Friday, June 20, 2008

Playing the Angles with Your Credit Cards

Do you know what day of the month your credit card closes? For each of your credit cards? What time of the month your utility bills are due? Do you know how many days’ grace you get before your rent or mortgage is considered late? If any? Do you know what day of the month your automatic life insurance or car payment or satellite radio payment is deducted from your checking account? Do you know what day of the month your bank credits interest on your checking and savings accounts? Knowing these dates can save you a lot of aggravation. And money. Knowing them can steer you to time your bill paying and your savings to maximum effect.

Let’s assume you’re like a lot of people who use credit cards. You charge things and then it’s a scramble to actually find the cash. So here’s a tip on how to give yourself the maximum amount of time to do that. Learn the day of the month that your credit card closes. This means the last day of the cycle that any purchase will be added to what you should pay off in full that month. Let’s say your Visa closes on the 15th. That means if you charge anything after the 15th, you won’t be billed for it for over 30 days, and you won’t have to actually cough up the cash for another 20 or so. This is because although credit card companies have been drastically shortening the number of days in which they give you to pay on time, they still take a lot of time to send you a bill. A recent statement I received said my billing cycle closes on the 6th of the month. But I did not receive the bill until the 17th, and I have only until the 26th to pay it. But don’t worry. I’ll make it. Paying bills on time is the most powerful way to establish and keep good credit regardless of income.

Postponing a purchase by one day can give you almost 60 days to get the cash. This is called float. In theory, you’ll be putting the cash for that credit card bill into some amazing money market account that will earn you a ton of interest for two months. Banks move billions around and generate millions in short-term interest that way. The reality for most individuals is that you can only play the float to postpone paying, not to generate additional income. Still, paying later is better than paying now, because inflation makes the money you pay later a little less expensive. And who knows? You might get a raise or a better job or an inheritance between now and later.

If you don’t know the day your credit card closes, you might buy something on the last day of the billing cycle. Then you’ll see it on your bill immediately and end up with only about 21 days in which to pay it. Not so good. You might as well have paid cash and been done with it. But of course, since so many Americans depend on a weekly or biweekly paycheck, even the three weeks is enough lead time for you to get paid and allocate the funds to pay your credit card bill. So what’s your excuse for not knowing when you’ll need the cash to pay your bill?

What if you have more than one credit card and want to get the maximum float on your purchases? Then the technique is to charge for the first week or two of a card cycle, and then switch to another card that is in its first week or two of its cycle. Every card is different, and in theory you can have four cards and carefully use only one each week.

This technique will not save you any money. What it will do is give you more time to earn or find money to pay the bill you expect to receive.

Timing is important. If you don’t know when your car payment is automatically deducted from your checking account, you might forget to keep a high enough balance to cover it on the day it gets deducted. Oops. If you know you won’t have the rent or mortgage money until the 5th instead of the first, do you also know whether you’ll be charged a late fee, or reported as late on your credit report? Since every negative mark on your credit score means that money (credit) will cost you more in the future, you always want to keep that score as good as possible. Paying on time is ideal. Slipping in under the wire will work, too, if you know what the absolute deadline is.

And what about bank interest? It’s a pitiful percentage these days, but still, if you know that your bank credits interest at the end of the quarter, you might decide to withdraw funds for your vacation, or that big renovation project, or even for the down payment on a house, on July 1st, not June 30th.

With credit card companies shortening the number of days you have in which to make a payment and still be on time, you must pay attention to due dates, too. It’s very easy to open a bill and toss it aside thinking you have two weeks in which to pay it. But these days, you don’t have that much time. So if you’re not using electronic banking or calling in phone payments, or FedExing your payment overnight (it’s cheaper than paying a late fee), then you should be extra careful to note when you’ll have to pay a bill. Ideally, you’ll know this in advance of receiving it. And you’ll be stockpiling your income so the moment the bill arrives, you can pay it.

The bottom line is that you’re going to have to pay for what you bought. But first pay attention to the details, and you’ll get yourself a little more breathing room.

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