This is the third installment of Credit Perspectives. Please visit the introductory post for the other perspectives provided in the rest of the series.

The idea of credit has been around since before money was invented, but the invention of the credit card in the 1950s allowed our economy to grow in new and previously-unimagined ways. It has been both a boon and a bust as people have discovered that credit can hurt just as much as it can help them.

By opening up and extending the consumer’s spending power, credit cards have allowed us to purchase our life’s wants and needs on instant short-term loans, but also have allowed us to overextend our consumption beyond what we can reasonably repay. Like most things in life, credit cards have proven themselves to be a metaphorical double-edged sword.

It appears that the world of commerce is evolving and cash is slowly dying out, but there is no reason to call for its extinction. Cash still serves an important function in our economy and it’s a good idea to always have a reasonably-sized cache of available cash on-hand for emergencies. But it is just as important to have a credit card in your name, as long as you treat it with the respect it (and you) deserve.

Credit Cards Are Like Power Saws

In the hands of a skilled carpenter, a power saw is an invaluable tool for helping to build a house. In the hands of a clumsy or careless man, a power saw can be a dangerous weapon, cutting off fingers as easily as 2×4s. In the same manner, credit cards are tools that must be handled carefully by a person educated in their advantages as well as their pitfalls.

Since the credit companies are happy to hand their card to nearly any “average Joe” over the age of 18, it’s up to the consumer to defend himself. It takes a lot of discipline to properly manage your money and your credit and you should avoid credit cards if you believe you may be unable to handle the responsibility.

You Are Your Credit History

Getting by can be inconvenient, if not near-impossible, without a credit history. Good luck getting insurance, an apartment, or sometimes even a job without a credit history. So many of the things we take for granted in our society today are driven by credit that you may as well not exist if you do not have a verifiable credit history. Your best bet is to get a credit card – even if you don’t want one – and charge something to it regularly and pay it off completely every month.

Spend Reasonably and Reap the Rewards

One of the safest ways to use a credit card is to have the cash available to completely cover a purchase, but make the initial purchase on your credit card instead. Once you’ve completed the transaction, “lock away” the cash either in a separate savings account or in your favorite money-tracking system so that way the money is readily available when the bill arrives. This way it allows you to earn the credit card-related rewards for the purchase and earn extra interest for saving that money during your grace period.

Just be careful that you don’t over-exercise this method since it’s so easy to overspend. You could find yourself lacking when an emergency comes up that you either need that cash or some available credit to cover for you.

Look For Help Before You’re Over Your Head

The last thing you want is for your credit cards to become a nightmare haunting your life. If your balance starts getting away from you, you need to look for help before it becomes a real problem. Credit card companies really don’t want you to default because then they’re stuck with figuring out how to recoup their losses. Many of them will work with you if you call and ask for help as long as you don’t do it too often and if you’ve shown yourself to be (mostly) responsible up to that point. And if your credit card company won’t work with you, don’t be afraid to turn to an expert to help you out and teach you how to stay out of trouble. There’s no reason to wait until debt collectors start hounding you to try to turn things around; it’s much easier to right the ship before it’s completely capsized.

Credit cards can seem evil, but in reality they are neither good nor evil. Credit cards are merely another tool in our financial toolbelt. Credit cards may be designed to encourage us to spend, but as long as you remain responsible and keep up with your debt, credit cards can be a powerful ally.

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com

This is the second installment of Credit Perspectives. Please visit the introductory post for the other perspectives provided in the rest of the series.

The idea of credit has been around since before money was invented, but the invention of the credit card in the 1950s crippled our economy. Never before has it been so easy to access credit and never have we been so free to tap throw away our futures.

By opening up and extending the consumer’s spending power, credit cards have stretched our economy to the brink of collapse. Now that everyone has nearly unlimited access to the ability to spend beyond their means, we’re finding that many adults don’t have the impulse control necessary to handle such responsibility.

It appears that the world of commerce is evolving and cash is (unfortunately) on its way out; but that doesn’t mean you have to follow the trend. While some transactions require a credit (or debit) card, pretty much anywhere you can access in person will gladly accept cash. Don’t give up on those dependable paper bills just yet.

Cash Is Accessible

It doesn’t matter whether the power is out, the phone lines are down, you’re under 18, you have bad credit, or even if we’re under alien attack, cash is always spendable. There are no rules or contracts that prevent you from using cash, no technological limitations on cash, and no question to how much you have. Cash in hand is the surest way to freedom.

Cash Is Merchant-Friendly

Every time you swipe that devil card, the credit card companies charge the merchant a fee plus a percentage of their sale for the “convenience” of accepting said card. Because merchants have to recoup that cost, they’ll gladly pass it on to you. Some have even begun encouraging cash transactions again with discounts for using greenbacks instead of plastic. Consider it a free bonus for both of you to use cash.

Cash Is Safe

There are no numbers one can steal, no databases one could hack, and no identities to hijack that will give access to the cash someone has on hand. Much of today’s problem with fraud and money has to do with 1s and 0s in a database at some company you may never have heard of. With cash, there is no risk of remote access – your hard-earned money can only be removed from you directly, which is quite unlikely.

Credit Cards Encourage You To Spend

When you’re carrying cash in your wallet, you (should) know exactly how much money you have and you are not able to overspend. As soon as you start relying on credit cards, that natural limitation is gone and you’re free to mindlessly spend as much as you can. You may think you need that new flat screen TV and the credit card company surely isn’t going to stop you from buying it, even if the purchase is too expensive for you to pay off later. It’s better to save up your cash first and give yourself time to decide how much you really want the that expensive luxury item.

Credit Cards Are Designed For Debt

Once you start spending, the credit card companies are betting that it will be hard to stop. Soon, you’re carrying balances from month to month and paying ungodly sums of interest to these plastic devils. These companies encourage you to put your whole life on this card with the hopes that you will get overwhelmed – that is when they start profiting off of you.

Don’t let yourself get sucked in by the siren song of these sleazy usurers. They hide their snake oil under the veil of “convenience” but they’re really in the business of revolving debt. When it comes to real financial freedom, cash is king. And, unlike Visa, cash really is accepted everywhere.

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com

This is the first installment of Credit Perspectives. Please visit the introductory post for the other perspectives provided in the rest of the series.

The idea of credit has been around since before money was invented, but the invention of the credit card in the 1950s revolutionized our economy. Never before has it been so easy to access credit and never have we been so free to tap our potential.

By opening up and extending the consumer’s spending power, credit cards have allowed our economy to flourish and gain the capacity to host new businesses, new markets, and new business platforms. It could be said that e-commerce as a whole would be impossible without credit cards.

It appears that the world of commerce is evolving and cash is (rightfully) on its way out. Credit cards are the way of the future and you can count on them always getting easier to use with more reasons to use them. Even today, the benefits of using credit cards over all other forms of money are huge.

Cash Is Dirty

Cash is notoriously dirty. Just think of all the people you’ve seen leaving the restroom without washing their hands. Those same hands will soon be handling any amount of cash and spreading with it whatever filth they carried. A dollar bill changes hands around 223 times in its lifetime – that’s a lot of potentially dirty hands.

Cash Is Clumsy

Visa has run ads lately showing how (albeit unrealistically) efficient small commercial transactions can be: Just swipe your card and you’re gone. By fumbling through your wallet looking for the best bill to pay your tab or hurriedly filling out a paper check, you’re wasting your time and the time of the merchant. Not only that, you have to think of the space these bills take up in not only your wallet, but also the drawers of the merchant’s register. It’s far easier for everyone concerned to just swipe your credit card and go.

Cash Is Risky

Cash is the thief’s best friend. If your wallet is lost or stolen, you can kiss whatever cash you had in there goodbye. Heaven forbid it if you just stopped by the ATM! On the other hand, quickly reporting your credit card stolen ends the thief’s short buying spree and you’re on the hook for no more than $50 or even less depending on your card issuer’s policies.

Spending Other People’s Money

Whether or not you have the money to cover your purchases today, you still get to head home with the spoils. For a few days or even a month, you’re earning interest on your hard-earned money instead of it sitting in the pockets of an uncaring corporation. When the bill arrives, you should pay it in full and pocket the interest gains from the “generous” credit card company. Until then, hold the money in a high-interest online savings account and enjoy your free money.

Recommended Online Banks:

• ING DIRECT – High Yield Savings with 3.00% annual percentage yield!
• Earn 3.30% APY with E*TRADE Bank

Rewards Are Money In My Pocket

Credit cards are great, but they’re not all created equally; the best cards reward you for using them. For example, my credit card gives me anywhere between 1% and 3% of my purchase amount back every month depending on where I shop. Basically, they’re paying me to do what I would have done anyway! Before you sign up for a credit card, check which ones will give you the greatest benefits and take advantage of their offers.

Recommended Rewards Card:

• Get the Discover® More Card – Up to 5% Cash Back

It’s easy to see the positive effect credit cards have had on our economy as a whole. So much more is possible today that couldn’t have been without credit cards. Don’t let the detractors scare you, this is the way of the future and you need to be ready to embrace it today. No longer is there any reason not to join the revolution and use plastic for all your purchases.

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com

I’ve heard a lot of bickering over credit cards lately. It appears there are two camps that are dead-set on pushing their conflicting agendas and everyone else is caught up in their fight.

One side is convinced that credit cards are great. They free you from the need to carry cash, they provide you with great rewards, and they give you the ability to tap your future earning power for today’s needs. If you have the means to purchase something now, start enjoying it now, and pay it back later, why deprive yourself of that joy?

The other would have you believe that credit cards are nothing more than little plastic enslavement devices. From early on, you’re conditioned to swipe a card whenever you need anything and then owe your soul to the company store. Eventually you owe more than you could ever pay back and you are essentially owned by whoever holds your account.

While these two factions rage on, there is a third wise entrant that keeps quietly on the sidelines. This group, to which I subscribe, knows that credit cards cannot be good nor evil, they are merely tools. Credit cards are useful, but just as potentially dangerous as a power saw: In the hands of a careful man, educated in how to use the tool, it is an invaluable resource if you’re trying to build a house. In the hands of a careless man, it cuts through human limbs just as easily as wood. Credit cards have the same capacity to be life-improving or life-damaging.

Over the next three days, I will examine the philosophies and reasoning of the different groups so you can decide for yourself. Stay tuned and bookmark this page as I update it with links to the articles portraying the various sides in this debate.

Coming up this week:

• Tuesday – Credit Cards Are Good
• Wednesday – Credit Cards Are Evil
• Thursday – Credit Cards Are Dangerous Tools

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com

Last week, my bank sent me new debit cards that I didn’t request or want. Ours weren’t set to expire until late next year, but these were forced upon us by our bank and replaced our existing cards. Why would they incur the extra expense of sending out replacement cards for cards that didn’t need replacing? So they could add RFID chips to them!

Now I have these “touchless” cards that I believe are nothing but trouble waiting to happen. I don’t see how it’s any more convenient to tap my card against a reader and signing a receipt instead of quickly swiping it and entering my PIN, but that’s beside the point. I only use my debit card for PIN transactions anyway, so I’m going to see no benefit by possessing this card. In fact, the chances are this card could someday cause me nothing but pain.

You see, since all you have to do is get near one of these cards with a reader to access it, there is nothing stopping someone from loading up a reader in a purse and brushing past me to read every chipped card in my wallet. Likewise, there is nothing to stop someone from hiding a “skimmer” near the legitimate pad to siphon away my information. And with a powerful antenna, it’s even possible for the subversive individual to be nowhere near me to read my cards.

But that’s only the half of it!

When these cards are eventually replaced, you will cut these up just like you do any other expired card. But now, you’ll have to take care to cut through the chip hidden somewhere inside your card, otherwise a clever fellow could potentially steal even more useful information than if you had left an unshredded statement in the garbage – and he wouldn’t even have to dig through it. It is not obvious where the chip is on my card, so I had to go searching for it. After scouring over it and holding it to different angles of light, I finally found a slight rectangular imperfection in the plastic, leading me to believe that is where the chip resides. You can bet that is the first place that will be attacked by my scissors when this card is put to pasture.

Be careful with this new technology. It doesn’t take much today to steal your credit card information – just wait what it will be like when the criminals have built their own readers and casually walk around the mall to collect the data off of hundreds or thousands of active cards in a single trip. Call me paranoid if you wish, but I think I may be contacting my bank about deactivating these chips or going back to unchipped cards. I rather appreciate the “inconvenience” of being forced to present my card for withdrawl instead of entrusting it to the airwaves around me.

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com

Warning! This “Money Hack” takes a great amount of discipline and requires that you do not normally carry balances on your credit cards. Do not attempt this hack if you aren’t certain you can see it through to the end.

There are two simple ways to approach making money by using your credit cards. One of which is the obvious “Use your credit card for everything; pay off the balance every month; collect cash back” method. That works well, but I do not spend enough to really take advantage of that method; our credit card rewards are usually under $100 for an entire year, considering that we get back about 1% on our credit card purchases. The other method is to already have the proper amount of cash on-hand for the purchase, but make the purchase through a no-interest credit card offer.

As you know, we’ve had serious problems with our washing machine and need to replace it. Now that our unexpected tax refund is on its way, I’ve decided to go ahead and purchase a new washing machine and take advantage of both a 10% off President’s Day discount and a 12-months no interest offer on my Lowe’s credit card. Normally I would not recommend signing up for a credit card to take advantage of a deal like this, but it worked for me in the past, so I’ll leave that up to you.

We’ve done our research on the washers there and I expect that with sales tax we would have spent about $1,500 on a washer and 15″ pedestal before the 10% discount, so that is the amount I’ll put into savings. With the 10% discount, I will owe about $1,350, allowing me to snowflake $150 to savings for “free.” Considering that my ING account is earning 3.4% APR and compounds monthly, that is 0.283% growth monthly. For ease of calculation and for lack of a reliable crystal ball, we’ll assume that number is static for the 12 months it will take to pay back the credit card.

Expected Earnings

Assuming that I will owe $1,350 after sales tax, the credit card purchase will require 12 monthly payments of $113 (rounded up). After plugging in these numbers into Excel, we get the following results:

By making this purchase on a 12-month no-interest store credit card offer and squirreling the cash balance away into a higher-interest savings account, I will be able to gain almost $31 over the course of a year. In contrast, my usual credit card reward of 1% would have only given me $13.50. By having the cash ready up-front and using a store’s promotion to my benefit, I will earn $17.48 more. And if you consider my extra snowflake of $150, my savings is now $180.98 richer than if I had just put the balance on my credit card and paid it off like any other normal month.

Like all money hacks, this is not without at least a minor amount of risk. There are a number of factors that could crop up over the course of a year that could make it hard to pay the credit card. There is also a better-than-average chance that my savings account APR will change this year. I only recommend implementing a hack such as this once you have your discipline in check and a decent amount of emergency savings already banked away.

Happy Money Hacking!

(c) 2007-2009, That One Caveman, http://www.thatonecaveman.com