I love credit cards. They have helped me pay for medical school expenses/tuition on 0% APR, reduced my overall med school debt by 60k in interest, given me lots of cash back & rewards, allowed me to channel my cash flow into my retirement and Mini’s college savings. Thank you, big banks! For giving back to small people once in a blue moon.
While most people see credit cards as the trap/ lock and chain around one’s financial life, when used responsibly and cleverly, one can really turn the table around & use credit cards to free themselves from other higher interest debts such as 6.8% student loans.
Many people are incredulous about my credit utilization style. Here are some numbers & facts…
My credit stats:
- Credit scores from 3 credit bureaus: 780+
- # of credit cards (all you see in the above pile): 52
- # of balance transfer offers with <2% effective annual interest rate (post transaction fee): 10 offers/month
- Late payments*: never in my 18 years of credit history
- total combined credit limit: 250k
- highest credit limit on 1 card: 51k
- revolving debt balance as of 5/18/16: a huge ZERO
Just learned recently that late payments on credit history are not very strict. Payments have to be overdue >60 days before it’s reported to the credit reporting agencies. I have a couple late payments (2-3 days late) in the last 18 years but none impacted my credit score because the credit card companies/banks didn’t report these “late” payments.
I use credit cards for:
- Everything chargeable. why not, simplify my life, gives me cash back or rewards, track my expenses in one place (I usually only use 1/2 cards actively at any time.)
- Cash back: 10-30% of each dollar charged
- Emergency fund: why would I set cash away (idly not making me any return for emergency fund when I can charge onto Citibank Simplicity card and ride the balance 21 month interest free? at the end of 1.75 years, I would have enough money saved in a brokerage to pay it off completely anyways.)
- Fund my 401k, Roth IRA, Mini’s 529: Chase Slate offers 0% transaction fee for me to write a check to myself for anything (up to my credit limit of 25k.)
- Pay off other high interest debt: I initially paid off my student loans when I was rejected by DRB for student loan refinancing (yes, in a few months DRB rolled out product to refinance PGY’s for the first time in history. I would have qualify to refi with DRB if I waited a few months. oh well.)
- Live a little: I will charge Mini’s art studio set up in our new home… enjoy it while paying the costs back in 21 months. For once, gratification is not delayed, pay back is.
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Key principles to smart credit use:
Cash is King.
Discipline: be realistic with how and when you can pay the credit cards off. Transferring to another card is an option, but paying off is even better 🙂
Take advantage of Time value of $. If you can borrow at -10% to 0% from credit card to fund your ROTH IRA earning 8%… Why not leverage this debt?
Be on the right side of the bank. In other words, Be The Bank. Collect rather than pay interest.
Organization: remember VSAS & ERAS & AAMC? you must be an expert organizer by this point of your medical career. Start a master excel sheet, keep track of your credit card due dates, debt amount, monthly minimum payments. Stay on top of, just a month before, your sweet 0% interest rate (APR) converts to the nasty 29% big banks are waiting for.
Take the bait and bounce before the switch.
Most importantly, know thyself. If playing the big banks doesn’t gyve with you, don’t do it.
Know thy enemy. It’s simple. They want to get 30% more money back from you than what you charged/borrowed. Don’t let that happen.
So what do you think? Comment below.