping your old cards open may not be enough. I just got this on one card that I've had for a very long time, and I haven't used it in a long time. And they said, hey, we're going to lower your credit utilization. And we're going to lower the amount that you can spend on this card if you don't start putting purchases and transactions on this card. So what you want to do is put together a plan that if you're going to keep these cards open, making a purchase maybe every six months or something like that on the cards so that you can keep it active and keep it open.

Starting point is 00:19:20 is something that is important if they're starting to send you letters or things like that that's saying, you're not using this card, we're going to close this card because a lot of creditors don't want just open credit cards where nobody's using them. Because the point of them, the way they make money is if you use your credit card. So there's a couple of ways to do this. You can just have a calendar reminder where it reminds you to, hey, I need to make a purchase on this card. I haven't made one in six months. Or you can just set up small recurring purchases. So like some of them, I'll just throw my Netflix on one of them and just have it auto pay every single month.

Starting point is 00:19:47 And that's another way where you can just set up easy, small recurring purchases that you know you're going to have to make. That way, it's at least utilizing some bill every single month. And then the last one. And this is one that a lot of people in personal finance base, you're not going to hear them talk about. But your boy is going to talk about it. And it's that if you're responsible, avoid using your debit card. There's a bunch of reasons why you don't want to use your debit card because credit cards provide you so many benefits. But if you're responsible with your money and you know, hey, I've never been in credit card debt.

Starting point is 00:20:16 I'm not going to carry credit card debt. There's a bunch of reasons why you don't want to use your debit card. One of which is you don't get to build credit. You don't get the rewards that come with credit cards. And you don't get the fraud protection. And the fraud protection is actually extremely important when it comes to credit cards now. Because one of the biggest factors when utilizing your credit card is that you get fraud protection. So let me show you the difference between the two.

Starting point is 00:20:37 With your debit card, if someone steals your debit card number, you're responsible for a maximum of $50 of unauthorized transactions. if you report the card lost or stolen within two days. But if you didn't report the fraud in two days, your maximum burden could go up to $500 if someone uses your physical debit card without your permission. And if you didn't hit that 60-day window and someone's charging up your card, then all of those charges could be your responsibility. This is a major, major problem. I'm sure most people who are listening to this have had their cards stolen before.

Starting point is 00:21:08 If you buy something online, there's a possibility that you've had a fake or false transaction on your credit card and your credit card company contacts you and says was this you and you say no that was not me and then you have to go in there and wait for a new card to come in that's becoming very common now it happens to me once or twice a year now now here's the difference you hear the debit card where you can have an infinite amount of money that you're responsible for now here's credit card fraud what happens you're not responsible for any unauthorized charges under federal law if your credit card number is stolen and you won't be held liable to that $50 unauthorized charge fee so literally with your credit card you're completely protected. With a debit card, you're not protected at all. So really, there's only a few

Starting point is 00:21:48 reasons why you would use your debit card is if literally you have no cards available at the time, or if you want to get cash out at the ATM or something like that. You want to go make it rain at the club, then go ahead and use your debit card to get that cash out. You want to go to the car dealership and give them a suitcase full of money, then go ahead and use your debit card to pull that cash out as well. But other than that, there's not a lot of reasons to use a debit card if you're responsible. Those are the key words here, if you're responsible. So making sure you're maximizing those credit card benefits and making sure that you're doing this in the right way

Starting point is 00:22:17 is incredibly important. Now listen, I hope you guys learned a ton about credit cards and how to utilize them here. If you have any questions about this episode, hit me up on Instagram or TikTok at Master Money Co. And follow us on Spotify, Apple Podcast, or whatever podcast player you love listening to this podcast to and if you want to how about the show,

Starting point is 00:22:34 leave a five-star rating and review on Apple Podcast. And don't forget to check us out on YouTube at Master Money on YouTube. We got two videos coming out. every single week for you guys with fresh new content. Thank you guys so much for listening to this episode. I appreciate each and every single one of you. I hope you guys have a great week and we'll see you on the next episode. Rosen lasagna, medium power, 15 minutes. Sounds like Ojo time. Let's play. Feel the fun with Play Ojo. The online casino with all the latest slot and live casino games.

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The Personal Finance Podcast - 10 Rules For Using and Maximizing Credit Cards!

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