Lately, there has been a lot of talk about the new Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009. Since President Obama signed the bill late last week, much of the talk has swirled around whether or not the bill will harm “responsible” credit card users.
There have been quite a few good articles and posts on this topic that got me thinking about what a “responsible” credit card user looks like. Inevitably, whenever I discuss controlling spending with a cash budget or why we cut up our credit cards, I get several comments or e-mails that contain a quote very similar to:
“I can see how this would be useful for someone overwhelmed with debt or who lacked responsibility, however I just use my credit cards and pay them off every month.”
While this is an admirable financial habit, for me it doesn’t paint the complete picture. Often times, people think that paying off their credit cards in full each month automatically makes them a responsible credit card user. This blind assumption is certainly misleading and potentially dangerous to your financial life. There is a little more to the equation.
In my life, everyone who has been truly responsible with credit cards has installed a combination of each of the 3 following habits:
3 Habits Of Highly-Responsible Credit Card Users
- Pay off credit cards in full every month. I never said this was a negative habit, just that it alone doesn’t signify responsibility. This is the first and most essential habit for good reason. Letting a large balance slip for even a month or two can all but eliminate the “profit” of reward points or cashback. And everyone agrees that only paying the minimum for an extended amount of time is a surefire way to fail financially. Breaking the habit of spending money that you don’t yet have is one of the key elements of a well-orchestrated financial turnaround.
- Employ techniques to minimize increased spending due to convenience. Ah, the often denied, often laughed at overspending theory. A large percentage of credit card users simply ignore this altogether. They find it ridiculous to even consider that they might spend more due to sheer convenience or from the increased emotional detachment that credit cards foster. Responsible credit card users take a different approach. They’ve read the studies and acknowledge factors that could potentially lead to increased spending. In order to minimize them, they actively leverage techniques to keep themselves on track. They sleeve their cards, write goals in their wallets, and actively update digital budgets. They might freeze all but one card, utilize 30-day waiting lists on wants, or institute no spend days.
- Maintain control over and monitor multiple accounts. The last of the three habits is admittedly less important than the first two. However, the deeper you dive into credit cards the better you will need to be at micro-managing accounts. I know people who have 5-10 cards for different types of purchases in order to maximize rewards. While sometimes I doubt their level of expertise with the first two habits, I can’t deny they’ve mastered number three. However, often times this habit is best demonstrated by the person who sacrifices a small percentage of “return” in order to ensure the simplicity and control that comes with only having one or two cards. In general the more accounts, the harder it will be to effectively maintain control of due dates, balances, and terms of service. Responsible credit card users develop systems for handling the additional complexities that come with juggling multiple accounts.
Of course, we’ve found a really cool way to ensure we always accomplish these three habits. It involves a pair of scissors, a telephone, and an emergency fund. I’m not going to rehash the positives and negatives of cash vs. credit here, but we obviously found enough value in our lives to revolt.
People revolt in different ways, though. Some people revolt against the credit card companies by attempting to beat them at their own game. They attempt to make several hundred dollars a year by employing these three habits and following all the rules. The best are very successful. They play the game very well.
When it comes to games, I have some previous experience. I’ve traveled the country playing video games for money. I’ve played collective card games with rooms full of the best in the world. I spent years dealing, playing, and hosting poker tournaments for hundreds of people nightly.
It is no secret I have a killer gaming instinct. I go for the throat. I exploit loopholes. Yeah, I’m one of those people.
Over the years though, I’ve learn two very important lessons the hard way:
- Don’t try to beat someone at their own game. It’s not impossible to beat people who’ve spent their whole lives studying a specific game, but it’s rare to have consistent long-term success. Even if you are able to obtain a string of consistent wins, often times the price you’ve paid isn’t worth it. If I have to spend 16 hours a day studying backgammon to beat you consistently, we better be playing for some major keeps. My time is much better spent finding suckers to play my own game than studying to beat you at yours.
- No matter how often you win, eventually you have to enjoy your opponent. Sure winning is fun. At first, beating the annoying fat kid out of his lunch money might be worth it. But after the tenth time, you’d rather break the lunch tray over your head than play him again. Suddenly his $2 isn’t worth your time. Yeah, you’d play him for $10 a game, but he’s fat. He spends most of his money on food before offering to play you.
At some point during or financial turnaround, I realized that the fat annoying kids that run the credit card companies have been playing this game for a long time. Sitting in the back of the lunch room and flipping them the bird feels more liberating than you can imagine.
There are two ways to approach this. Either work diligently on incorporating the three habits above into your daily life or grab a lawn chair and come drink with me on the sidelines. Neither one is fundamentally “better” than the other, but either one is superior to being lost somewhere in the middle.
What other habits can you think of for highly-responsible credit card users? Did I leave any out? How have you incorporated them into your own lives? Your comments really do add value to the conversation. Do everyone a favor and leave them below!