Complex Numbers

Making Money

As we approach the end of the year, I find my time divided between three major activities:

1. Personal Finance (specifically, preparing for taxes).
2. Setting up "Tourn-a-Rounds"  [ASR] in preparation for its launch on January 1.
3. Trying to fix my wife's #$#%@ing laptop, which keeps giving us the BSOD.

I'm frustrated by #3 and I have Minions working on #2, so I'm going to talk about #1 for a bit. This is prompted by a conversation I had with CCWolf here, but also by the reported incredulity of several of my wife's friends when she tells them about:

How to Beat Credit Card Companies at Their Own Game

By all reports, consumer debt is at an all-time high. People aren't saving; they're spending, and worse, they're spending money they don't have. Even worse, they're paying astronomical interest rates on the money they spend that they don't have. The principal enabler of this spending is a little plastic wafer with a magnetic stripe, that you can use at places like Sak's Fifth Avenue, the local grocery, and the McDonald's drive-thru. And when the bill comes due, if you don't have enough cash to cover the money you've spent, that's okay - you can just pay a small percentage of it and let the rest carry over!

With credit card interest rates (aka "finance charges") ranging anywhere from 9 to 31 percent or even higher, the cost of this money can be astronomical. I'm not going to give you headaches with math, but if you pay nothing but the minimum payment due every month, it can take years to pay off a balance - and meanwhile, accumulated finance charges can double or even triple the amount you paid for something!

Many people complain that they can't seem to get ahead. This is why.

To get ahead, you have to break the cycle, but you can't break the cycle because the debt keeps piling up.

Still, you can break the cycle, but that's not what I'm going on about today. Today I'm talking about how to make money from credit cards. But to do that, you have to start from a position of no credit card debt.

Not always easy to do, I know. We're trained to believe that debt is simply a fact of life, and we might as well deal with it. Well, it's not, and we shouldn't have to. Being in debt helps only one entity: the bank. So unless you also own the bank, you should do everything possible to minimize debt, and what debt you have should be in the form of low-interest loans, not carryover balances on credit cards.

What you need to make money from credit cards:
1. A credit card (duh) with a zero balance.
2. An interest-bearing savings account.
3. A budget or spending plan, in which expenses total less than your income.
4. Willpower.

Here's how it works:

1. Give me all your money.

Just kidding.

Here's how it really works:
1. Make a spending plan and stick to it (this is the "willpower" part).
2. Whenever possible, make purchases and payments by credit card, as long as it doesn't cost extra to do so.
3. Every time you make a purchase, or once every few days, take the amount that you have spent with the credit card and deposit it into the interest-bearing savings account.
4. When the credit card bill comes, ignore the "Minimum Payment" amount and pay attention to the "Balance" amount. If this "Balance" is paid in full, there will be no finance charges.
5. A few days before the bill is due - make sure you allow enough time for the payment to clear; I recommend electronic payments for speed and accountability - pay the Balance in full.
6. You will now have more money in the savings account than you did when you started, because it has earned interest over the month or so between the purchases and the due date. It's not much - but it's more than you would have had otherwise, and YOU are making the money, not the BANK.

You can keep this up indefinitely, as long as you pay off the entire statement balance in full. This is called a "grace period," and as far as I know, all credit cards in the US feature this grace period - but read your CC terms carefully or call them just to be sure.

This will affect your credit rating - but in a positive way. The credit reporting agencies see that you have a revolving credit account balance due - but they're not told that you're paying it off every month, or that you're not paying any interest on the borrowed money. Since you're paying something every month, they see that and your credit score goes up. Further, don't touch the balance in your savings account after you pay the Balance - and it will continue to earn interest.

This bank gives a high interest rate on savings; it's fully insured, and has no minimum balance. You can open an account with a buck fifty - or less:

http://home.ingdirect.com/

(I'm in no way affiliated with that bank. It's just where I stash my cash.)

The key, of course, is not to spend more than your income. But it doesn't matter what your income is; you can use this technique at any level.

Money is a good thing to have. Don't let anyone tell you otherwise.