Millionaire on the Prairie

Tag: credit cards

  • Free & Useful Wisdom from Me to You!

    Free & Useful Wisdom from Me to You!

    You need not make every mistake yourself. It’s perfectly find to learn from the mistakes of others. Here are some things that I’ve learned after investing for 30+ years. This is wisdom borne from real life experience. As my father used to say, hindsight is 20/20. Had I come across a blog post like this when I was younger, I probably would’ve made a few different choices. Maybe you can benefit from my wisdom, or you know someone who can. Either way, here we go…

    You can be fired.

    At the end of the day, you can be fired from your job even if you’re good at it. Your salary is an expense to your employer and if your employer believes that expending money to pay your salary is no longer a good idea, then you will be let go. It’s nothing personal. It’s math on a spreadsheet.

    What can you do to protect yourself from this?

    Firstly, you always pad your emergency account and investment account with the first 15% of your paycheque. On payday, that first portion gets whisked away for the inevitable rainy day. This money is not to be spent unless you lose your job. Get atleast $1000 into your emergency fund, then work your way up to a month’s worth of income. Keep socking money away into your emergency fund until you have atleast 6 months of income set aside. This goal is probably going to take a long time to complete, but that’s okay. When you lose your job, you will not regret having money set aside to pay for your expenses.

    As for your investment accounts, fund those too. This is the money that will be there for Future You. It’s going to take the place of your paycheque when you finally retire. Follow these guidelines to maximize the size of your portfolio.

    • Invest for long-term growth.
    • Set up an automatic transfer so that your money goes from your paycheque to your investment account without having to remember to manually make the transfer.
    • Aim to keep the management expense ratios below 0.5% for all of your exchange-traded funds.
    • Never forget that mutual funds are always more expensive than ETFs, and there’s no sense paying more to own mutual funds when you can but a near-identical ETF for less money.
    • Use a dividend re-investment plan so that all dividends and capitals gains that you earn are automatically re-invested to boost the compound growth of your portfolio.

    Secondly, you never stop learning. Should the day come that your employer lets you go, you need to have the skills to find another job. Maybe you want to continue working in your same industry. That’s fine. Know what skills and education requirement your industry demands of people in your current role. If there’s a new role that you want to try, investigate what knowledge and skills you need to secure in order to have a good chance of obtaining the next position you want.

    Thirdly, always keep your resume up to date so that you can leave before you’re fired. Sometimes, you’ll know that “budget cuts” or layoffs are coming down the pike. That gives you a dram of power because you can start looking for your next position before you’re fired. If you’re successful, so much the better as you’ll be leaving on your terms.

    This advice also applies to those of you who work for yourselves. Customers can disappear and events outside of your control have a way of derailing your very well-crafted business plan. If that happens, then you’re in the same boat as employees who’ve been fired. Entrepreneurs also need to keep a little something in the kitty for those days when the profits are non-existent / insufficient to pay the bills.

    No one cares about you money as much as you do.

    You have to be the one who is responsible for your money. There is no one coming to save you if you spend every nickel and remain mired in debt. Google the maximum CPP amounts that are available to retirees at age 60. If that amount seems like too little for you to live on when you’re retired, then you need to save.

    Track your expenses. Know how much you spend. Armed with this knowledge, you’ll know how much money you’ll need to bring in to cover your costs when you’re retired. Where that money comes from is mostly up to you. After all, you can get a job with a pension and work for 25+ years to climb the ladder and maximize your pension payment when you hit 60.

    Another alternative is to do real estate investing and let someone else pay down your mortgages so that you have rental income when you decide to retire. This is a complex area, and there are several good sources of people who have already done this. Check our Bigger Pockets, Coach Carson, and One Rental at a Time. It’s not my cup of tea, but it might be yours. Personally, I do not recommend this route but I do understand how the numbers are supposed to work.

    The third and most widely available route is to live below your means and invest for the future. This is what I did. My mistake was investing in dividend paying ETFs instead of equity-based ETFs. This was a huge mistake as I did not benefit from the run-up in the stock market between 2009-2020. My financial situation would be so much different now had I not fallen in love with dividend ETFs.

    That said, I do earn a nice passive income from my dividends every year. Not all is lost. I do enjoy watching the Dividend Dream and the GenX Dividend Investor on YouTube. I wish I’d had access to them 20+years ago when I’d started investing. However, they’re both younger than me and their channels are only a couple of years old. For those who are just starting out, I think these two YouTubers have some interesting things to say about how to make dividend investing very profitable.

    Investing for Future You should be one of your goals this year. Again, track your expenses. Get rid of the ones that aren’t making your life better. Whatever money isn’t spent on the expenses you’ve eliminated should be split between investing for Future You and paying off debt.

    Get out of debt ASAP.

    Debt sucks. There’s no way around it. When you take on debt, you’re agreeing to pay some of tomorrow’s money to your creditor. You haven’t even earned the money yet, and you’ve already agreed to give it away. I hate that. Re-read the first section of this post. When you have debt, you’re still under the very real risk that you can be fired.

    Some people say that some debts are better than others. I’m ambivalent about this position. I liken debt to cancer. You don’t want it. And if you have to get it, you want the form that’s curable. In other words, if you must take on debt, then keep it as small as possible and get rid of it as fast as you can.

    Once you’re out of debt, don’t go back into it. Save up for your future purchases by using sinking funds, then spend that money to buy what you want. Alternatively, save money to rent whatever it is that you want to buy.

    • Are you itching to travel overseas? Then start a sinking fund and re-direct some of your paycheque to this goal. Once the money is in place, then start booking your flights, hotels, excursions, etc…
    • Need to replace your car? Start a sinking fund today and drive your current vehicle until the wheels fall off. When they do, use the cash to buy your next vehicle then start saving again. Do this as many time as you need to until you’re buying the vehicle that you really want with the funds that are in your sinking account.
    • Maybe you’ve been thinking it would be nice to have a vacation home? Rent one, or seven before you buy. Figure out if you want the headache of worrying about another property or if you would rather have the freedom that comes with enjoying your vacation destination and leaving the headaches to someone else.
    • How about your own boat for the lake or an RV for roadtrips? Again, rent these. Rent them as many times as you need to so that you have a solid appreciation of what it means to own one. If you still want one of your very own, then start a sinking fund and pay cash for it.

    No more debt.

    Credit cards are a tool.

    That’s it. Those little rectangles of plastic can make your life better if you pay them of every single month and if you never carry a balance. If you’re unable to meet these two conditions, then credit cards will keep your mired in debt for a very long time and you should not use them.

    Personally, I love my credit card. It gives me free groceries several times a year. I love this feature during the holidays because I have more expenses at that time of the year. Using points for groceries frees up money for gifts and entertainment costs.

    I have friends who love their travel cards. They put every expenditure on a card so that their families of six are able to fly all over the world while paying as little as possible for flights. There are lots of credit cards out there and a dazzling array of rewards. I don’t know the in’s and out’s of every card.

    All I know is that the rewards are a trap if you don’t pay off your credit card balance every month. Paying interest on credit cards is always more costly than whatever rewards is being offered.

    Another thing you should know about credit cards is that carrying a small balance from month to month does not increase your credit score. If you believe that it does, then you should change that point of view because it is not benefiting you. Carrying a balance is good for the credit card company because they will earn interest off of you. Having a balance is not good for you because you’re spending money on interest for no good reason. I have had my credit card for over three decades. I’ve never paid interest and my credit score is very, very high.

    Never believe that carrying a balance is good for your credit score.

    If you buy it, then you should own shares in it.

    Full disclosure: I invest in ETFs and I have a few shares in banks, telecoms, and energy companies. That’s it. That’s my portfolio.

    Now, what I’m telling you is that you should own atleast 1-5 shares in companies that make the things you buy. I’m always amazed when I see the never-ending drive-thru line at Starbucks and Tim Horton’s. People love coffee. I do too, and I drink it every day. I wish there was a way to find out if the people buying at the drive-thru are also buying stock in Starbucks and Tim Horton’s. If not, they should be. They can see with their own eyes that these companies are making something that people are willing to pay for. That sounds like a profitable company to me.

    The same principle applies to the things that you have in your home. Do you use streaming services? Do you know if other people do? Maybe 1-5 stocks in a streaming service would be a good idea. Maybe you know of a company that makes the hand-computer that you rely on every single day? I’ve noticed that more than one person has one and they seem to be quite popular.

    Do you use a bank? Cash a paycheque? Get a credit card? Have a loan? Trust me. The banks are notorious for making money hand-over-fist, year after year. You won’t go too terribly wrong by owning 1-5 shares in one of the big 6 banks.

    There’s a lot more research to be done, but I honestly think that investing in the companies that make the products and services that you and millions of others use and/or purchase every single day is a good financial move.

    Now you know.

    Do with this wisdom what you will. You can make choices that will get you closer to your financial goals, or you can do things that move you further away from them. The power is in your hands so wield it wisely.

  • This is the Greatest Way to Use Credit Cards!

    This is the Greatest Way to Use Credit Cards!

    The greatest way to use credit cards comes down to 2 simple steps.

    1. Only credit cards when you have cash in the bank to pay the balance.
    2. Pay your credit card balance off in full every single month.

    In the interests of transparency, I will admit that I use my credit card all the time. Gas? Groceries? Travel? Clothing? Repairs? Streaming services? Subscriptions? Theatre tickets? Birthday presents? Electronics?

    Yes, yes, yes! I tap my credit card for all of it. I love earning points with my card because points translate into dollars at the grocery store. A few times a year, a big grocery haul can be purchased with points. This is a great thing for my cash flow. Other people I know prefer to swipe for travel rewards. They’ve got large families so travel rewards work to ensure no one family member need be left behind. And I know there are people who simply love getting cash-back. If I weren’t getting “free” groceries, I would definitely be using a cash-back card.

    Also in the interest of transparency, I pay off my credit card balance every single month. I have a very simple method for doing so. After I make a purchase on my credit card, I go to my chequing account and send a payment equivalent the purchase amount to my credit card.

    I rely on the pay-as-you-go method to keep my credit card balance at $0. Personally, I prefer to pay off the charges right away, instead of waiting to get my statement at the end of the billing period. Making multiple payments throughout the month ensures that I don’t “accidentally” spend the money in my chequing account on something else. By paying the charges as I incur them, I’m not under the gun to come up with a large amount once a month to pay off the full statement balance. Also, paying my credit charges as they arise is a pain the butt. If I don’t want to experience the pain, then I don’t spend.

    For those larger-than-normal purchases that crop up in life, I rely on my sinking funds. I don’t swipe my card without having the money set aside already. For example, I replaced my computer this week. I knew a new computer would be a 4-figure hit to my wallet, so I’ve been saving for this purchase for the past 6 months. When I went to buy it, it was no big deal to use my credit card. The money for this expense is already sitting in the appropriate sinking fund. All I have to do now is simply transfer the money over to my chequing account and send a payment to my credit card. Easy-peasy-lemon-squeezy!

    By following these two rules, I have discovered the greatest way to use credit cards. I never pay interest. My credit score remains high. I stay out of revolving debt since my credit card balance is always at $0. And I get to collect lots of points that can be used to buy anything I want at my preferred grocery store.

    If there’s a better way to use credit cards, please do share with the class.

  • Tools vs. Anvils – How to Use Your Credit Card

    Tools vs. Anvils – How to Use Your Credit Card

    Credit cards are an exceptionally useful tool if used correctly. However, they can also cause great financial harm when the basic rules of use are ignored.

    There are two terms that you should know: deadbeat and revolver. Deadbeats do not carry credit card balances from one month to the next and they reap the benefits of rewards programs. Revolvers are the people who do not pay their credit card bills in full and they have to pay interest and fees.

    For the purposes of this post, deadbeats use credit cards as a tool. Revolvers are the people who are carrying the anvils, which are in the shape of credit card debt.

    Just in case it needs to be said, banks love revolvers and they really hate deadbeats.

    The Tool

    Your credit card is a tool if you pay it in full every single month before the balance is due. You can use it throughout the month, happily collecting points (or not) as you spend. When the bill is due, it’s paid in full. This is the only correct way to use credit cards, in my humble opinion. So long as you never pay interest, then I think it’s perfectly fine to use a credit card for all of your purchases.

    For my part, I know how much I can spend on my credit card before I pull it out of my wallet. I’ve been tracking my expenses for years. As such, I have a good sense of how much I spend in a given month. It’s around $2,500. As such, I never spend more than this amount on my credit card.

    Spending more on my credit card than I earn in one month is a recipe for disaster! Expenses go on my card simply so I can earn points towards free groceries. (If I were coupled, I would use the credit card that earns points towards companion fares. If I could find a free cash-back reward card, then that’s the one I would use on a regular basis.)

    There are a myriad of reward cards out there. I don’t really care which one you pick. My advice if the same whether you accumulate travel points, grocery points, free movies, or any-other-benefit-that-works-best-for-your-goals. Pay off the entire amount of your credit card bill every single month.

    If you’re never carrying a balance, then I think credit cards are a wonderful tool that should be used with abandon.

    My opinion changes drastically if you don’t pay off your credit card every single month.

    The Anvil

    If you carry a balance from one month to the next, then your credit card is an anvil. It is holding you back from spending your money the way you want to. No one wants to send interest to the bank.

    If you are paying interest on your credit card balance, then look at your statement. It will tell you how much extra money you have to pay to cover the interest. So on top of the $100 you spent on your initial purchase, you’ll be spending an extra $9 – $29.99 to pay for your whatever-it-is depending on your credit card’s interest rate. Keep in mind that the interest will continue to compound until you pay the credit card balance in full.

    This is how credit cards become an anvil. It’s very, very hard to repay a debt when the interest is over 5%. At double-digit rates, your best bet is to cut up the cards, go cash-only for a year or two, and get a part-time job to pay off the debt.

    Get Rid of the Anvil

    Cash-only means stopping all subscriptions until the credit card debt is gone. We now live in the world of streaming services, wine-club memberships, gym memberships, online subscriptions of every sort, Patreon & Only Fans account, etc, etc, etc… You don’t have to give these up forever. Far from it! Maybe you have to give yourself a hard “No!” for 6 months. All of those “small” subscriptions add up to a decent amount.

    Take the amount of those subscriptions/memberships/fees and add them to your minimum monthly credit card payment. Continue to do make these payments until the debt is paid off. While you are paying it off, do not use your credit card to pay for anything! When you make a new purchase, that purchase will only increase your outstanding debt and it will also be subject to interest. You’ll be working backwards if you continue to make purchases on your credit card while trying to pay it off.

    Once you’ve paid off your credit card(s), you can re-start your memberships/subscriptions/fees that you were paying before but only up to the amount that you can pay for in full every single month. If your monthly financial commitments are more than you can pay for in full, then you need to cut some of them out permanently until you’re earning enough money to cover their cost.

    Once you’re out of debt, you can continue to use your credit card. You need only follow my 3-step plan for staying out of credit card debt for the rest of your life.

    1. Make a purchase on Day 1.
    2. Wait for it to post to your credit card account on Day 3 so that you can earn your credit card points / rewards. (You can check your credit card account online. I check mine every few days.)
    3. Once the purchase has been posted, make a payment in the amount of the purchase on Day 5.

    By the time you receive your credit card statement, you will have paid off nearly every charge from the prior 30 days.

    Real Life Experience

    I think the interest rate on my credit card is 23.99% per year, or maybe even 29.99% per year. I don’t really know because I never pay interest. In my case, I follow the 3-step process outlined above so that I never pay interest on the balance.

    Believe you me, the only time I ever want to see a rate a high as 29.99% is when I’m looking at the rate of return of my investment portfolio.*** When I’m the one earning this kind of return, it’s a great thing because compound interest is working in my favour.

    Paying 23% or more on a credit card means that compound interest is working against me and hurtling me down into a deep, dark pit of debt. I don’t ever want to pay this amount of interest to a bank!

    I’ve had a credit card ever since turning 18. Thankfully, I knew enough to pay it in full ever since the first day. I’m not the bank’s favourite customer because I’ve been a deadbeat since the beginning.

    So take this information and do with it what you will. While I have strong suggestions, you are best-positioned to know the circumstances of your life. You will make the choices that you think are appropriate with the knowledge that I’ve shared. The choice to be a deadbeat or a revolver lies with you. Choose wisely.

    *** Interestingly enough, I don’t earn anywhere close to these returns even though my portfolio has a significant weighting in the financial sector.

  • A Primer on How Banks Make Themselves Rich

    A Primer on How Banks Make Themselves Rich

    The first thing you should know is that I am not a banking expert. I worked in that industry on a part-time basis while going to university. That was 20+ years ago. Currently, I am what you would call “just” a customer. I don’t have access to private banking, nor is my business significant enough for the executives at the banks to care about me. This primer on how banks makes themselves rich is based entirely on my personal experiences as a customer and my part-time job at ATB before moving into my current career.

    Savings Accounts

    Customer A: “I should start saving some money.”

    Banker: “Great idea! We can put you into our Never-Fail, Best-Option savings account. It pays you interest. The more you have in there, the more you earn.”

    Customer A: “I like earning interests on my money. I’d like to open one of those accounts please.”

    Banker: “Easy-peasy-lemon-squeezy.”

    The account is opened. The customer goes away. The banker has the customer’s money and is wondering how to make it grow. After all, Customer A was promised that interest would be earned on her funds. The banker certainly wasn’t going to pay the customer with money from the bank’s own pockets! A lightbulb goes on as the banker realizes that money can be made from lending. An idea begins to germinate. If the Banker only had to pay out a fraction of the interest charged to lend, then the bank would make buckets of cash!

    But how to make that happen?

    Mortgages

    Customer B: “I need to borrow some money to buy a property.”

    Banker: “I can help you with that. The interest rate on our mortgages is very fair.”

    Customer B: “That sounds good. Where do I sign?”

    The banker is gleeful. Two customers! One brings in the money to be lent to the second. The bank only has to pay Customer A an interest rate that is a tiny portion of what’s being charged to Customer B. The difference between the two rates will be spent on administrative costs & other expenses, but any leftover is profit. How many other ways could the Banker come up with to make money?

    Lines of Credit

    Customer C: “I’d like to borrow money, but I’m not sure when or how much I’ll need.”

    Banker: “Not a problem. We’ll set aside some money just for you. If you don’t use it, then there’s no charge. If you do use it, then the interest rate will be the prime rate + 3%. We’ll start charging you interest from the minute that you use your line of credit, but you only have to make the minimum monthly payment. You can pay it off whenever you want to.”

    Customer C: “Awesome! Thank you!”

    Auto Loans

    Customer D: “I want to borrow money to buy a new vehicle.”

    Banker: “I can help you with that. We’ll secure the loan with the vehicle. If you don’t pay the monthly note, we’ll repossess it.”

    Customer D: “Sounds fair. Thanks!”

    Credit Cards

    Customer E: “I’d like a credit card please.”

    Banker: “Done. Now, it charges a double-digit interest rate.”

    Customer E: “Double-digits? That’s kind of expensive!”

    Banker: “You know what? You’re right. So I’m going to do this for you. We won’t charge you any interest at all so long as you pay off the full balance when the statement is due. Think of it as a grace period. If you don’t pay it off in full, then I’ll charge you interest… and other assorted fees for late payment.”

    Customer E: “Okay. Can I have my credit now please?”

    Service Charges

    The Banker wants to make even more money. The spread between interest paid on savings accounts and the interest earned on mortgages and other debt products is pretty good… However, the Banker is convinced that there is a way to increase its profits. Customers had always paid for drafts and certified cheques, but those instruments were often rare and not guaranteed income to the Banker. In a world of electronic transfers, fewer and fewer people need such services. Yet, everyone still needed to pay their bills, send electronic transfers to each other, make loan payments, and clear cheques.

    Banker: “I could charge them just for having an account! Or I could offer them a so-called free account, but charge them by the transaction. People are inherently lazy about switching banks. I might lose a few customers but most of them will stay with me…and will pay me every single month to use their own money!”

    The Banker add service fees to its bank accounts. Presumably, these are to cover the costs of providing services like utility payments. The Banker tell people they can pay per transaction, or they can pay a flat monthly fee for unlimited transactions. Better yet, customers can leave several thousand dollar in their account at all times in order to have the monthly fee waived completely.

    Customers: “This sucks!”

    Banker: “What are you going to do?”

    If you’ve ever wondered…

    …how banks make themselves rich, I hope this post gave you some insights. Banks make money because they have a vested interest in getting customers into debt. They profit when people borrow money. That’s the heart of their business. Everything else is a detail.

    The vast majority of us will need to borrow money at some point. Assuming you’re interested in paying as little as possible to do so, here are some things to consider:

    And should you be in a position where you cannot avoid owing money to the bank, then do yourself a small favour. Start buying shares in the banks! In Canada, banks pay out dividends every single quarter. Their profits are going up and their shareholders are benefiting. If you become a shareholder, then atleast some of the interest and fees that you pay is coming back to you every year. After sufficient period of time, all of the money that you’re paying to the bank will be returned to you in the form of annual dividends.

    Now you know.

  • Could you afford your life without credit?

    Could you afford your life without credit?

    I love reading about personal finance. It’s been a hobby of mine for the past 20+ years. I’ll even go so far as to admit that I’m also an avid snoop – I love hearing about how other people spend their money.

    • Are they investors?
    • Do they like to be spontaneous with their cash?
    • Maybe their parents or grandparents are helping them out?
    • Perchance they started a wildly successful business?
    • Are they just regular folk trying to survive and have a few creature comforts for themselves?

    Want to know what I’ve learned after all my many years of reading about how other people spend their money? Here it is.

    There’s a persistently growing group of people who need credit to survive. These are working folks whose paycheques don’t get them from one to the next. No matter how they crunch the numbers, economize, downsize, and sacrifice, they simply don’t take home enough income to pay their expenses.

    Take a good look at your finances. There’s no need to share your answer with the class. Just be honest with yourself as you answer this question:

    If you had to survive on cash, would your cash run out before you got to your next paycheque?

    For Some, Credit is Optional

    There’s a segment of the personal finance community that loves to talk about credit card hacking. I’m not an expert so forgive my less-than-accurate description of this financial method. In short, credit card hacking appears to be a process by which cardholders maximize their points for extremely discounted or free travel, hotels, car rentals, etc… These cardholders are diligent about how they use their credit cards each month to maximize these benefits. Most importantly, THEY NEVER, EVER CARRY A BALANCE ON THEIR CREDIT CARDS.

    And while travel cards are not my preference, I can certainly see the advantages. I have two friends, each of whom has 4 children. Every so often, my friends like to travel by air for family vacations. Believe you me, they make extremely good use of their travel rewards credit cards. Flight expenses for a family of 6 are very expensive. It only makes sense to use a credit card that will result in one or two of those airline tickets being free or otherwise extremely discounted.

    In the interests of transparency, I freely admit that I use a credit card that saves me money on groceries. I use the card – I earn points towards food – I pay off my credit card charges long before the due date. If I had to pay for a gaggle of airline flights, I’d probably use a different credit card.

    For Another Group, Credit is a Requirement

    There’s another group of people who use credit cards for reasons that aren’t driven by economizing on life’s little luxuries. These are people who need credit because their paycheques are insufficient. They don’t make enough money to pay for rent, food, utilities, and transportation. To be blunt, their paycheques do not cover the basics. It’s not a situation where people have to cut back on cable for a 3-4 months to pay off a debt. I’m talking about those who have already cut their expenses to the bone… and are now digging into the marrow. These are folks who are at the financial bottom, even though they’re employed.

    For these people, access to credit gives them a way to survive from one paycheque to the next.

    Do not misunderstand me. I am not for one second saying that this a good way to make ends meet. It is not. The rates of interest charged on credit cards should be criminal. However, using credit is the next best way to buy your necessities of living if you’re not able to further slash your expenses and your efforts to earn more money have failed.

    I’m going to suggest that those who could live on cash have some empathy for those who can’t. Put yourself in the other’s shoes. Again, no need to share the answers with the class. Just be honest with yourself.

    • Let’s say you’re paid bi-weekly, i.e. every 14 days. Yet your paycheque only allows you to buy 12-days worth of food. What would you do? Would you willingly be hungry for 2 days or would you use credit to bridge the gap?
    • You need your car for work, and it breaks down. There’s no reliable public transportation near you, and your co-workers don’t live nearby. Do you look for another job near home? Or do you use credit to fix your vehicle so you can maintain your livelihood?

    These aren’t terribly far-fetched scenarios. People find themselves in these situations every day. When they don’t have the cash to pay for the repair, or to feed themselves, they turn to credit.

    Life Can Be Expensive When You Don’t Have Enough Money

    Even if you had an emergency fund, there’s no universal rule that life won’t throw you another emergency before you’ve had a chance to rebuild your fund.

    Credit provides a lifeline, an immediate solution to a financial problem. The real issue is that the cure is as bad as the disease. For those at the bottom of the economic ladder, relying on credit is just as bad as not having sufficient money to pay for their costs of living.

    It’s not a situation of using credit and paying it off in full, while earning a low income. People in that situation could live on cash, but use credit for other reasons. Maybe they’re earning points. Or perhaps they’re building their credit score. At the end of the day, they set aside their cash to pay off their credit card balances in full. Their income may be low, but it’s enough to get them from one paycheque to another. They simply use credit in place of cash, but they never fall into the trap of carrying a credit card balance.

    My concern is for those who need to use credit because their cash isn’t enough. Life isn’t getting any cheaper. A few weeks ago, we found out that inflation in Canada had hit 4%. That’s not great, especially when your income doesn’t grow in step with inflation. For those who have disposable income, now they have just a little bit less of it. The people who were just making it from one payday to the next… well, they may not be able to do it anymore. When gas, groceries, rent and utilities all increase, while income stays stagnant, doesn’t it make sense to rely on credit if you can? Even if it’s going to cause problems later on?

    Again, I ask you…

    …Could you afford your life without credit? Do you earn enough to live on cash?

    There are no easy answers when the belt has been tightened as tight as it can go but there’s still not enough money. If I were wise enough to have the answers, I would share them with the world. Like most of the chinwag that emanates from personal financial bloggers, my suggestions and insights are for those who already have money. Solving the problem of people not having enough money to begin with is beyond me.

    In a perfect world, incomes wouldn’t have to be supplemented with credit. Paycheques would be enough to cover the survival expenses, to invest, to save for emergencies, and to buy a few little extras. That isn’t the reality for everyone. So as we start 2022, I urge you to have some compassion and kindness towards those who aren’t fortunate enough to have to have extra. Please don’t judge them for the choices that they make. They’re doing the best they can.

  • Shopping Season

    Shopping Season

    The shopping season is upon us once again! It used to be called the Christmas season or the holiday season but the notion of Christmas or holidays is no longer emphasized.

    When I look around, all I see is the emphasis on shopping. Apparently, the proper and just way to show your love to family and friends is to empty your wallet. Every retailer under the sun is exhorting you to spend-spend-spend! If you’ve got a nickel, they’ll happily take it.

    Need a gift for your bus-buddy’s grandmother’s snow-shoveller? Then head over to Staples and find just the right thing!

    How about a little something for the hostess’ dog-groomer’s roommate’s twin sister? Surely you’ll find what you need at Tim Horton’s.

    And let’s not forget to buy a gift for your neighbour’s chiropractor’s assistant’s step-sister’s tennis instructor’s mechanic’s first mother-in-law, okay? Surely, the perfect gift is just waiting to be found on Amazon.

    I jest…but not by much.

    Gift-giving expectations have exploded.

    When I was a child, it was way back in the dark ages. People read by candlelight. A full-sized chocolate bar cost $0.05. It was a 10-mile walk to school, both ways uphill. Back then, a seasonal greeting was sufficient and no one expected anything else.

    Today, the retailers have brain-washed us into believing that we should spend whatever it takes to buy something for everyone that we know. It’s insidious! What if my neighbour’s chiropractor’s assistant’s step-sister’s tennis instructor’s mechanic’s first mother-in-law doesn’t like the tin of saltwater taffy that I gave her? I spent $42 on shipping – she damn well better like it!

    When we buy into the notion that everyone needs atleast one gift from everyone else, then we tacitly accept that money has to be spent or else someone won’t be happy.

    Time – the Ultimate Gift

    You know what has worked to create better relationships and strong connections? Spending time with people. Playing cards & board games, completing a puzzle together, or hosting a potluck allows for people to share their lives, talk about their dreams, laugh together, and make some good memories. Time is priceless because it is finite. You only get so much of it and it’s best not to waste it.

    When you choose to spend time with someone, you’re giving them something precious. You can’t buy time, but you can use it to create spheres of intimacy where you, your friends and your family can just be. In today’s world, where the constant demand is to do more, be more, spend more, achieve more, one of the best gifts of all is creating a space where it’s okay to just chill, to simply relax, to be together with those whom you cherish.

    I’m not trying to pretend that you don’t need some money at this time of the year. If you have to travel or you’re making something that’s not on your regular grocery list, then funds will be needed. If you’re hosting out of town guests, then you’re going to need some extra funds for the additional costs of running a household with a few more bodies. I don’t want to give the impression that this time of year doesn’t deliver some solid punches to your pocketbook.

    However, I do want to disabuse you of the notion that buying stuff is the way to find the kind of relationship that you want. No one wants to feel like they’re simply a wallet-on-legs. You want to feel appreciated, not taken for granted. Going into debt to buy gifts for other people is not the way to create the genuine relationship that you most truly desire.

    Spend cash! Spend cash! Spend cash!

    If I can’t convince you to cut down on the number of presents that you dole out, then perhaps I can persuade you not to go into debt to do so. Keep the credit cards out of your wallet – don’t take them to the mall – most definitely do not use them online! If a website already has a copy of your credit card information saved, then go an delete it immediately. You need to slow down the speed at which you spend your hard-earned money. I call this slowing down process “financial friction”. You will need to create some friction between your viewing of an item and the purchase of that item. Friction will impede your ability to go into debt during the shopping season. This is a very good thing!

    Trying to buy someone’s love is a bad idea. Going into debt to buy someone’s love is an even worse idea! If your plan to buy affection doesn’t work, then you’re in debt while also failing to get what you really crave from someone else.

    At the root, everyone wants the same thing. People really want to be accepted and loved for who they truly are. They want a genuine connection to others and to know that they are cherished. Your wallet can only buy stuff – it cannot buy the intangible elements of a wonderful relationship.

    After all, if your relationship is based on money, then what’s left if the money goes away? How do you know that you’re loved for who you are rather than for what you can buy?

    As hard as this may be to believe, I have nothing against gifts! I enjoy giving them and I enjoy receiving them. What I’ve learned over my years is that the amount spent doesn’t correlate to the importance of the relationship in my life. The people in my life love me after shopping season is over, whether I’ve given them a $2 garage-sale mug, a tin of homemade baking, or the latest fancy electronic toy. Tossing aside my financial goals and going into debt to buy gifts for other people hasn’t resulted in stronger relationships.

    Look, I’m not telling you to stop buying gifts. I just want you to think about why you’re buying gifts. And I’m going to gently suggest that you spend a little bit less this year in presents. Those who really and truly love you won’t stop loving you if the box under the tree is slightly smaller this year.

    Trust me on this one.

  • Credit cards everywhere!

    Credit cards everywhere!

    Earlier this week, I went shopping at Canada’s last remaining national department store. I’ve been searching for black pants for the past few months and I had some time to kill between appointments so I took myself shopping, an activity that I normally hate very much.

    To my very pleasant surprise, I found the pants that I was looking for and they were on sale for $29.99. Hooray for Blue Lobster! Exactly what I wanted at a price that I was willing to pay. Does it get any sweeter than that?

    So I took my awesome find to the till…and the credit card tussle began.

    The cashier asked me if I had a last-remaining-national-department-store credit card, which I’ll refer to as the LRNDSCC for simplicity’s sake.

    I said that I did not.

    She asked me if I wanted to apply for one.

    I said “No, thank you.”

    At this point, she gave a look that very nearly had me checking my shoulders to see if I’d grown another head.

    The cashier doubled-down. She told me that I could save 15% on my purchase if I were to apply for a LRNDSCC that very moment.

    Again, I replied “No, thank you.” And then I threw her for a loop. “I don’t need any more credit.”

    I thought she would faint, but she held it together. That cashier indicated that it wouldn’t take but a minute and she repeated that I would save 15% on my purchase immediately.

    Once more, and with a smile, I told her “I don’t need any more credit.”

    At that point, she stopped pushing the credit card. I have assume that, during her cashier training, she’d been instructed to keep pushing credit until the customer had denied it three times.

    She was so perplexed by my refusal that I almost felt sorry for her… until she asked me for email address. I told her I didn’t want any email. She started to tell me that providing my email would allow me to get notice of sales and special offers. I just shook my head. Still reeling from my denial of credit, that hard-working cashier simply gave up and rang up my purchase.

    Why not accept the credit card offer?

    I thought about this a lot on my drive home. It’s a bit more complicated than the fact that I don’t need more credit. Tis true – I don’t need more credit. I have plenty and it’s sufficient for my purpose. In a certain respect, credit is like dish soap. Why would I use more than I need?

    The other reason I didn’t accept the offer was because I don’t believe that the reward was worth the risk.

    Risk, Blue Lobster? What risk is there in accepting a store credit card?

    Well, there’s the risk that my information will be compromised. The more cyber locations housing my personal information – name, address, social insurance number, salary, etc – the more opportunities for Bad Guys to steal it and engage in identity fraud against me.

    Limiting the number of creditors with my information offers me some measure of comfort and control.

    Check this out – 37,000 customers from Transunion have had their information compromised. This is not a good thing. I might already be one of those unfortunate customers, so I’ll have to keep a close eye on my credit cards to ensure that my financial identity remains safe. I suggest you do the same thing too.

    On a purchase of $29.99, I wasn’t willing to increase the risk of identity fraud simply to save $4.50. Fortunately, I had the extra $4.50 in my budget to make the purchase without impacting my ability to pay for shelter, food & my bare necessities. My choice to spend the additional $4.50 means that I won’t be taking on the risk that Bad Guys hack into the credit card information of the LRNDS and steal my personal information.

    The third reason why I didn’t accept the credit offer is simply because having credit in my wallet means being tempted to spend on that card. Why put myself in a position of temptation if I don’t have to?

    The 15% discount was a one-time thing. Again, I would’ve saved $4.50 on a pair of pants if I’d accepted the offer. Yet, I would have a shiny new piece of plastic winking at me from my wallet. And the sole purpose of that new little item would be to put me into credit card debt.

    So how many credit cards do I have?

    I have two. They’re accepted everywhere. One is for my day-to-day, and the other is for travelling. Both of them are free. Both of them offer rewards that suit my lifestyle perfectly. Personally, I see no reason to get anymore credit.

    While I’m willing to accept that credit cards are a convenient tool for many people, I still think it’s a great idea to limit one’s access to this particular tool. My rules for this tool are simple – pay it off, in full, every single month. If you can’t do that, stick to cash.

    Physical currency will buy you the exact same things that credit cards will, and it provides the additional benefit of preventing you from ever going into debt. Cash is still king for a reason.

    The next time you’re offered a retail credit card, be brutally honest with yourself. Think about whether you really need it. Will you be tempted to spend on that new credit card? Is the savings of that particular purchase worth the risk of someone hacking your information?

  • Why Isn’t Credit Card Math Taught in School?

    Why Isn’t Credit Card Math Taught in School?

    Today, I checked my credit card statement and found out that I have to pay $191.13 by October 10, 2019. The box at the bottom informed me that if I were to make the minimum payment ($10) at my current interest rate, then I would pay off my balance in 2 years and 0 months.

    WTF?!??! At $10 per month, it would take me 24 months to pay off $191.13. So, I’d be paying $48.87 (= $240-$191.13) in interest over 2 years. The interest of $48.87 is 26% of the outstanding balance of $191.13. Ridiculous!

    I also have to remember that if I make any other purchase during that two year period, then the amount owing would go up. that would mean that my bank would charge me even more interest.

    So why isn’t credit card math taught in school?

    I remember learning how to add, subtract, multiply, and divide. There were lessons on algorithms, on calculus, on algebra. My teachers spent time on the subject of simple interest, compound interest, and how they differed. I very definitely recall word problems involving distance and time.

    Yet at no point during my many, many years of schooling do I remember any lessons on how to calculate credit card interest. Sure – I know that if I don’t pay my bill then I’ll be charged 19.97% annually. But is that compounded monthly or annually on my outstanding balance? Does that rate apply to any fees that I might have to pay if I miss a payment?

    Math lessons would have been that much more useful to my adult life if I’d been required to solve the following math problem:

    Henry indulged in some retail therapy and charged $7500 to his credit card. If he only pays back the minimum monthly payment of $225*** while being charged a rate of 29.99% annually, then how long will it take Henry to repay his credit card? Secondly, how much interest will Henry pay on that credit card debt? *** The minimum monthly payment is equivalent to 3% of the outstanding balance.

    Not My Parents’ Fault

    I’m not going to blame my parents for this gap in my education. I’m fairly certain that credit cards weren’t a thing when they were in school. You can’t teach what you don’t know.

    Credit card math was never an issue in my house when I was growing up. My parents had two credit cards between them. My dad had a gas card that he used when we took our annual summer holiday. My mom had a retail store card that was used to buy appliances for the house. What they taught me about credit cards is as follows: NEVER CARRY A BALANCE.

    Full stop. This is what I learned from my parents’ example respecting the issue of credit cards. This is a basic lesson that pretty much works in all situations involving a credit card balance. Pay your credit card balance in full every single month.

    Unfortunately, my parents’ example failed to explain how credit card interest will be calculated for those unfortunate folks who do not pay their balances in full each and every single month. Though incredibly useful and entirely admirable, the lesson from my parents taught me nothing about credit card math.

    Surely the Credit Card Websites Have the Answers I Need

    Let’s recap. My parents didn’t teach me credit card math at home. My schools didn’t teach me credit card math even though I was in their care and custody from the ages of 6 to 17. Despite receiving my undergraduate degree from the school of business, I never learned how credit card interest was calculated. For that matter, my business degree was also useless in teaching me about the nefarious death-grip of student loans or anything else related to personal finance.

    The next logical place to search for answers is from the source. Surely the banks who issue credit cards would have a calculator dedicated to credit card math on their website. It would seem only logical that they would have some kind of online tool that explicitly shows how interest on credit cards is calculated and compounded. Customers would be able to enter their outstanding balance and the interest rate on the card then press a button to get a number representing how much interest would be owing on the outstanding debt.

    CIBC offers a credit card calculator to encourage you to accumulate points. There’s not a single mention of how the interest is calculated if you don’t pay your bill in full. To be fair, the inquiry “How is interest calculated on my purchases?” results in a link to the cardholder agreement. Pages 6-7 of CIBC’s cardholder agreement set out how payments are applied to a credit card balance. Yet, there’s no calculator that allows borrowers to plug in their own numbers to see just how much interest they will pay if they don’t pay their balance in full.

    I’m not picking on CIBC. I went to Scotiabank’s website too, and they didn’t have a credit card interest calculator either. Similarly, TD’s website was a bust. BMO has a variety of calculators for mortgages and savings, but does not offer any online calculators to help their customers figure out how interest is calculated on credit cards.

    Maybe Canada’s biggest bank has what I want… RBC’s website isn’t perfect but atleast it offers an explanation, but not a calculator, of how interest is charged on its credit cards. Kudos to RBC for not making its customers wade through a cardholder agreement!

    How disappointing… It’s almost as though the purveyors of credit cards do not want their customers to be able to figure out how much interest they will have to pay on their credit card debt if balances aren’t paid in full. I’m willing to go out on a limb here. I believe that credit card issuers don’t want their customers to understand credit card math.

    Even the Gurus Can’t Answer my Questions!

    If you’re not yet familiar with his teachings, then allow me to indulge for a moment. Dave Ramsey has created a series of Baby Steps to help regular people get out of debt and to achieve wealth. To be clear, I love the lessons about how to get out of debt by creating a debt snowball. If you’re ready to commit to a get-out-of-debt-plan, then start doing what Dave Ramsey says and keep doing it until all of your debt is gone.

    Yet, even Dave Ramsey fails to explain how credit card interest is calculated. This is hardly surprising. He hates debt and he encourages people to never carry credit cards. Still, he’s been in the business of helping get out of debt for nearly 3 decades. I thought that maybe, just maybe, he would be the one to explain credit card math to folks…even if just to tell people that they’re stupid for partaking of it.

    Government of Canada to the Rescue!

    The good folks at the Financial Consumer Agency of Canada have a partial solution. Their website offers a credit card payment calculator that will tell you how much interest will be charged if you don’t pay your credit card off in full. The calculator lets you add in your current balance and your interest rate. The search results ably demonstrate the impact of paying more than the minimum monthly balance and how much interest can be saved.

    So far, this is the best credit card math tool that I’ve found online.

    I’m still in the dark about how to calculate interest on my credit card balance. So I will resort to my parents’ wisdom. I resolve to never carry a balance. The mystery of credit card math may or may not haunt me for the rest of my days, and that might be okay.

    So long as I pay off my credit card balance every single month, I’ll never need to worry about the box at the bottom of my statement which tells me that it will take 24 months of my life to pay off an amount as small as $191.13 if I make the minimum monthly payment while never charging anything else during that time period.

  • Give Yourself Some Credit

    Give Yourself Some Credit

    I want you to give yourself some credit – literally.

    Allow me to back up a little bit, to give you some context. A year ago, my credit card number was stolen when someone booked a hotel with my information. Although it took a few weeks, my bank reversed the charges and life went on as normal.

    One of the lessons that I took from this experience was to keep my authorized credit card limit at an amount I could pay off within 30 days. I was lucky. The thief only stole enough credit to book a hotel room. He or she could have racked up way more charges since my limit had been around $5,000. I’m not entirely confident that my bank would have made me whole if the stolen credit amount had been to the max of my credit limit.

    Luckily, I’m the kind of person who checks all of my bank and credit balances every few days. That’s how I was able to catch this fraudulent transaction within 24 hours of it being posted to my account.

    Protect Yourself with Lower Limits

    After this unfortunate event, I lowered my credit card limits. I have two cards, although I use one more often than the other. The first card is for transactions like buying gas, dining with friends, tickets for entertainment, and my monthly bus pass. It’s the card I use for my regular life. The other card is for travel, so it has an even lower credit limit. Should my card be compromised while I’m away from home, the potential damage is much lower. There’s less credit for a thief to steal.

    You may want to consider lowering your credit card limits if they’re more than what you could repay in a month. If a Bad Person uses your card fraudulently and you can’t report it right away, then you might have trouble convincing your bank to help you get those charges reversed. Until such time as they freeze those transactions, you might have to pay interest on them. I’m not an expert on how banks operate when people experience credit card fraud. Contact your bank and find out what they will do to help you if you find yourself a victim of credit card theft.

    Sometimes, a Higher Limit is Necessary

    However, there are circumstances where I need a larger credit limit. In my case, I’m getting some house renovations completed before winter. After 18 months of saving money in a designated account, I pulled the trigger and signed the contract. If I were to run the renovation cost through my credit card, there is no way that my limit would be sufficient. A five-figure renovation is more than my credit cards can handle.

    So what’s the solution?

    Most people would apply for more credit from their bank. This is a bad solution to this kind of challenge. The smart solution is take matters into my own hands by giving myself some credit.

    Again, I already having the savings in place for this home renovation. The money is already in the bank. The solution of how to use my credit card to pay for my renovations is to front-load my credit card with the savings that are already in my bank account.

    What are you talking about, Blue Lobster?

    It’s really very simple. If it’s possible to make payments to your credit card, then it is similarly possible to front-load your credit card with cash. You essentially turn your credit card into a gift certificate.

    • Step One: The money is loaded onto your card, which gives you a positive credit balance on your card.
    • Step Two: You use your credit card as you normally would.

    When you need more credit than is currently available to you, then you need to give yourself some credit by front-loading your credit card with cash.

    Can I really do that?

    Whether you make payments in person or online, you have the ability to apply cash to your credit card. In fact, this is precisely how you pay off your credit card balance each month. (And if you’re not paying off your credit card balance each month, then stop using your credit card. Make payments until the balance is $0.00. Lower your credit limit to $1,500. At that point, you can start front-loading your card with cash so that you can use your credit cards and simultaneously stay of credit card debt forever.)

    There’s no law that limits how big that payment is. Front-loading cash onto your credit card results in a credit limit higher than the one given to you by the bank. The front-loaded money is available for you to spend but there’s no concomitant obligation to a lender.

    The credit available to you from your bank via your credit limit results in a debt that you owe to the bank at the end of the billing cycle.

    The front-loaded cash on your credit card does not yield any debt whatsoever. It is money that is spent for you to acquire whatever it is that you want without requiring you to pay any interest to anyone.

    Do you see how my solution is way, way better than getting an increase to your credit limit?

    Benefits of Front-Loading Credit Cards

    I’m going to repeat myself – give yourself some credit. The benefits of using your own cash to increase your credit limit are awesome.

    • You don’t pay any interest on the money that you front-load onto your card. This is money from your bank account, which means that it is not money that you are borrowing from the bank.
    • You can eliminate the impact of fradulent transactions on your account. Only front-load your credit card a day or two before you’re planning to buy whatever it is that costs more than your credit limit. Do not carry an artificially-high credit limit at all times. That puts you at the same risk of having a high credit limit when your credit card gets compromised. Credit card thieves will steal your money just as easily as they will steal the bank’s.
    • You’ll be far less tempted to spend your savings on stuff that doesn’t matter. The reason you’ve front-loaded your card in the first place is because you’re spending the money on something that’s very important to you. It could be tuition, a trip, a celebration, a piece of art, jewelry, whatever. The point is that if you were committed enough to save up for that purchase, then it’s very unlikely that you will squander your front-loaded funds on stuff.
    • Your credit score is not impacted by the act of front-loading your credit card with cash.
    • Front-loading your credit card is the same as paying with cash without having to carry cash on your person. You are spending your own money, instead of the bank’s, but you’re doing so via plastic. Imagine if my contractor was actually willing to be paid $10,000 in cash. Neither of us would exactly be comfortable flashing a brick of $100-bills around. However, he has no problem accepting my money via a credit card.
    • Front-loading your credit card eliminates the need to pay a bank fee in order to buy a bank draft or a certified cheque. Even with e-transfers, there is a limit on how much can be transferred electronically.
    • Finally, front-loading your credit card prevents you from going into debt. Banks who lend you money want to make profits off of you. They do so by charging you interest when you can’t pay your credit balance in full. They want you to go into debt so that you’re in a never-ending cycle of paying them interest every month. While this is good for them, it’s very, very bad for you.

    When you have a credit limit that can be satisfied by your monthly income, then you won’t go into debt. This is due to the fact that you’re in a position to pay off your balance every single month.

    Keeping your credit limit low and front-loading your card with cash means that you’ll stay out of debt while still buying the things that really matter to you.

    Don’t rely on the banks to control how much you can spend on your credit cards. Instead, give yourself some credit by front-loading your credit cards with your own money.

  • Freeze your Credit Limit

    Freeze your Credit Limit

    Recently, I had a discussion with someone who was worried about credit card debt. For ease, Gentle Readers, I shall call this person Oscar.

    Oscar’s niece owed over $10,000 on her credit card and Oscar was beside himself! It seemed that Oscar’s niece had been fleeced by an acquaintance who was not repaying the borrowed money and was in fact enraged with Oscar’s niece for not lending out even more money on her credit card.

    While the whole situation was bothering Oscar a great deal, I learned that he was most troubled by the fact that the credit card company had increased his niece’s limit without verifying her salary. Oscar somehow believed that the credit card company had acted in an untoward manner! Oscar appeared to be under the impression that the credit card company was in a fiduciary relationship with his niece.

    For my part, I was stunned that Oscar would be surprised by the credit card company’s behaviour.

    Credit Card Companies make profits, not friends

    In case you, Gentle Reader, believe credit card companies act in your best interest, please allow me to clarify the situation for you. Your credit card company has no duty to act in your best interest. Credit card companies are finance companies – they are in business to make money, not friends!!!

    As profit-seeking entities, the credit card companies are not going to do anything to stop you from going into debt with their product. Please re-read my last sentence a few times before continuing. Let it sink in. To the credit card company, you are the goose and your feathers are money. They want to pluck you naked.

    The credit card companies will increase your limit, charge you interest and fees, and harass you for payment if you don’t pay them back each month. They are finance companies. Their sole purpose is to earn profits for their shareholders by giving you credit so that you pay them back with interest and fees. That is the only service that they are offering you. To believe anything else is to naive and self-destructive. When you go into debt, they make more money.

    More often that not, it makes sense for these companies to increase your credit limit beyond your ability to repay the full balance in a single payment cycle. They will do this at a drop of a pin because it’s a good business move for them. Doing so vastly increases the odds that you will be forced to carry a balance and thereby pay them interest at a double-digit percentage.

    The credit limit increase is good for them. Conversely, the increase is bad for you. If you are using credit and not paying it off every single month, then you are living beyond your means!!! This situation is very bad because it means that you are living in debt and that you do not have any disposable income to put towards building your cash cushion.

    Your Salary is Irrelevant to Any Increase

    Credit card companies don’t check your salary before they increase your limit. When you apply for a credit card, you have to state your income. However, once you’ve been approved and issued a credit card, your salary need never be discussed again. The credit card companies don’t care if you earn $1500/month or $25,000/mth. They will continuously increase your limit as often as they can in the hopes that you eventually start paying them interest by carrying a balance from one month to the next.

    My wisdom for you is this: your credit limit should never exceed the amount of money that you could repay in a single month. If you have an extra $1,000 per month after all your needs are met, then your credit limit should only be $1,000. You’ll be in a position to use your credit card up to its limit and still pay off the balance without incurring any interest. If you don’t have $10,000 in disposable income each month, then you don’t need a $10,000 limit.

    A very smart friend of mine who introduced me to the Disposable Income Method of using credit cards. It’s ingenious and highly effective. I’m sure that the credit card companies hate it! If so, that’s means that you should love it and start implementing it immediately. Briefly, the Disposable Income Method requires you to set your credit card limit at whatever disposable income you have between paycheques. Every purchase can go through your card and you pay your credit card in full each time you get paid. Easy-peasy-lemon-squeezy!

    Protect Yourself from Limit Increases

    There are two ways to protect yourself from credit limit increases. The first method is to never have a credit card. This method is drastic and foolproof. In today’s world, it’s also quickly becoming unrealistic. Even I use credit cards on a regular basis. However, I never borrow more than I can repay when the bill comes due.

    The other way to protect yourself from these increases is to phone your credit card company and to tell them the following: “Do not increase my credit limit without my express request to do so. I don’t need more credit than I have right now. I do not want my credit limit increased without my explicit permission. Please make a note of this conversation in your computer system.”

    This conversation works – trust me. I do not want a 5-figure credit limit because I cannot repay a 5-figure debt in a single billing cycle. It has been several years since I’ve seen an increase in my credit card limit. By telling my credit card companies to freeze my credit card limit, I’ve eliminated some of the risk of carrying a credit card. I’ve pre-empted the possibility of spending more than I can repay.

    So pick up the phone – call your credit card company – freeze your credit limit. Don’t feel bad or sad or guilty about doing so. Rest assured that the credit card companies will always be there to offer you more credit at very high interest rates. Fret not, Gentle Reader – you can always go into debt tomorrow!