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- My parents were some of the most thoughtful spenders I know, and they always got the most from their credit cards.
- They taught me that credit cards can be valuable for daily use, but that paying interest essentially negates any perks you might get.
- They also taught me how to treat credit cards as part of my emergency fund, and that credit card "hacking" is really only effective if you're willing to put in the time and effort to do it right.
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My parents have always been some of the most thoughtful spenders I know: My mom knows when all the double coupon days are, and my dad prefers to get needed household items from deep discount stores. They aren't brand-driven usually, and they are happy with whatever is on sale. This is why, looking back, I'm impressed with their ability to use credit cards.
Over the years, they taught me to have a healthy respect for the power of credit cards: the seduction of carrying a balance and ending up in over my head wasn't a good thing to them, but the perks of credit cards when you pay the balance in full every month were quite nice.
Here are the lessons I took from my childhood watching their credit card habits.
1. There's value in a daily-use card with no annual fee and modest perks
My parents primarily used credit cards that didn't have an annual fee and came with some kind of perk: cash back, travel points, something they knew they would definitely use. My parents used this card for practically all their purchases and paid it all off every month. Without fees and without interest, they were essentially getting all the perks from the cards for free; they just had to keep up with the bills.
2. Paying interest negates pretty much all the perks
I remember, as a child, happening to see my Dad opening a credit card bill. I don't remember exact numbers, but I remember saying something like, "you only have to pay that much, even though you put so much more on the card?" He explained minimum payments to me, then turned the bill over and showed me the interest amount listed on the back.
We did a little math right then and sure enough, no amount of cash back or free hotel nights could make up for the craziness of 19% interest on a long-term balance. I learned a healthy respect for the power of credit cards, but also a mental re-categorization of them as ultra-short-term loans that I didn't want to keep for longer than that month.
3. Consider whether the card makes you spend more overall
Another thing I asked my parents, after learning about the idea of an envelope budgeting system, was whether they spent more with their credit card than they would if they had to carry cash. They were honest: They figured the ease of a plastic card probably did make them more comfortable spending than doing everything in cash would. It made me think, when I was at my more pinched moments budget-wise, that I was better off withdrawing cash and spending it and letting the credit card wait until I was making more money.
4. Create a banking buffer if your credit card is also 'for emergencies'
My parents pointed out that their emergency fund was actually an extension of their credit card. By the time I was old enough to ask these questions, they'd built up quite a credit limit on their cards, but they'd also built an emergency fund. That way, they said, even if they had to put a large emergency expense onto the card, they'd have accessible money to pay it back quickly.
5. If you are willing to put in the work, introductory offers can be great
While I've never gotten into it, my parents were able to do some wizardry with credit cards that offered a period of 0% interest and free balance transfers back in the early 2000s. Essentially, rather than getting one month to pay back the money without interest, they got a whole year with these cards.
At the same time, they saved money in a high-yield savings account so they'd be able to pay the bill at the end of the year. If they wanted to do it again and get more time to pay, they just had to find another card and make the balance transfer. I'm unclear on how long they did this, but I do know that they ended up earning interest on what was essentially a large personal loan, which seemed amazing.
6. Make sure you read the fine print!
The reason my parents were able to do this, of course, was because they checked every pre-qualification letter and every credit card application intensely. They ensured there were no hidden fees that prevented them from doing what they wanted to do, and they made sure they actually qualified for the kinds of credit limits they wanted. They wanted everything to be aboveboard, and they did their homework to ensure it was so.
7. If you don't want to spend the time, credit card 'hacking' probably isn't for you
While I'm impressed at the ways they made credit cards work for them, somewhat akin to the popularity of "travel hacking" with credit cards that offer travel perks, I realized that the work they put in was real. It's easy to lose in the credit card game if you aren't patient enough to do the reading and correspondence to make sure you will get what you want. So the lesson they taught me - that credit card hacking is not worth it if you can't devote lots of attention to it - has been a useful one for me.