All the Right Plastics in All the Right Places
I love credit cards. They have helped me pay for medical school expenses and tuition on 0% APR, reduced the interest on my overall medical school debt by $60,000, given me lots of cash back and rewards, and allowed me to channel my cash flow into my retirement and Mini's college savings. Thank you, big banks, for giving back to small people once in a blue moon!
While most people see credit cards as the trap—lock and chain around one's financial life—when used responsibly and cleverly, one can turn the tables and use credit cards to free themselves from other higher-interest debts such as student loans with 6.8% interest rates.
Many people are incredulous about my credit utilization style. Here are some numbers and facts:
My Credit Stats
- Credit scores from three credit bureaus: 780+
- Number of credit cards (see photo at the top of this post): 52
- Number of balance transfer offers with <2% effective annual interest rate (post transaction fee): 10 offers per month
- Late payments*: 0 in my 18 years of credit history
- Total combined credit limit: $250,000
- Highest credit limit on one card: $51,000
- Revolving debt balance as of 5/18/16: a huge ZERO
* I recently learned that late payments reports on one's credit history are not very strict. Payments have to be more than 60 days overdue before they are reported to the credit rating agencies. I have a couple slightly late payments (two to three days late) in the last 18 years but none impacted my credit score because the credit card companies and banks didn't report them.
I use credit cards for:
- Charge everything possible. Why not? Charging everything simplifies my life, gives me cash-back rewards, and makes it easy to track my expenses. (At any given time, I'm only actively using 1-2 of my cards.)
- Earn cash back. I can earn 10-30% cash back on each dollar charged
- Plastic emergency fund. Why would I set cash away where it earns no return, when I can charge any emergency spending on my Citibank Simplicity card and ride the balance for 21 months interest free? At the end of 1.75 years, I would have enough money saved in a brokerage to pay it off completely anyways.
- Fund my 401(k), Roth IRA, Mini's 529. Chase Slate offers a 0% transaction fee for me to write a check to myself for anything (up to my credit limit of $25,000).
- Pay off other high interest debt. I initially paid off my student loans when I was rejected by DRB for student loan refinancing. (Yes, a few months later DRB rolled out a product to refinance PGY's for the first time in history. I would have qualify to refi with DRB if I had waited a few months. Oh well.)
- Live a little. I will charge Mini's art studio set up in our new home, enjoying it while paying the costs back over 21 months. For once, gratification is not delayed; payback is.
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Key Principles for Smart Credit Use
Discipline. Be realistic with how and when you can pay off the credit cards. Transferring your balance to another card is an option, but paying off the card is even better :)
Take advantage of the time value of money. If you can borrow at -10% to 0% from a credit card to fund your Roth IRA, which earns 8%, why not leverage this debt?
Be on the right side of the bank. In other words: Be the Bank. Collect, rather than pay, interest.
Be organized. Remember VSAS, ERAS, and AAMC? You must be an expert organizer by this point of your medical career. Start a master excel sheet, keep track of your credit card due dates, debt amount, and monthly minimum payments. Stay on top of introductory rate deadlines, so you're ahead of the curve when your sweet 0% interest rate converts to the nasty 29% rate the big banks have been waiting for. Take the bait and bounce before the switch.
Most importantly, know thyself. If playing the big banks doesn't jibe with you, don't do it.
Know thy enemy. It's simple. They want to get 30% more money back from you than what you charged and borrowed. Don't let that happen.
So what do you think? Comment below.
This article is for informational purposes only and not intended as a substitute for professional advice. Please consult a professional accountant, financial adviser or lawyer, before making financial decisions.