Think banks always win and borrowers always lose when it comes to credit cards? Think again.
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
* 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:
All these things I need to do today, not six years after medical school when I finally become a practicing attending. Credit cards allow me to re-direct my cash flow to my priorities while paying no interest (or even negative interest) and earning cash back rewards of up to 8+%. For once, big banks' way of using the time value of money can be used by every day ordinary people like me :)
Here are a few strategies I use:
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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.