It is easy to run into credit card problems during the holiday season. Here is some motivation and clear action steps to avoid them.

You can become a Credit Card Genius in 2 steps:

  1. Pay all your cards in full every month.

The #1 perk of any credit card by far is the 6-week no-interest grace period. You only get this grace period if you pay your card in full every month. If you leave any balance at all, even $1, then you are charged the high interest rate on both the balance and on every new purchase.

 

Barry and Sue told me their credit card company is ripping them off. They were charged $95 in interest for one month on a balance of $10. I asked to see the bill. They had not bothered to pay a $10 balance, but then went on a vacation the next month and spent over $5,000 on the card. I explained that, because they left the $10, they are charged 20% interest from the date of purchase of their entire vacation. They were shocked.

 

This is why it is a huge benefit to you to pay your cards in full every month.

 

How? Do whatever you have to. Pay with a debit card or cash instead, apply for an unsecured credit line, go on a cash diet, or borrow money from your parents.

 

Look for a quick fix. It is very hard to pay off a large credit card balance slowly. It takes a ton of will-power. The interest rates are just too high.

 

You cannot get ahead paying 20% interest. Even a “low rate card” with interest at 8% or 10% is high compared to other debts. An unsecured credit line is typically at prime plus 2%, which is just over 5% today.

 

To be a Credit Card Genius, never pay any credit card interest.

 

My friend Jerry told me he researched cards and decided on a 2% cash back card. He proudly told me that he had spent $1,000 last month, so he has earned $20. I asked how much interest he was charged on his last bill. He said $60. I told him, “Sorry, you are not Credit Card Genius.”

 

My advice: If you cannot pay your cards in full every month, then don’t use credit cards for purchases. Use debit cards or cash.

 

Be sure. Ask your credit card to automatically take the full payment on the due date. Then you will not forget and you know the payment is taken on the last possible day.

 

  1. Choose the best card specifically for you on Credit Card Genius.

The best credit card rating site I have found is Credit Card Genius (www.creditcardgenius.ca ). Stephen Weyman has done a great job rating 154 cards based on 50 factors.

 

There are quite a few sites that rate credit cards. You have to be careful of sponsored ratings, since these sites get referral fees for recommending some cards. Credit Card Genius figures out exactly which card would benefit you the most and clearly shows any sponsored card.

 

Have as few cards as possible. One card is best to maximize the perks, but you may want separate cards for your spouse, work expenses, or business.

 

To find your best card, go to Credit Card Genius (www.creditcardgenius.ca ). You can make 3 choices based on your preference:

 

  1. Cash back or Travel & rewards
  2. No fees or Maximum return
  3. Low interest or Perks

My advice: Choose:

  1. Cash back. You will always get full value for cash.
  2. Maximum return. It is worth paying a fee if you know your benefits will be worth more.
  3. Remember, you are a Credit Card Genius! A “low interest rate” does not matter. You can pay zero interest by paying your cards in full every month.

Choose cash back unless you know exactly how you will get full value for travel or reward points.

If you are thinking of travel points, calculate the value of the points first. There are many discount travel sites. Compare the cost on a discounted travel site of the trips you would actually take with the points necessary to take those trips. Divide the discount travel site cost by the number of points needed. That is your value for each point.

For me, this is too much trouble. I cannot be confident in getting full value for travel or reward points. There may be blackout periods or limited flight choices. I would have to take time to use or trade in my points.

I prefer cash back.

After you make your 3 choices, hit “Genius Search” and see the best cards. Consider the ones right below the top sponsored card.

Note both the “Genius Rating” and the “Net Annual Rewards”. If you hover over them with your mouse, you can see how they are calculated.

You can get a personalized recommendation by entering your spending on the left. Enter the total spending or a breakdown. Some cards offer more perks for certain spending, such as restaurants, gas or groceries. Enter a quick estimate of your spending breakdown to get your personal recommendations.

Click on the recommended cards to get Stephen Weyman’s review of the card, and a list of the key benefits and insurance coverage.

I looked up the cards I own now because I had forgotten exactly what insurance coverage I have. This is an easy way to remind yourself of the benefits of your cards.

 

2 steps to become a Credit Card Genius:

Don’t let the holidays put you into credit card hell. Be a Credit Card Genius in 2 steps:

  1. Pay all your cards in full every month.
  2. Choose the best card specifically for you on Credit Card Genius.

Instead of wasting thousands of dollars on credit card high interest, pay zero interest and get your cash back and other perks every year.

 

 

Ed

Planning With Ed

EdSelect

Ed Rempel has helped thousands of Canadians become financially secure. He is a fee-for-service financial planner, tax  accountant, expert in many tax & investment strategies, and a popular and passionate blogger.

Ed has a unique understanding of how to be successful financially based on extensive real-life experience, having written nearly 1,000 comprehensive personal financial plans.

The “Planning with Ed” experience is about your life, not just money. Your Financial Plan is the GPS for your life.

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5 Comments

  1. Ami Maishlish on December 19, 2017 at 2:44 PM

    Excellent points and simple common sense. Well worth reading and sharing!

    I would add that, in most cases and unless the life insurance policy that you have or are buying is Universal Life (UL), you should be paying for it once yearly, and NOT monthly. Most insurance companies charge an effective annualized financing rate of 18.6% to finance premiums (other than for UL)

    Regretfully, life insurance companies have succeeded to remain exempt from disclosing this to consumers under current regulations; however, this doesn’t mean that you don’t have the right to know. Write to your insurance agent and ask what the rate is and/or you can check for yourself at http://www.planner.ca/gen_calcs/modal_pre_cost_rate.htm

    The consumer information site, free to use for all consumers, premium rates are displayed side by side for the options of paying annually or monthly-financed. The Monthly Fractional Financing Rate are shown to the right of the premium figures.

    There is no good reason to unnecessarily pay high financing costs on credit cards or on insurance premiums.



  2. Ami Maishlish on December 19, 2017 at 2:47 PM

    My apologies, in the above comment, I missed giving the address for the free consumer information site about life insurance. The address is http://www.winquote.net



  3. Ed Rempel on December 19, 2017 at 7:41 PM

    Hi Ami,

    I agree completely. Paying 18.6% on your insurance premium or 19.9% on your credit card are NOT smart wealth-building ideas.

    Ed



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