1.  Create a list of your credit cards.

• Include account balances, interest rates, due dates, and minimum monthly payments.

2.  Make minimum payments to all credit cards, on time.

3.  Make an additional payment to one of the cards on your list.

• If you make an extra payment to the account with the smallest balance, you can quickly eliminate an entire card balance from your plan.  This may provide a much-needed emotional boost and keep you motivated.
• If you make an extra payment to the account with the highest interest rate, you guarantee that you will be paying the least possible amount of interest.  This is a mathematically-sound approach.

4.  Continue to make minimum payments and the extra payment until the first card on your list is paid off.

• If you have the chance, make additional extra payments – micro-payments – throughout the month.  This reduces your average daily balance and really speeds up the debt reduction process.

5.  Continue to make minimum payments to the other cards, and take the additional amount you were paying on the first card plus the minimum you were sending to the first card, and apply that total to the second card on our list.

6.  Repeat this process of eliminating balances until all credit card debt has been eliminated.

This debt reduction process works with any types of debt and is especially effective when dealing with credit card debt.

This week I will be writing a series of Back to the Basics articles.  I encourage you to subscribe to No Credit Needed via RSS or Email.  Also, if you liked this article, please consider promoting it via the social network buttons below.  Comments are always appreciated – and don’t forget to follow me over at Twitter.com/NCN.

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How To Eliminate Credit Card Debt

It’s been several days since I last posted an article here at No Credit Needed.  I could easily blame my life, which has been hectic and filled with much to do, but I won’t.  I could also blame writer’s block, but I don’t have it.  Instead, just like every other article I’ve ever written, I’m going to be honest.  I haven’t written an article because I can’t get over a self-created (is that a phrase?) issue with the direction of No Credit Needed.  I’ll try to explain.

Way back, more than four years ago now, when I started this site, I had one goal.  I wanted to be debt free.  Well, it “only” took me ten months to get out of debt – and then I was faced with a (pleasant) dilemma.  What do you do with a debt reduction blog, after you have achieved your debt reduction goal?  Do you keep blogging?  Do you stop blogging?  Do you change the name?  Do you change the focus?  Remember, when I started this site, I knew next-to-nothing about blogging, blog promotion, social media, Internet marketing, online advertising, etc.  I was (and in many ways still am) just a guy with a computer and a goal of financial security.

So, instead of just celebrating my debt-free status, I continued to blog.  Over time, No Credit Needed became (I hope for some) more than just a debt reduction blog.  I connected with a lot of other bloggers, authors, writers, and readers.  In fact, No Credit Needed opened up a world of new friends, new contacts, and new ideas.

Throughout the history of the site, I’ve written (primarily) about my own financial ups and downs.  Included in our plan for financial prosperity, I’ve written several articles about how we live without using credit cards.  For us, this is a personal decision, simply because my wife and I really don’t like the hassle associated with credit card use.  Somehow, those articles about how we live without credit cards really caught on – and that idea – of not using credit cards – became a (the?) focal point of No Credit Needed.

Here’s the rub.  While I don’t use credit cards, I never intended for that to be the primary focus of this site.  The reality is, however, that much of the media attention that No Credit Needed has received has come from media outlets interested in how we live without credit cards.  Of course, as people asked questions about our lives without credit cards, and as those articles gained popularity, I was motivated to write even more articles about our lives without credit cards.  And, at first, I had absolutely no problem with this, because we really have thrived without them.

When I started No Credit Needed, one of my goals was to break my reliance on credit cards.  For me, I was able to achieve this by simply putting my credit cards in my wallet, and refraining from using them.  When I first started, I needed to break my credit card dependence.  However, I have come to realize that this lifestyle choice may or may not be the best for everyone.  I have no desire to try to convince others to abandon (permanently) their credit cards.  Instead, I’d love to encourage folks to get out of debt, manage their finances wisely, and refrain from useless borrowing.

The time has come, and I feel that I must stop focusing on this specific topic.  While we will continue to live without credit cards, writing about this topic is keeping me from writing about a broader range of financial topics.  I feel boxed-in, unable to write about “how to manage credit card payments” or “how to use a credit card an remain debt free” for fear of alienating my current readers or coming off as hypocritical.

I take this site very, very seriously.  Writing here has radically changed my life, both financially and personally.  I love the personal finance blogging community, and I plan to continue to support my fellow bloggers.  At this time, in an effort to broaden the reach of No Credit Needed, and in an effort to broaden its subject matter, I feel the need to shift the focus away from articles about life without credit cards and towards articles about life without debt.

I have a few ideas about the types of responses this article will receive.  I hope that most will understand my motives, and forgive me for giving up the “credit cards are evil, and here’s why” battle-cry.  I fear that some may stop visiting the site.  Hopefully, after noting that it’s been almost two weeks since I last wrote an article, you can see that this “step” has been weighing heavy on my mind.  I simply do not want to waste valuable time and energy defending our decision not to use a credit card. Instead, I want to write about the power of a sound budget, the importance of planning for the future, and the goals one can achieve with solid planning.

I will continue to write about the debt free life.  I will also write about our goals, and how we plan to achieve them without borrowing money.  I will also write about debt reduction, how to pay of credit cards, and I will continue to celebrate the debt reduction success of other bloggers.  As for writing about credit cards, I may mention that we do not use them, but I will no longer focus on this aspect of our financial plan.

I have proven, to myself, that I can live without a credit card.  I have no current plans to use one, nor do I foresee a reason to use on in the future.  However, should I choose, at some point in the future, to pay my cell phone bill with a credit card, and then pay that bill off at the end of the month, I will let you all know.  And, for those who do use them – and those who don’t – I hope you will continue to read No Credit Needed.

A word about this blog’s title – No Credit Needed.  When I first started the site, I wanted something catchy, something that would be memorable.  I remember seeing a sign, at a local store, about how you could finance a purchase “no credit needed”.  I thought it would be awesome, if somehow, instead of that phrase being used to convince people to borrow money, it could be turned on it’s head, and represent a family that was living debt free, without borrowing money.  Only after a few articles did the name start to “mean” something.  It does not mean that I don’t think credit (or the ability to borrow) is important – it simply means that I don’t want to live a life where I am beholden to creditors.  Only later, after choosing the name, did I realize the impact of a credit-less life and that, perhaps, the site should have been named “No Debt Needed”.  Perhaps I should state it thus – I don’t mind having credit, I do mind needing credit.

I invite you to leave comments with questions or concerns.  In choosing to move away from this singular topic, I can now focus on an array of important topics.  Concerning myself with the defense of the “no credit cards lifestyle”, I really felt dragged-down and alienated from the original purposes of this site.  Now, I feel that I will be able to really focus on other things that are important, and move forward.

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No Longer Focusing On Credit Cards

I love talk radio.  I love podcasts.  One of my favorite radio programs – which is also available as a podcast – is This American Life.  This past Sunday’s episode, entitled The Watchmen, provides the clearest explanation of the current credit crisis, what it is, and how regulators failed to regulate it, that I have heard.  I strongly recommend that you visit the This American Life site and stream or download the program.  You can listen to it on your computer, or download it and put it on your mp3 player.  Many of the interviews for the program were conducted by Chana Joffe-Walt and Dave Kestenbaum from NPR’s Planet Money.  Regardless of your political affiliation, I think you will find the podcast to be informative, entertaining, and enlightening.  After listening to it, I sat quietly for fifteen minutes in my car, contemplating the reality of a tragically flawed regulatory system.  Give it a listen, and let me know what you think.

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The Best Explanation I Have Heard For How The Credit Crisis Happened

As the recent economic crisis has shown us, there are dangers, obvious and hidden, associated with the abuse of credit.  Our economy, which is in large part based on the availability of credit, teeters on the brink of disaster.  At present, fifty cents of every dollar spent in the United States is charged on a credit card.  As a nation, our national debt has risen above $11 trillion.  Thousands of people are facing foreclosure and tens of thousands more are falling behind on credit card and automobile loan payments.  Now, maybe more than ever before, is the time to think about the dangers of credit.

Credit Creates An Illusion Of Wealth

Let’s imagine an average working couple.  Together, after taxes, they have an annual disposable income of $60,000.  That’s $60,000 per year to provide food, shelter, clothing, and to purchase needs and wants.  Let’s give our average couple two credit cards, one for his wallet and one for hers.  Assuming that each credit card has a $10,000 limit, we have just increased their spending power, as a couple, by $20,000.  We have, in essence, created $20,000 in spending power that did not exist on the day before we gave our couple their credit cards.  Our happy couple, instead of living off of $60,000, their actual income, can now, for a brief time at least, live off of $80,000.  We have given them the illusion of wealth – the idea that they have more disposable income than they actually have.

Credit Promises A Brighter Future

The credit system is dependent on two things: the ability of the lender to lend and the ability of the borrower to repay.  As long as these things happen, everything moves forward.  What happens, however, when the lender can no longer lend?  Or, what happens when the borrower can no longer repay?  We have a crisis, just like the one facing our economy today.

Let’s return to our couple.  Imagine that our husband, inspired by his friend’s new HDTV, decides that he too needs a new television.  He heads down to the local electronics store, plops down his new credit card, and is soon driving home with his brand new prize.  At the same time, across town, his wife is buying a new couch for the den.  Of course, in order to get her rewards points, she’s also using her credit card.  The both arrive home, happy as they can be, and they spend the evening cuddling on the new couch, watching the new TV.

We’ve just described a very typical, very normal series of transactions.  Clearly, there’s nothing wrong, inherently, in using a credit card to purchase the above mentioned items.  The real issue, the real danger, only becomes obvious when we take a deeper look into our couples’ finances.

Do to the availability of such good credit, our young couple haven’t given much thought to building up an emergency fund.  On top of that, because of their good credit scores, they have also decided to purchase a new automobile.  He wants to do the right thing, so they find a great deal on a new cross-over, with zero-down and low payments.  Total cost of the new car: $25,000.

Our couple, because of their incomes, can handle their monthly payments.  Sure, things will be tight, what with the new car and all, but they can make it.  Then the news comes.  The husband’s company is downsizing, and he has two months to find a new job.  After three months of looking, with very little luck, he takes another job, one which pays about two-thirds of his old salary.  This is when the problems really start to emerge.

First, due to the stress of the lost job, the bills have started to pile up, and our couple has had to pay a couple of late fees to their credit card companies.  Second, on more than one occasion, they’ve had to deal with over-draft fees at the bank.  Third, that new car, which just a few months ago was their pride and joy, has suddenly become a financial burden.  Unfortunately, they now owe more on the car than it is worth, and if they sold it, their friends and neighbors might know that something is up.  Afraid to death, they begin to argue more and more about money, and our happy couple isn’t so happy anymore.

For credit to be useful and have its proper place in the economy, borrowers must have the ability to repay their obligations.  Our young couple, who together brought home $60,000, now have over $25,000 in debt, he’s lost his job, and they have no money in savings.  They have nice, bright, shiny new things… but they have no money!

The scenario I have described to you above isn’t imaginary.  This is the reality that thousands, no millions, of Americans are facing, right now.  Overwhelmed with debts they cannot repay, people are worried, frustrated, angry, and depressed.  Who is to blame?  Sure, our couple should have known better than to buy such an expensive car, and maybe they should have waited a year or two before purchasing that new couch, but the money – or rather the credit disguising itself as money – was right there.  They believed, as most people believe, that their future income would pay for their past purchases.  Unfortunately for our young couple, and millions of other people just like them, the future isn’t always bright.  Life can throw some tremendous curve balls, and the pressure of being overextended can really slow down our swing.

Credit Justifies Impulsive And Irresponsible Spending

I can make the payments.  How many times have we heard this statement from someone who is trying to justify a particular purchase?  Is there anything wrong with purchasing a new television set?  No.  In fact, I have a nice, two year old HDTV sitting in my den right now, and I love it.  Is there anything wrong with buying a newer car?  No.  In fact, I just washed my wife’s van, which we purchased, slightly used, several months ago.  There’s absolutely nothing wrong with owning stuff, even new, nice stuff.  Problems arise when we purchase things that we cannot afford, based solely on the fact that we can make payments.

Several of my favorite personal finance bloggers use credit cards, but they use them primarily for convenience.  They never spend more than they can afford to spend, and they always pay their credit card balances off, in full, at the end of each month.  I cannot think of one writer who’s opinion I respect who would tell you to go out and finance a new car unless you had an adequate emergency fund in the bank and you were adequately prepared for a job loss or similar emergency.  I would suspect that even the biggest fan of credit card rewards points and credit card frequent flyer bonuses would suggest that credit can be dangerous when viewed as a solution instead of as a tool.

Our young couple would have been better suited to fully-fund an emergency fund, begin to live on a budget, and plan for their major purchases.  A year or two down the road, they could have paid cash for the new television, and really shopped around for the new sofa.  Perhaps, instead of financing a new car, they could have saved up a nice down-payment (or payment-in-full) and purchased a decent, used automobile, letting someone else take that depreciation hit.  When our husband lost his job, instead of arguing and worrying about money, they could really tighten their belts, use some of the money in their emergency fund, and given him an extra few months to find a job that he really enjoys doing.

Credit Can Be Beneficial

I almost ended this article with the previous point, but had I done so, I’m pretty sure that I can guess the types of responses it would have received.  There are those who would agree with all of the points above, but there are others who would point out a pretty obvious reality – credit can be beneficial.  So, instead of waiting for readers or detractors to point this out, let me be the first to agree – credit can be beneficial.

In certain circumstances, the availability of credit can makes things easier.  It’s easy to reserve a hotel room with a credit card.  It’s much more convenient to swipe a credit card than it is to walk around with a big wad of cash in one’s pocket.  Online, credit card transactions are processed instantaneously, facilitating the rapid purchase of goods and services.  There are those who are only comfortable when maintaining a rather large cash reserve in the bank, and these people would rather make payments on a car loan than be cash poor.  Without credit, millions of Americans might be shut out of the housing market, forced to be life-long renters.

I understand the role that credit plays.  I’m just saying, I think that role is too large.  We have become beholden to credit, and to the agencies that pedal it.  I think we have borrowed ourselves into a gigantic mess, and, unfortunately and unwisely, we are tying to borrow our way out of it.  It’s one thing to use a credit card to buy groceries, come home and pay your credit card off, and collect your rewards points.  It’s another thing entirely to max out that same credit card, overwhelm yourself with loan payments, and live without cash reserves.

The bottom line is, whether you use credit or not, you need a long-term financial plan.  This plan should be based on actual, real income and should take in to consideration that life doesn’t always move forward in a straight line.  You will face ups and downs, and abusing credit can lead to financial ruin.  If you must borrow, never borrow more than you can repay in a timely manner, and never extend yourself to the point that you are using credit simply to survive.  (Or, better yet, just roll with NCN, and live debt free!)

I’d love to hear your thoughts.  Have we overstated (or understated) the dangers associated with credit?  Does credit cause problems, or just reveal them?  Would we better off without credit?  Worse?  Leave your comments below.

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Beware The Dangers Of The Abuse Of Credit

My wife and I have been living without credit cards for four years.  For those who are ready to get out of debt, one of the first steps is to break the credit card habit.  You can’t fill the hole in while at the same time digging it deeper!  Here’s how we made the break -

We Balanced Our Checkbook -

This sets you up for success.  If you are going to live without credit cards, you need to know, to the penny, just how much money you have.  Grab your most recent bank statement, or go online and review your recent transactions, and balance your checkbook.

We Started To Live On A Budget -

You know how it works.  You go to the store, you see something you want, you swipe your credit card, and ten seconds later, you have new debt.  It’s just that simple.  What would happen, if between want and swipe, you had to think about your budget?  Trust me, that seven second pause, between wanting an item and using your credit card can save you so much money.  Instead of want and swipe, there’s now want, plan, save, and then swipe – with a debit card!

We Simply Put Our Credit Cards In The Back Of Our Wallets -

We didn’t cut up our credit cards or freeze them in ice water.  Instead, we just decided not to use them.  Frankly, we don’t miss them, and once we made up our minds, done was done.

We Created A Simple System For Life Without Credit Cards -

I’ve written about our system before, so I will not go into the details here.  Suffice to say, we have a system for managing our day-to-day finances, paying our bills, reserving a hotel, or renting a car.  Click the link to read more.

We Learned To Manage Our Cash -

I’ve heard it a thousand times – “If I have cash in my pocket, I’ll just spend it.”  That might be true, if you still have your credit card to fall back on.  On the other hand, if you knew, and I mean knew, that the cash in your pocket was all that you had, I’ll bet that you could learn to manage it.  We use the popular envelope system to manage our cash, but you can use any system that works for you.  The point is, we are were trying to break a habit, a habit that had haunted our marriage for almost a decade.  For us, going cold turkey and learning to manage our cash really worked.

I Stopped Thinking “I Deserve This”

I’ll leave my wife out of this one, because I’m the one who struggled with this.  In the past, I could justify almost any purchase by saying to myself – “I deserve this…”  It didn’t how much it cost, or how little we had, I could somehow rationalize the use of my credit card.  In fact, I can distinctly remember thinking – “What’s a little interest?  I work hard, I want it, so I’m going to get it…”  When I think back to some of the silly things I purchased, and how I justified those purchases, I feel so ashamed.  What was I thinking?  Better yet, was I thinking?  Now, instead of thinking – “I deserve this…” – I try to think – “Can I truly afford this…”

Breaking a habit can be very difficult, especially a socially accepted habit.  Let’s face it, most people use credit cards.  And, after you get out of debt, you might want to start using yours again.  There’s nothing wrong, fundamentally, with credit card use.  The problem is, use can turn into abuse very quickly.  I choose to live without a credit card, even though I know, that at this point, I could use one responsibly.  For me, I just don’t want to deal with the hassle of credit card payments.  So, I’ll just continue to roll with my debit card and cash.

If you are struggling with a credit card habit, there is hope.  Have a good long talk with yourself, embrace some of the changes mentioned above, and break the cycle!

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How To Break The Credit Card Habit

Have you received a letter from your credit card company?  (It might be bundled in the same envelope as your statement, or it might be delivered separately.)  If so, be sure to read it.  Why?  Because, several credit card companies are changing their terms, rates, and policies.

According to Credit Addict, both Citibank and American Express have recently made several changes.

A summary of the changes made by American Express -

* Cash advance APR is increasing to Prime + 17.99%
* Late payment APR is increasing to Prime + 14.99%
* Default APR is increasing to Prime + 23.99%
* Foreign transaction fee is increasing to 2.7%

A summary of the changes made by Citibank -

* Purchase APR is going up to a minimum of 16.99%
* Cash advance APR is going up to a minimum of 21.99%
* Default APR is easier to trigger, and increasing to a minimum of 23.99%
* Fees for foreign transactions are increasing (new 3% transaction fee)

Click over to Credit Addict for complete details about the cardholder changes made by American Express and the rate increases by Citibank, along with information about how these changes will or won’t affect you.

Personally, I’m a big fan of life without credit cards.  I never have to worry about late fees or changes to my cardholder agreement.  Sure, there are hassles associated with a cash-only life, but I’d rather put up with those hassles than deal with another credit card payment!

If you are thinking about moving away from credit cards, may I suggest the Envelope System.  For those unfamiliar with this super-simple money management system, I’ve made a quick, four minute video tutorial, explaining the Envelope System and how I use it to manage my cash.  Check it out and let me know what you think.

For those who might be concerned about changes to your credit card cardholder agreement, you might want to visit your credit card company’s website or even give them a call and ask about any changes.  Also, you have the right to opt out of any changes they make, but they also have the right to cancel your account!  Be sure to visit the Credit Addict site and read more about details and how / when you should opt out.

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Up, Up, And Away – Check Your Credit Card Statement!

Do you know how your credit card company calculates your minimum monthly payment?

In the past, most companies calculated your minimum payment as 2% of your account balance.  Now, however, many companies are using a new formula.

The minimum monthly payment equals 1% of account balance plus finance charges plus fees.

Assuming an account balance of $4000 at 16% APR:

1% of $4000 is $40.

The monthly finance charge on $3960 ($4000 – $40) is

The minimum monthly payment would be $40 + $52.80 = $92.80.

Under the old 2% method, the minimum monthly payment would have been $80.00.

I have to confess, I was completely unaware of the fact that some credit card companies had changed the way that they calculate minimum monthly payments.  If you are getting out of debt, take a look at a recent credit card statement or call your credit card company.  Ask them how, exactly, they calculate your minimum monthly payment.

I called a couple of credit card companies (cold chill) and most of the customer service representatives had a difficult time explaining the above calculation to me.  And, after searching the web, most of the information about credit card companies and minimum payments was about the old way, of charging a flat 2% (or 4%).  Bank of America and Citibank, however, did confirm that they use the 1% + finance charges + fees method.  Also, if you were wondering how I figured the monthly finance charge on $3960 at 16%, I simply divided 16% by 12 (months in a year) and multiplied that number by $3960.

Want a sure-fire way of never having to worry about anything your just read?  Live life without the silly things and be happy!

Final thought – If you have any more information about this subject, PLEASE share it with me and my readers.  If your card uses a different method, I’d like to hear about it.  It’s been so long since I dealt with a credit card company, I’m kinda out-of-the-loop, so to speak.  Also, there was some debate about whether you would have to pay interest on $3960, which is the account balance minus the 1% payment, or on $4000.  Plugging the numbers into this calculator from Bankrate, you get $92.80, which suggests that using $3960 is appropriate.

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How Do Credit Card Companies Calculate Minimum Monthly Payments?

On February 6, 2006, I made the final debt reduction payment and finished paying off all of my debt.  Since then, I’ve been living debt free.

I do not make monthly payments to creditors.

I do not pay interest to credit card companies.

I am free to do what I want to do, when I want to do it, with my money.  Life is good.

I loathe the thought of paying interest.  I spent 15 years of my life paying interest – on cars, trucks, furniture, appliances, clothes, food, and dozens of other silly things.  Now, however, if I don’t have the money to pay for an item, well, I just don’t buy that item.  I have to wait until I can actually afford it and then I buy it, with cash.

(This is a novel concept, I realize, and one that has been soundly rejected by both our federal government and both major political parties, but I digress.)

Do you want to save some real money?  Then, get out of debt (especially credit card debt), learn to live debt free (with a long-term plan for remaining debt free), and stop borrowing money (and paying interest).

Now, there are those who will reject my idea of paying cash and they will extol the virtues of credit cards, with low interest rates, and the power of using other people’s money.  Hey, I’m cool.  If others want to borrow money, that’s fine by me, but I don’t want to use other people’s money, I want to use my own.  And yes, I am aware of the thirty-day float afforded to those who use credit cards… and the five percent back that you can get with each transaction… and the security features.  I still don’t like them, I don’t want to use them, and I’m convinced that most people spend more when using a credit card than they would if they had to live on a cash only budget (with no wiggle-room for going over).  I am very open to the idea that I am wrong, and I know that many of my personal finance blogging brothers and sisters love their credit cards, but I’m just not going to use them.  (Not to belabor the point, but let me say this.  With credit cards, I was in debt, I was paying interest, I lived month-to-month, and I was fiscally irresponsible.  Without them, I’m debt free, I’m funding 5 retirement accounts, 3 education savings accounts, and I have six months’ worth of expenses saved in the bank.  I think I’ll stick with what’s working for me.)

If, however, you must use a credit card, please, pay if off in full at the end of each month.  Credit card interest rates can be very high and credit card companies are constantly looking for ways to improve their bottom lines.  Be careful.  Make your payments on time, always open notice letters from your creditors, and keep tabs on your interest rates.  Credit card companies are constantly changing their policies and procedures!

If you click any of the links in this article, you will be directed to other articles about how I got out of debt and how I live debt free.

Click here to view all of the articles in the Top 10 Ways To Save Money series.  Rock on.

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Top 10 Ways To Save Money – Number 3 – Avoid Paying Credit Card Interest

I want to once again thank those of you who arrived here via this Money Magazine article about families who are living without credit cards.

If this is your first visit to my site, welcome.  I hope you will take a few minutes to read a bit more about me and about how and why I live without credit cards.  Now, today’s post:

According to this article – some gas stations have stopped accepting credit cards! Why?  From the article:

The National Retail Federation says gas prices point to the unfairness of the system: Gas stations are paying more in interchange fees because the price of gas has gone up, while the cost of processing credit or debit cards remains the same.

Credit card companies charge gas station owners (and all other merchants who accept credit cards)  an interchange fee – usually about 2% – each and every time someone uses a credit card to make a purchase.  Apparently, gas station owners have grown tired of sending credit card companies a cut of each sale – and some have gone to a ‘cash only’ policy.

Regardless of whether or not you agree with these changes, it might be time to start carrying a little more cash around, just in case you find yourself in an area where there aren’t any gas stations that accept credit cards.  (There are also interchange fees associated with the use of debit cards.  I’ll assume that a station that has stopped accepting credit cards has also stopped accepting debit cards, as well.)

For those, like me, who live in rural areas, this could be a very big deal.  In our small town, there are only four or five places to buy gasoline.  Personally, I use my debit card for most gasoline purchases, but I’m going to start adding a bit more cash to my ‘Gasoline’ envelope.  (For those of you unfamiliar with the envelope system – a great system for managing your cash – I have created a video detailing what it is and how to use it.)

I’m sure that most stations will continue to accept credit cards.  But, those who are traveling with children – or going out of town to unfamiliar places – might consider keeping a few more greenbacks on hand, just in case.

Side Note:  While I found this article very interesting, in my own experience, I’ve found that several gas stations appear to be encouraging the use of credit cards and discouraging the use of cash.  Many now require that users ‘pay at the pump’ or ‘prepay inside’ when using cash.  So, while the article is interesting, I’d really love to hear from my readers.  Have you experienced this in your area?  Are gas stations where you live going to a ‘cash only’ policy.  And, if so, how has (or will) this affect you?

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Have Gas Station Owners Been Reading No Credit Needed?

This is a guest post from nickel, who writes about personal finance over at FiveCentNickel. And since that, combined with his four kids, don’t keep him sufficiently busy, he has recently launched yet another site, this time focused more narrowly on credit cards. Unlike me, Nickel uses credit cards. We’ve had several back-and-forth discussions about the subject.

If you’ve ever read my writing at either of my finance-related sites, you know that I’m a big fan of ‘gaming’ the credit card system. Why not? If you’re careful, you can make a good bit of money via credit card bonus offers, reward credit cards, and (for the really brave) playing the 0% credit card arbitrage game. Hmmm…

Why not? Well, let me tell you…

Credit card companies want your money. It’s as simple as that. They don’t offer these deals out of the kindness of their heart. They’re after one thing: paying customers. Obviously, card issuers end up earning enough money (on average) from those that apply for these deals to earn a healthy profit. If you’re in this to turn a quick buck, the key is to be below average. Unfortunately, that typically requires being very, very careful.

So what are the risks?

Signup bonuses are relatively innocuous, in that you can simply cancel the card after getting your bonus. Moreover, a single application can net you $100 or more. Sounds pretty easy, huh? It is, but… The vast majority of these deals typically require a purchase before you get the goods. The card issuers are thus counting on you getting the card, making that first purchase, and then keeping the card in your wallet. The good news is that, in many cases, your first purchase can be as large or small as you want. Nonetheless, you still have to keep track of the card, make sure you pay off that initial purchase, and then cancel it.

Next up, reward cards. What could be easier than earning cash back on things that you already buy? You’d be foolish to turn your back on up to 5% off every purchase. Right? Well… The other thing to keep in mind that is that studies have reportedly shown that (on average) people spend more with credit cards than if they were paying with cash. Moreover, if you don’t have the discipline to pay things off in full every month, you can quickly find yourself mired in credit card debt.

Finally, what about 0% balance transfer credit card offers? While these can be a great tool for killing of your high interest debt, they can also be used to generate cash on the side. In short, the goal of balance transfer game is is to borrow money at zero percent, stick it in a high yield savings account, pay the minimum amount due each month, and collect your profit in the form of interest payments form the bank. Sounds simple enough, but there are a number of risks here.

For starters, if you make a late payment, the card issuer might jack up your interest rate. Moreover, you have to keep close track of the end date of the promotional period or you could get stuck with a hefty interest charge at the tail end of the game. And guess what? If you make any purchases on the card, chances are any payments that you make will be applied to the lowest rate portion of balance first. In other words, that purchase that you just made will accrue interest until you pay off the balance in full.

Admittedly, this was a much more attractive proposition before the recent spate of interest rate cuts. But even when rates were hovering around 5%, you’d have to carry upwards of $20k in 0% credit card debt in order to pocket $1,000 of profit over the course of a year. Is it worth the risk? For some people, yes. But for others, no.

Setting aside the specifics of any particular offer, another thing to consider is your credit score. While the effects of credit card deal chasing on your credit score are typically short-lived, the extra credit checks associated with applying for a bunch of credit card deals can ding your credit score, and carrying large balance on a 0% credit can likewise drag down your score.

So there you have it. The world of credit cards is fraught with risks and, for many people, it’s just not worth it . As for me, these factors haven’t been enough to discourage me from taking advantage of credit card deals. That being said, I treat it a bit like a hobby, and thus don’t mind spending the extra time and effort to keep things in order. And since we already have all the credit we need, I’m not particularly concerned about temporary dips in our credit score.

As you can see, Nickel and I both agree that there are risks associated with the use of credit cards. Nickel chooses to use them, and I think he does a good job of managing those risks. And I choose not to use them, so as to avoid the risks altogether.

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Credit Card Companies Want Your Money – A Guest Post From Five Cent Nickel