Get Smart with Your Credit Cards
Credit cards are perhaps a little too convenient making it easy to rack up debt but this strategy will help you stick to your budget.
I thought I had credit cards all figured out: I would use them to make purchases, then pay the balance off the next month and avoid paying any interest. If I couldn’t pay it off that month, then I’d pay it the next with only a little interest. If not that month…well, you can see where this was headed. My plan was a complete disaster despite having read article after article about credit cards. I never found any simple, practical tips on how to use credit cards to my advantage. The information was confusing, and written in a way that made any insights hard to understand.
It wasn’t until I worked at a reputable car dealership that the light bulb about credit cards finally went off. One day, I was helping a Laotian woman with her car purchase. She didn’t speak a word of English despite having lived in the U.S. for more than 30 years. According to her son, who was translating our conversation back and forth, she came to this country with nothing and built an empire of real estate rental units. I asked him how and his answer was, “She was smart about using credit”. The irony of it all is that she paid cash for the car she purchased from me. I guess once you have a perfect 800 credit score and tons of cash at your disposal, you don’t need to finance anything anymore. She must have worked hard and known what she was doing to get to such an advantageous financial position. I was so intrigued by this idea of being “smart about using credit” as a means to building a fortune that I was determined to find out exactly what that meant.
Credit Card Billing Cycles
After taking a close look at my monthly credit card statements, I realized that the key to using credit cards to my advantage was understanding the billing cycles. I knew they varied depending on the card, so my first step was figuring out the exact dates of the cycles.
I have two Capital One credit cards and use paperless statements for both. When I went online, I saw that one statement showed the start and end dates of the credit card billing cycle, while the other just showed a billing cycle of 32 days, leaving out the exact dates. I had to call the credit card company for those exact dates, and you may too, but you have to know this information in order to take full advantage of the credit you have.
After studying my statements, I noticed that some months my billing cycle was 30 days and other months it was 31 days. I knew it had to do with some months being shorter than others, but I thought there had to be a simpler way to keep track of what was going on with my purchases than studying my statements every month.
That’s when I noticed that the start and end dates of every credit card billing cycle fell on exactly the same dates, no matter what month it was. Voila!
The starting date of the billing cycle of one of my cards is always the 29th (close to the end of the month) and the ending date of the billing cycle is always the 28th (close to the end of the following month). These dates, the end of one billing cycle and beginning of the next never change, they are always the same regardless of the month. Let’s me explain what these dates mean in practical terms to you.
All the transactions that take place on the specific start and end date of a billing cycle, as well as any transactions in between, will be due on the payment due date, which also falls on the same date every month. Like this:
Start date of billing cycle: 29th
End date of billing cycle: 28th
Due Date: 25th
Looking at two consecutive monthly statements, you can break out the exact dates of the billing cycles.
June Credit Card Statement:
Billing cycle: May 29- June 28
Due Date: July 25
July Credit Card Statement:
Billing cycle: June 29 – July 28
Due Date: August 25
If you know the exact dates of the billing cycle, you can give yourself the maximum time possible to “borrow” (by using your credit card) and pay the money back without incurring interest. Here’s an example of how it works:
The Smart Way to Make Large Purchases With a Credit Card
Suppose you want to make a large purchase in June, say a $600 flat screen TV. If you purchase the TV on May 30, you will have until July 25 to pay off the purchase. By making purchases at the beginning of the credit card billing cycle, you are allowing yourself the longest time possible to pay it back without interest.
Keep in mind that you don’t have to wait until the due date to make a credit card payment. In fact, by breaking it down into two payments, you are not only being financially responsible, you’re making it easier to budget in a smaller payment. So, if you make the TV purchase on May 30, you can send your first payment of $300 on June 30 and allow yourself one smaller, interest-free “installment” payment. Then, on the July 25 due date, you can send in that second $300 dollar payment and pay the TV off in full. This strategy allows you to budget purchases and borrow money without paying any interest whatsoever.
Another option is to break those payments down further, into three smaller credit card payments. This requires that you save the money for the first payment prior to purchase. For example, in the case of a $600 TV, at the time of purchase--let’s say May 30 again--you would pay $200 in cash and put the remaining $400 on your credit card. Then you would make a $200 payment on June 30 and the pay the final $200 installment on the due date, July 25. Once again, you’re borrowing money and not paying any interest or fees on your purchase. That’s what I call being smart about using credit: paying in full for your purchases by consciously planning and budgeting allows you to avoid paying any interest on what you borrow.
Take a look at the dates of your credit card billing cycles and try it. It works!