Posted on: March 22, 2018 by Chuck Krugh, CFP
First of all, let’s get this out of the way: We know that for the vast majority of cardholders, credit cards are toxic to financial health. Unless you get one of those sweet introductory 0 percent interest deals for nine-months to a year, interest rates on these things are ridiculous.
We are advocates of being a net lender, not a net borrower. That is, let other people pay interest to you!
That said, in some situations, credit cards can be a useful tool, and they can even benefit your bottom line if you are careful about using them and you don’t carry a balance. Interest charges don’t accrue unless you fail to pay off any purchases by the due date on your billing statement.
And most of them come with some potentially useful benefits and perks that apply even if you pay the card off at the end of the month.
Here are some of the key perks and things to look out for:
Zero percent interest. Often these cards will come with an introductory zero percent interest rate for between 6 and 18 months. My Apex Card, a product of Bankers Healthcare Group, comes with a 6-month zero-interest introductory offer for balance transfers. It sounds great, but check the fine print: There’s often a 3 percent fee right away for the transfer. This is the case with the Apex Card as well. So it may not make sense to transfer lower-interest debt on the card if you can pay it off in a few months anyway.
Plus, credit card issuers know that a large percentage of their cardholders will not pay off the card within the introductory period. Odds are good you’re one of them.
They’re not dummies.
Cash Back. Cards typically come with a points/rewards system or a cash back incentive for you to use the card. 1-2 percent cash back is fairly common. Some cards will go as high as 5 percent cash back in certain categories. For example, for those of you in private practice, the Chase Ink Business Cash credit card provides 5 percent cash back for every dollar you spend on internet, cable, phone service and office supply stores – up to $25,000 per year. That’s in addition to 2 percent cash back at restaurants and gas stations, and 1 percent on all other purchases.
One great way to use these cards: Pay your routine bills with them. Then pay off the cards at the end of the month. It’s just like getting a 1 to 5 percent discount on your bills. You’re going to pay them anyway. You may as well pick up the incentives! You’ll probably find yourself up a few hundred dollars every year just in cash back rewards, with regular use.
That’s a pretty good chunk of a disability insurance premium, right there.
Points. Many cards offer a points-based reward system. You can usually redeem these points (or ‘miles,’ with airline travel) for goods and services at participating merchants who have partnered with your card issuer. Travel and entertainment companies seem to love partnering with credit cards to offer deals to big credit card spenders. These cards can be tough to analyze, though, because the point systems vary so widely in structure and in vendor partners. Generally speaking, if you love to travel, you may be better off leaning towards a point system card. Otherwise, I like the simplicity of the cash back system.
The Bank of America Travel Rewards Card lets you earn 1.5 points for every dollar spent on the card. That’s in addition to the 12 month zero-percent introductory offer on purchases and balance transfers. Here’s a kicker: Spend $1,000 in the first 90 days of opening an account and you get 20,000 bonus points.
These “bonus offers” are common these days. If you can make the threshold (often between $3,000 and $5,000 over the first three months of applying) with bills you’re going to be paying anyway, it’s often worth the effort.
Remember, credit card interest rates outside of introductory period offers are ridiculous – even for people with great credit. But you don’t have to pay interest if you pay off the card within the grace period. That is, the due date on your next billing period.
Warning: The grace period doesn’t apply to cash advances. For these, even cards for people with great credit will charge upwards of 18 to 20 percent and more, plus a 3 to 4 percent transaction charge.
Taking a cash advance on a credit card is almost always a bad idea.
Do you have a business or personal credit card you use for the perks? Let us know how you use it!
Based in San Clemente, California, DoctorDisability.com is a leading resource serving the financial needs of physicians and their families all across the country. Owner and CEO Chuck Krugh has been working with doctors, dentists and their families and helping them protect their families and their finances with the best insurance and risk management policies in the country.
For more information, or to request a free, no-obligation disability or life insurance quote, call us today at 866-899-7318.