﻿Credit cards can be our best friends or our worst enemies. It all depends on how we use them. So in
today’s video we are going to review 5 golden rules you want to follow when it comes to using
your credit cards. So you become their master, not the other way around. Hi, if you are new
to the channel, my name is Tae from Financial Tortoise. Where we learn to grow our wealth,
slow and steady. The number one golden rule to using credit cards wisely is to pay off your
credit card in full. Every single one of your cards, every single month. And if you take only
one piece of advice from this video, I would say this is the most important one of them all. There
are two primary reasons for ensuring that you pay off your credit card in full every month. One is
it will help you avoid paying interest on your purchases. Credit card interest rates are known
for being notoriously high. The average interest rate on credit cards today is about 15%. If you
were to only pay the minimum on a $20,000 credit card debt until all the debt was paid off, how
long do you think it will take? At a 2% minimum payment percentage it would take you 47 years
to completely pay off that $20,000 in credit card debt. But what’s worse is the total interest you
would have paid to the credit card company. About $32,789.56. When you are only paying the interest
on a credit card, you are really paying a high price for the privilege of using their credit card
service. And there is no situation where this is worth it. Another reason you want to pay off your
credit card in full every month is that it will help you build good credit. Your payment history
is one of the biggest factors that make up your credit score. It represents 35 percent of your
overall credit score. Therefore, the single most important thing you can do to improve your credit
is to pay your bills on time. Lenders like prompt payers, so don’t give your credit card company the
opportunity to lower your credit score by being a few days late with your payment. The easiest
way to ensure that you pay your credit card in full every month is to set up automatic payment.
Just set up your account so that your full amount is paid full every due date. You can also have a
notification be sent to your email address every time this occurs too so you are in the loop as
regards to payment going out in full and on time. The number two golden rule to using credit cards
wisely is to request a fee waiver whenever you can. Or at least request some other incentive
if you have to keep paying the annual fee. And the best time to do this is when you get closer
to paying the annual fee every year. Banks want to keep you as the customer so you want to make them
earn your business. Remember, there is no shortage of credit card companies in the market. They are
constantly competing with each other to gain new customers and retain existing ones. If they feel
like they are going to lose you because of the annual fee, they will do whatever they can to
keep you. I’ve done this often, especially with my most expensive credit cards. To be honest it
doesn’t work every time. However, they often will throw in some incentive to soften the blow. For
example, for my American Express Platinum credit card, though they weren’t willing to waive my
annual expense fee, they were willing to provide additional points if I was willing to remain as a
customer. And these additional points were great because they allowed me to either get on a free
flight or a free hotel night when transferred. The worst that can happen is no. But it never hurts to
ask. When I was courting my wife in our twenties, the first time I asked my future wife to go out,
she flat out said “no.” Now, did I go home and curl up in a ball and cry? Maybe. Maybe not. Let’s
not judge. However, I gathered up my courage and approached her again a few months later. This time
trying not to be so creepy. She didn’t say yes, but she also didn’t say no right away. So in my
book, it was a win. I eventually convinced her to give me a chance. And 10 years later she’s still
with me. Don’t be afraid to ask the question. The worst thing that can happen is a no. But if you
can glean any lesson from my dating story, with persistence things can work out in your favor
better than you expected. Not only do you get to save hundreds of dollars in fees and get to use
all the credit card benefits for free, you get it all from just asking one question. The number
three golden rule to using credit cards wisely is to not cancel your cards. Especially the ones you
had for a long time. Lenders like to see a long history of credit, which means that the longer
you hold an account, the more valuable it is for your credit score. Therefore even when you have
a card that you rarely use anymore, if you had it since college, it might be worthwhile keeping
around. And note that credit card companies will often cancel your account after a certain period
of inactivity. To avoid having a card you rarely use shut down, set up small recurring expenses and
automatic payment on it. For example, I set up one of my credit cards to pay my $12.99 monthly
Spotify subscription each month. This is the only recurring expense on this credit card. This
requires almost zero on-going work on my part but my credit report reflects that I’ve had the card
for more than ten years, which improves my credit score. The number four golden rule to using credit
cards wisely is to keep things simple. I love credit card hacking. Meaning using credit cards
for free flights and free hotel rooms. Therefore I have more credit cards than the average person.
However, even with all my credit cards, I try to keep things as simple as possible when it comes
to maintaining and managing them. No more than one hotel credit card. Or one airline credit card. I
know of friends who have opened over twenty to thirty plus cards to “churn” rewards. Meaning,
they are opening up cards constantly to take advantage of signup bonuses. Take it from me.
I manage my own investment portfolio and I also manage my set of travel hacking credit cards,
and ironically managing the credit cards is more complex than managing my multiple
figure investment portfolio. When you have tons of credit cards you are needing to keep
track of you have to manage not only the multiple payments, but all the minute fine
prints each card comes with. How you can use the specific rewards point. Where you can use
it. When they expire. It's hard enough doing it with just a few cards, when you have 10 or more,
it can get really out of hand and you could be paying more than receiving. I know I mentioned in
the earlier golden rule to not cancel your cards, however if you find yourself swamped with the
number of cards you have, close the inactive ones. As long as you are paying your balances on time
and have good overall credit, the long-term impact of closing some of these accounts will be minimal.
And most importantly, you will sleep easier at night with a simple system you can easily wrap
your head around. The number five golden rule to using credit cards wisely is to request a credit
limit increase. And don’t take this the wrong way. I’m not saying you should request more credit so
you can spend more money. It actually has to do with something called your credit utilization
rate. The credit utilization rate is simply how much you owe divided by your available credit.
And we want to improve this number because this makes up 30 percent of your credit score. Let’s
go through an example. Let’s say you have a credit card with $3,000 total available credit and you
spend the max, $3,000 on it. In this scenario, your credit utilization ratio is 100%. $3,000
divided by $3,000. However, if you are able to get your credit limit to increase to $10,000,
your credit utilization ratio improves to 30%. $3,000 divided by $10,000. When it comes to credit
utilization, lower is better because lenders don’t want you regularly spending all the money
you have available. People who regularly spend all credit available to them have a tendency to
default and thus from the banks perspective, they are high risk individuals. To improve your credit
utilization rate, we can choose to spend less on our credit cards, but the easier solution is to
just request more credit. Now again, this doesn’t mean you should go and spend more. You are doing
this primarily to increase your credit utilization rate and thus your credit score. ​​The number six
golden rule to using credit cards wisely is to maximize all your benefits. And when I mean
all your benefits, every single one of them. As I mentioned earlier, many credit cards offer rewards
programs that give you cash back, free hotel nights, and other benefits. But most people don’t
take advantage of all the free stuff that comes with the credit card. For example, most recently
when I wanted to take my family on an overnight vacation, I was able to redeem a free night
certificate on my Hyatt Credit Card to save more than $300 on a hotel expense. This is probably
the easiest example but let me share with you several more that many people don’t even realize
they might already have with their existing credit cards. Additional Warranty. A lot of cards extend
warranty on your purchases. So if you buy that new macbook and it crashes after the manufacturer's
warranty, it might still have some coverage through your credit card. Avoid buying the highly
marketed extended warranty and check your credit cards policy. Free TSA-Precheck and Global Entry.
If you have a travel credit card, there is a good chance that it covers the fee for the TSA-Precheck
or Global Entry application. Most often every 4 years. If you fly often, TSA-Precheck and Global
Entry will make your travel experience so much better. You don’t have to take off your shoes or
belt and the line is significantly shorter than the regular TSA line. And the best part is it's
free with your credit card. Trip Cancellation Insurance. If you book tickets for a vacation
and then get sick and can’t travel, your airline could charge you some expensive fees to rebook
your ticket. Now this has gotten better since COVID, however it is a risk that you always have
to face when booking flight tickets. However, if you purchased it with a credit card that
has trip-cancellation insurance, they will cover those change fees. Not only do you save money but
you also gain a peace of mind. Credit cards are by no means without its dangers. However, if you
can follow these golden rules, you can beat the house and gain all the benefits of owning credit
cards while mitigating its downside risks. Thank you guys for watching, if you like to learn about
some of my favorite travel credit cards, check out my video here. Until next time, all the best.