Show Transcript (Unedited) Should I Use College Savings 529 Plan?
[00:00:00] Pay in full every single month. And don’t just stop there, make it automatic. So just go in, there’s gonna be a future where you set it up to pay in full every single month. And that’s what you want to do.
[00:00:09] Welcome to techie personal finance bootcamp. I’m excited. I’m calling this episode. Credit cards are awesome and it’s because credit cards are actually really awesome. There’s a lot of versatility to them. A lot of [00:01:00] flexibility where you can. Actually make a lot of money and not ever pay a single cent if you don’t want to.
[00:01:06] So there’s a few different things. We’ll talk through. and really just make this informative for anyone that’s not familiar, or maybe feel that they’re not optimizing their credit card usage.
[00:01:16] And gives you the financial confidence that yep. You can do this and you can actually make credit cards work in your favor rather than the other way around. So regardless of what you may have heard credit cards are pretty awesome. Financial tools. It’s one of the best forms of credit that you can actually have access to and really help boost your financial confidence and boost you towards reaching your financial goals.
[00:01:39] I’ll talk to that more specifically in a second, because.
Downside of Credit Cards
[00:01:43]Unfortunately, there is the downside of credit cards too. And this is what a lot of people run into, or they know someone that has had issues with credit cards and it can also be one of the biggest culprits of just causing complete. Financial chaos in your life or the [00:02:00] lives of your loved ones.
[00:02:01] And when it comes down to is credit cards are actually a tool they’re not bad. They’re not evil. The companies might have some unique ways of how they do things, but the credit cards themselves are just tools. It’s up to each individual user how to optimize it and use it for kind of its best use. But if you’re not very comfortable with them, if you don’t understand them, if you don’t have a basic kind of knowledge of where your financial priorities are and where your spending is going. That’s really the biggest issue. It’s not really the credit cards that are causing the issues. It’s the fact that when people do run into trouble with credit cards, they don’t actually know where their money’s going to.
[00:02:41] They’re not keeping check of what’s actually adding value and how these things are going to work out. And yeah, we’ll talk through a few scenarios, both of the pros and cons of all this different stuff. But I do want to stress that yeah. Credit cards in and of itself are not evil regardless of what you heard, because yeah, there’s, there’s just so many cool things you can do. [00:03:00]
[00:03:00]I will give you some of my personal experience as well as things that I kind of share with my clients and make sure that they’re optimizing their financial life as much as possible. So when I think about credit cards and being able to use them, this isn’t like an entry level. This isn’t like an easy level.
[00:03:18] Of your financial life. It, it is a little bit more complex. Cause like I said, we do need that basic financial footing of understanding where your finances are going have good financial habits. And really where people shoot themselves in the foot is they don’t pay attention to what they’re spending money on.
[00:03:35]the downside is when people get credit cards, if they don’t have that good foundation, they may spend more than they want to or may spend more than they realize.
[00:03:46] And so that happens for a few reasons because with the credit card, it’s out of sight, out of mind, in a lot of situations. Most of the time, you’re not logging in every day to look at those balances. And so it’s very easy to be like, Oh, I see something I like, [00:04:00] or I saw a commercial for this. I’m going to buy this.
[00:04:02] Or my friend just bought this. I’m going to buy a matching pair or whatever, whatever it could possibly be. It’s very easy to use credit cards. It’s very different from, let’s say our parents and grandparents, when they used to be predominantly cash based as far as how they do stuff. So they would have cash in their hand, as they paid out, they’d actually feel the pain they would realize like, Oh, yup.
[00:04:25], Mmm. Putting this money out there. That means I have lots of it in my hands when you’re just kind of hitting click instant buy on Amazon, you don’t really feel that same kind of friction. So it’s a lot easier to spend more than what you may intend to
[00:04:39]another reason why some people may end up spending more than they should, or than they normally would with a credit card is because. Of the rewards. So typically rewards are supposed to be something that’s on top of something that really makes credit cards and an awesome tool for you. But if [00:05:00] you are spending more to try to get more of rewards, that’s not always going to be the best kind of use of your.
[00:05:06], credit card usage because yeah, you’re tricking yourself that you’re getting rewards, but rewards are just a fraction of the true benefit you’re going to get from the credit card. And so if you spend a hundred dollars to get 2% back, well, you just got $2 back, you spent $98 more than you would have.
[00:05:21]it doesn’t make sense to spend more just because you get rewards. you’re getting a fraction of what you’d be spending there. So that’s important to be aware of. If you do not pay off your credit card every single month, there is interest. And that’s really where people get behind the eight ball.
[00:05:37] They, they really get swamped in debt because it becomes a high hurdle to overcome. So the highest interest rates right now roughly would be about 25%. A lot of times you’d see that with store credit cards and so that’s something to be aware of. Even if you have a low interest rate with credit card, the lowest interest rate that I’ve seen recently is going to be like a 10.9, 9%. [00:06:00]
[00:06:00] it’s pretty crazy, even though interest rates have gone down for mortgages for auto loans and things like that and savings accounts, right? You’re not, you’re not getting paid a lot to keep savings. The credit card interest rates have stayed high back. When I first graduated from high school was working at a community bank.
[00:06:16] My first credit card was like 7.2, 5% interest rate. So that’s very uncommon this day and age, and it’s crazy. Cause most interest rates across the board have gone down. But for some reason, the credit card interest rates have gone up during this time. If you do not manage the credit cards, right. And you just have.
[00:06:38] Trouble. And you struggle with managing your credit cards and, and keeping them the way that you should be, and really using them as a powerful tool instead of a negative tool for you. It could weaken your credit score, which increases the cost of other things that you may not ever think about. Like your insurance.
[00:06:53] It may increase the cost of things like your cable bill, which is strange, but I’ve seen that happen as well. And [00:07:00] also if you are struggling with finances, yes. This goes the same for like budgeting and stuff, but a credit card debt because of how high the interest rate is. That’s even more pressure on a relationship, especially if one of you is that the culprit and the other, one’s not so failing to manage your credit card.
[00:07:20]The best way could definitely cause some relationship issues and some tension that’s yeah. Obviously you don’t get in to a relationship to constantly be fighting or be stressed out about financial issues. So that would be something that you would want to take into account and make sure you have good financial control
[00:07:35] if you do choose to have a credit cards, or even if you’re just trying to pay off credit cards, maybe Verde fallen into some trouble with your credit cards. You definitely want to come up with a game plan and a strategy to, to get rid of that. And that’s important as well. So before I move on to the amazing benefits, I just want to give you a quick example.
[00:07:54] a $3,000 balance on a credit card is not that unusual. It’s probably [00:08:00] about what the average is in the United States. So I just want to show you really quick. At that 25% interest rate. I know it’s the highest it could be, but there’s a lot of credit cards like that. So 25% interest rate, if you carried a balance of $3,000 for a full year, you’re gonna pay $750 in interest.
[00:08:20] And that’s, that’s a ridiculous amount of money. So let’s use two different people, for example. So let’s say one person uses a credit card, pays it off every single month. And we have another person that uses it, never pays it down, carries that average balance of $3,000 every single month, they’re going to pay $750 while ago, person who pays off every month, it’s not going to pay anything.
[00:08:42] They still use the card, the same amount. The biggest difference is. One is not actually paying off the credit card and they’re carrying the balance. So one person is automatically $750 better off for that year than the other person is $750. They can actually put towards actually buying [00:09:00] something rather than.
[00:09:01] Putting it towards finance charges for a lot of miscellaneous things that quite honestly, credit cards are the biggest culprit for buying things that you don’t necessarily need, and may not necessarily remember as being important in your life. So that’s, that’s important to just get that quick visual in your head.
[00:09:20] $750 is a huge difference. Per year then if that starts to compound, let’s say that person that’s not painted off into an emergency. Well, now the next year at $6,000 that they’re carrying constantly every single month. Well, now they’re $1,500 behind that other alternative person doing everything exactly the same, other than paying these often managing their finances that way.
[00:09:41] And so now, yeah, that’s starts to add up and compound every single year. If you just kind of let those things linger around. So enough of that negative talk that downsides, the reason why I’ve put it up front, because I do want you to be aware. It is a slippery slope. You do want to make sure you have good financial control before you start to dive into. [00:10:00]
[00:10:00]Maximizing your credit card benefits, but once you do feel like, yep, I’m really good with the budget. I spend the same thing every single month, regardless of whether it’s in cash or whether I’m using my debit card. So I’ll do basically the same things I would either way, and I’ll make sure it’s paid off every month.
The Amazing Benefits of Credit Cards
[00:10:15] If that’s you, if you feel that you can do that, then we’re going to talk about the amazing benefits of being able to have that control and use credit cards, really, for some amazing benefits. . Starting out from the very front there’s signup rewards. I’ve seen some that are pretty ridiculously high. It does that you spend a significant amount is I’ll talk to you.
[00:10:34] Some of those tips on how to calculate this stuff a little bit later, but sign up rewards. me and my wife are just about to get about $800 back towards our grocery budget for a new credit card that we opened up back before Christmas. And so a ridiculous amount of free money and. Those rewards are going to vary based on how much you spend.
[00:10:57] So you want to make sure you right size, those things. [00:11:00] The once you actually had the credit card and you started using it, there’s. Rewards in the form of cash back or travel miles are usually the most popular ones. There’s, there’s always like gift cards and different VPs words you can actually choose to.
[00:11:15] But usually when you’re optimizing these things, cashback is going to be one of them and then travel miles is going to be one of them. that’s. , just kind of free money. I tried doing some quick research before I jumped on to hit the record button, but unfortunately I couldn’t find the historical rewards that I’ve cashed in over the main credit card that we’ve used since we got married about five years ago.
[00:11:37]But I know it’s pretty substantial cause I think we probably. Got a $600 for signing up. And then we probably cash in another $2,000 worth of rewards over the last five years. So adds up pretty quickly. And it’s pretty ridiculous if you don’t pay any interest and you’re racking up these rewards, it really [00:12:00] creates this free, free money for you to use on things that actually do matter things that are important to you.
[00:12:05]Another unique benefit. And I don’t want to write on this one saying, it’s something you should do or try to float yourself from month to month. But the crazy thing with credit cards is you actually do get to borrow that money free for 30 days. So if you start to use a credit card, it adds up. Then they produce a statement that says, if you pay by the due date of this statement, your balance in full, we actually don’t pay any interest on any of these things.
[00:12:29] So you actually get up. About 30 days or so, too. Carrie charges that you do not have to pay for. And if, as long as you paid in full by that payment statement, then you actually are not going to pay any interest at all. So that’s, that’s how you use credit cards. I know that it’s a common misconception.
[00:12:47] People feel like, Oh, if you even use it, then you automatically start paying interest. Nope, you have that free first month paid in full and you get the rewards. You don’t pay interest and, and you get that free 30 days to kind of [00:13:00] push the. Payment. And so what happens is you tend to get in the same cycle where hopefully that the credit card payments roughly about the same every single month.
[00:13:07] So you know where your spending is going. It’s going to be the same most, every single month, unless something unique comes up, but yet, so every single month it’s $2,500 or whatever it is, however much you run your personal finances through your credit card. That will be roughly what it is every single month.
[00:13:23] And you just make sure you pay it. Another great thing about credit cards is credit cards or revolving credit line. There’s not really many options like that. And what it means is your credit card can last for a very long time. Unlike vehicle loans or personal loans that will get paid off in two years, five years, six years, or whatever it be, credit cards, if you keep paying them and you keep using them actively, you can keep these things.
[00:13:49] I think my oldest one is about. 15 years old. And that’s one of the biggest pieces of your credit score. Calculation is the length of time that you’ve held [00:14:00] credit. And so that’s super important that you can carry these things along and it’s an, a help strengthen your credit score. Another reason why it strengthens your credit score too, because.
[00:14:12]Credit cards are a lot more based on how your financial habits are. It’s not like an auto loan where you have a minimum payment, you have to pay that amount. Every single month credit cards, you have options, right? You can choose to spend up to a credit limit, and then you get to decide how you want to pay that off.
[00:14:28] If you mismanage it, it’s going to hurt your credit score because you’re going to have a high. Balance against your available credit. And so that’s why credit cards are weighed so heavily in just calculate in your credit score is because that’s really the one that is a true indication of your financial control , because you’re able to say, yep, I paid off every single month,
[00:14:50], versus someone that’s not paying it off every single month about maxed out. That’s very indicated like, yep. They’re, they’re probably a financial risk. And so that hurts them from [00:15:00] a credit score standpoint.
Tips To Maximize Your Credit Card Benefits
[00:15:01]So those are really all of the amazing benefits. And I’ve hinted on a few of these tips but just to elaborate on them, make sure that’s, you’re aware of these things to keep in mind as you’re building your credit card strategy for your financials. So if there is a annual fee , make sure it makes sense for you because there’s different annual fees or some reward cards that don’t have annual fees.
[00:15:24] And what you want to see is if you are going to pay a fee that there’s a boost in the rewards you’d get, that would make sense. If you’re spending a certain dollar amount typically, so you’ll want to do you do the math and see if I spend this every single month, let’s say $2,000. Is that going to be enough to get that boost where it’s gonna more than offset and still put you ahead of a field credit card.
[00:15:50] And there’s some, there’s some fees that I’ve seen here, like close thousand dollars. And the more typical one is like $50 or $95. But [00:16:00] as you can imagine that one that’s closer to a thousand dollars. Their rewards are crazy, crazy, crazy, crazy, but it really requires that you spend a lot of money and that would be.
[00:16:08]Probably not most of the people listening to this, I wouldn’t recommend a thousand dollar type fee credit card, but there’s some out there that’s just showing you the range of how crazy these things can get. But yeah, typically you’ll want to be either looking at a no annual fee credit card with kind of basic rewards or a little bit boosted.
[00:16:27]Rewards credit card with an annual fee and just make sure you do your calculation to compare those versus your normal spending . you want the credit card to fit your life and the way you’re going to use it now, not the other way around
[00:16:39] the same thing for that signup award you’ll want to calculate these cause these vary pretty drastically, again, pretty similar to the annual fees, but it’s a slightly different calculation. You’ll just want to see how much money you plan to spend. In the first few months. Cause that’s how they give you that bonus is you have to spend X amount of dollars over X amount of time.
[00:17:00] [00:17:00] And you just want to make sure that fits either your normal spending or in mine and my wife’s situation. Sometimes I think , our first credit card that we’ve been using pretty substantially over the last five years, years, and really run all of our nine, your checking account expenses through the credit card.
[00:17:15]That one we’ve had for five years, we opened it up before our wedding because we knew we were going to have one and expenses. So we were able to get a little bit higher boost and benefit than we normally would have applied for, because we knew we had some unique and pretty expensive expenses coming up.
[00:17:31]so that’s something that I’ve seen. A lot of people do is when you do have these events come up, that’s really, when you look to see, well, is it worth getting a new credit card with some boosted rewards?
[00:17:41] Pay in full every single month. And don’t just stop there, make it automatic. So just go in, there’s gonna be a future where you set it up to pay in full every single month. And that’s what you want to do. If you try to track this manually, it’s just going to create stress.
[00:17:54] It’s going to take time that really is not needed. If your goal is to take the credit card, maximize the [00:18:00] rewards. And make sure you’re not spending more than you normally would in a normal month, then you should be perfectly comfortable sending it to pay in full every single month and get you never pay interest.
[00:18:10] And you don’t have to ever think about it.
[00:18:12] So a little bit advanced, which I’m not going to talk into specifically, but there are different credit cards for different flavors of living at this point. I call it lifestyle categories. You can actually optimize your credit card. Based on how you type, so you’d like to spend your money.
[00:18:30] So sometimes you’ll get like extra bonus points for dining out or entertainment. So if that’s something that you do pretty heavily, those credit cards might be more enticing for you. You might get a little bit more bang for your buck. There’s other different types too. So just be on the lookout for that.
[00:18:44] You can also optimize it for what they actual rewards are. So me and my wife like traveling, so we optimize ours for getting a little bit more payout on travel. And so that’s, that’s important for us. And again, there’s ways you can do it. Sometimes you [00:19:00] can just optimize it for cash back, if that’s what you prefer and you don’t travel that much, but yeah.
[00:19:05] Find out what you like and then find out which credit cards in a fit your lifestyle, the best.
[00:19:09] . So the last two things I’m going to say again, don’t, don’t pay the minimum, make sure you paid in full every single month. So here’s an example of what paying the minimum payment would do. And this is just kind of looking at one of my recent. Credit card statements. The balance was 2008 46. The minimum payment would be $28. So I new credit card statement. This was one of the things that was put into place during the financial crisis in 2008, 2009, where now they’re required to show you if you make the minimum payment, it’s, it should be right on their front page of your credit card statement.
[00:19:46] It says, if you make the minimum payment, it will take you 14 years to pay off your credit card and you will end up paying an estimated total of 6,275. So more than. double [00:20:00] basically what the, the balance was pretty ridiculous. That’s expensive and that’s a long time to pay it off. That’s why you want to avoid paying the minimum payment.
[00:20:09] And again, that’s. That’s something that should be on all credit card statements. If you’re carrying a credit card balance right now, and you’re only doing the minimum payments, look at that information, hopefully that will Shaq you into making it a priority to pay that off and get your financial control over their credit card situation.
[00:20:26] Cause it’s super costly. It’s one of the biggest hurdles to actually build in wealth is credit cards. And again, it’s because those interest rates are so ridiculous. . And so the last thing I will leave you with when it comes to. This credit card is awesome episode. And try to see if this does make, since for you. I also want to say, if you are not ready, don’t try it.
[00:20:50] Like I mentioned yet. Yeah. I have good habits and understanding of where your money’s actually going and have good control over that in order to maximize your credit card benefits. [00:21:00] And make sure that things don’t backfire on you. If, if your, a goal of opening credit cards is to further increase your financial confidence and make better financial decisions, and you start to see that that’s not occurring and maybe your finances start to crumble under this new kind of tool that you’re not used to using.
[00:21:20] Pull it back and wait until you are, more confident, have better behaviors and yeah. Things in place in order to keep you on check because yeah, you don’t want these things to actually be a burden or. Reduce your financial situation, really. You want to use these credit cards to optimize it and create kind of that free cash and rewards that myself as well as most of my clients kind of benefit when they feel comfortable with their normal spending and don’t let their credit cards control their financial lives, they, they control.
[00:21:48] How they want their credit cards to work for them and really use it as a tool with that control in mind. So hopefully that’s helpful if you have trouble kind of mentally credit card debt or any debt for that matter. Definitely. That’s [00:22:00] something that I specialize in. So definitely reach out. I’d be happy to see if we could work together and really take your financial competence to the next level.
Lucas Casarez is a Certified Financial Planner™ Professional serving tech professionals virtually out of Fort Collins, CO