What You Should Know About Credit Cards – Episode 227

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[00:03] Welcome to the prosperity podcast fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street Here’s your hosts best-selling author Kim DH Butler and no BS money guy Todd Strobel Hey everybody. Welcome to the prosperity podcast. This is no BS money guy Todd Strobel Once again, we have our co-host and best-selling financial author Kim Butler with us today And we usually try not to date our podcast But we’re kind of coming into the holiday season here where purchases are going to be made And there’s a lot of talk out there of are you better off to use a credit card? Obviously, you know the credit card companies are making money But they’re also giving incentives back to you and discounts and things like that

[01:03] And then we also want to look at the different types of credit cards. I mean, there’s MasterCard There’s Visa. There’s discover and there’s individual department store credit cards So Kim has you know got her own system that she uses very thoroughly and we just want to kind of explore that today Welcome Kim. Well, hello Todd and welcome back to you very fun conversation to have Because everybody in the Western world deals with credit cards in some form or fashion You just about can’t live your life these days without it You know, you used to be able to you could stick with just cash or checks But our bookkeeper who we’ve had for over 25 years said that writing a physical check is actually one of the more

[01:48] Exposed ways of transferring money In other words, one of the least safe ways to transfer money and you can’t do rent a car You can’t do hotel. You can’t do uber. You can’t do a plane ticket or a lot of other things without a credit card these days So fabulous discussion. Do you have specific questions or you want me to talk a little bit more about how I choose to handle mine? Well, one of the things I would like to point out that I found out that maybe most people don’t know You can now use credit cards for three and five cent purchases Interesting. How’d you figure that out? I went to a store and saw somebody buy something for 13 cents on a credit card And they just literally buy every single thing on a credit card

[02:43] And I got to talk into the owner of the store and they said, you know, yeah now they you know They don’t assess a per transaction fee. They access they charge them a volume fee for the total volume So it allows it to work out that a retailer could afford to because it used to be there was you know Like a five dollar transaction charge for a 13 cent chart Absolutely. Yeah So that that’s that’s the one interesting thing I wanted to add So it is literally possible now to probably do 99 percent of your business without cash Absolutely. And there are so many online capabilities these days as well as just straight store face to face transactions that are helpful And I know I personally am I’m one of those people I’ve joked on the podcast before that has pulled up in front of a store

[03:44] After my kids soccer games with a hundred dollar bill in my hand And you know, maybe their credit card machine was down or something I don’t remember what the occurrence was, but we paid for a dollar 99 ice cream cone with a hundred dollar bill Because that’s all I had was ATM money and absolutely I would not have hesitated to use a credit card in those circumstances Of course, I probably wouldn’t have done it if there was a five dollar charge on top But frankly, I’m one of those people that just doesn’t carry a lot of cash and prefers not to carry a lot of cash Mostly just because a hassle factor for me and I can’t wait until the day when everything is just simplified You know, maybe it’s an iris scanner at the store or fingerprint

[04:29] I’ve heard iris scanners are more safe But I just am going to look forward to the day when we don’t have to have the card at all Got it. And I think what you’re referring to is the iris scanner. Correct. Your eye. Yes. I are is correct So I guess let’s start just by the breaking down the credit cards that they are if you if you don’t mind I mean, you know, we I don’t know what’s the easiest way to do to go through the different types of major credit cards And talk about the pluses and minuses Yeah, so let’s start there. Of course, this is at a high level for our listeners that know me I have not dug in and done a bunch of research in this category But I think it’s pretty safe to say that there’s just not a lot of difference between MasterCard and Visa

[05:13] Then, you know, somebody may have their own personal opinion on it But in terms of the actual facts, they’re going to be the same American Express I would say is a close third in the not a lot of difference category And in the quote major credit card category now American Express, I know this because my husband has one There’s still a lot of places a surprisingly large number of places that don’t take American Express And it’s because American Express tends to build the store owners a lot more than the Visa and the MasterCards do And you of course, I think we could say that discover is sort of your fourth major card And it has some available sort of credits back that you get or money back, etc.

[05:57] And then what I see most people doing is the airline credit cards Now, those, of course, are typically Visa or MasterCard cards But they’re associated with a particular airline so that you get airline miles and you get various capabilities In terms of free luggage and or early boarding or what have you And boy, if you travel a lot, that can be very, very valuable and even a money saver I know for me personally, I prefer to have the major cards and whether it’s a Visa or MasterCard is irrelevant to me But I want to have one of those major cards It just makes it easier if you are traveling internationally or doing anything else to not have to fight the system, so to speak I will admit that I’m not a fan of store cards

[06:48] And this could be out of line and I would certainly be open to any listener setting me straight or sharing an idea that really works for them But to me, keeping things simple is super valuable And so to just have two major credit cards in my wallet is valuable And the reason that I have two is because as a business owner, it’s very important for me to keep business expenses separate from personal expenses And so I’ll have to admit I have three actually because there are two different businesses that I like to keep things separate from And they are not actually business cards. It’s just another personal card But on a different account, and one happens to be a MasterCard, one is a Visa, that helps me keep them straight

[07:39] And our bookkeeper keep them straight and anybody else that might be helping me track receipts, keep them straight So the MasterCard is the personal, the Visas are the business, and then I have a different Visa for the different business And that alone is sufficient If I were to add a store card, you know, of myriad types, could be a department store or a Home Depot or a Lowe’s or what have you Because, you know, you have to have Lowe’s date night on Friday night To me, it would just complicate the picture unnecessarily so And I’ve yet to see real value in that. I know it’s very, very tempting You know, I think back to my younger days when, let’s say you go to, you know, a JCPenney or a Neiman Marcus or a Nordstroms or something like that

[08:29] And you’re buying your first set of wardrobe clothes and it’s, I don’t know, you know, a couple hundred dollars or a couple thousand dollars Or whatever the price is for a whole bunch of clothing and they say, hey, you could get another 10 or 20% off if you sign up for this card I would really encourage people to say no to that. Yes, it’s very tempting. I understand that and I’ve done that in my past But to me, that just adds another element of complexity. It’s another account you got to keep track of You have to make sure you make your payments on time. It can affect your credit It’s another card or account to get stolen or have problems with And to me, it’s just not worth it. I believe that simplicity and lack of hassle factor override that essentially one-time savings that you’re going to get

[09:14] How about you? I would say that, you know, American Express charges pretty high fees, generally a hundred to five hundred dollars a year to the cardholder as well But they’re billing themselves as a high service. In other words, you know, if you’re in Japan at two o’clock in the morning and your plane flights get canceled You dial one phone number and there’s one person that, you know, would take care of notifying relatives, rerouting your flights and everything And I think if you were a really serious travel, particularly international, I think, you know, American Express would probably be worth the extra money I would agree with that. Yep, that concierge level service and of course they have the new black card or whatever it’s called that is even higher level

[10:10] But I think if you go that route, you’re going to want to have a Visa or MasterCard along with for the occasions where the business doesn’t take it And then we need to mix in the debit card discussion too. So many debit cards these days are actually Visa and MasterCards And so you can use them as a debit card, in other words, to remove money from your checking account But you can also use them as a credit card, depending on how they’re set up, I think I guess it would depend on your credit history and exactly how your bank has them Just identifying them at the point of sale machine, whether it’s a debit or a credit, I believe separates those out But that’s certainly a way to get money moved. And then I also want to throw out the service that PayPal offers. It’s called Venmo

[10:58] V as in Victor, E, N as in Nancy, M as in money and then O, Venmo And that’s an easy way, definitely a millennial way to move money around I get money to my kids from time to time if they need it here or there for various things via that method And it’s free and immediate and very, very helpful and doesn’t require a card at all. It’s all tied to the smartphones I’ve seen now that I think it’s MasterCard and Visa are now letting you sell to sell transfer back and forth between individuals as well There you go. And then you have also the whole, like on Samsung phones, the whole Samsung Pay and I’m sure iPhone has a similar thing What do they call theirs? Do you know? I think it’s I pay. OK, that would make sense. Yeah

[11:50] I wallet. I wallet. Sorry. I wallet. OK. And there’s there’s Google Wallet, of course So I think pretty quickly here we may lose the actual physical card Of course, you know, most of the cards have gone to chips. That’s very common in Europe, less common in the U.S. But increasing in use for sure. It really depends on who offers your card Is it done through the actual companies or is it done through a local bank or a credit union? That kind of thing is going to cause some differentiation there But a couple of other things that I want to bring up and will include some links that I’ll have in the show notes for you And that is that there is at the Federal Reserve site a credit card calculator That can help you if you are dealing with a lot of credit cards and a lot of credit card debt

[12:44] And you’re trying to figure out which one to pay off first and which one to focus on and how long do I have to pay and that kind of thing There’s a link to a free calculator as I said, the Federal Reserve site So that can be on the show notes. I’ll just send it to you and you can forward it on And then there’s also something else I want to bring up that was so surprising to me recently Where we had a client come in and they thought they had about $20,000 of credit card debt But it turned out they had $20,155 and that $155 difference made a shocking difference in the amount of money Over time, assuming that they just made minimum payments that would go to the bank that was sponsoring this card

[13:34] It was $38,000. $155 turned into a $38,850 cost So I’ve got a blog post that we wrote up around that situation that I’ll send you and can be on the show notes And just absolutely something for people to be aware of One other point I do want to bring up and again, I wish I had more technical information to share But the state law that the credit card company is formed in has a lot to do with your rights as a credit card holder So in other words, when you’re making that transaction and you’re either entering a PIN or you’re hitting the green credit button The way a fraudulent transaction is handled and the limits of your personal liability do vary from state to state And you want to make sure that you read that fine packet of paperwork that they send you

[14:42] Because there are in some cases, particularly debit accounts where the money’s coming out of a checking or savings account Where a good portion of that money, if it’s stolen from you, is still your responsibility The FDIC insurance is against the bank defaulting. People think that covers everything It doesn’t cover if you buy a fraudulent computer on Amazon Right, interesting. Yeah, that’s a really good point to make And I think, too, we have to just bring in the identity theft issue, just being conscious of that And the fact that there are credit card readers that thieves have that they sit outside of banks and gas stations with And collect, you know, there’s new wallets these days that are some kind of metal to send that type of signal awry

[15:43] But of course, if you’re actually pulling the card out and using it, that’s not going to help you So definitely worth checking your statements every month, making sure that what is on your credit card is there Of course, the banks are being more proactive these days in calling, almost to a fault sometimes Yes, I’m traveling. Yes, please put through that hotel bill. Yes, I used a plane ticket You know, sometimes you want to ask them if they’re, are you really looking at this information or are you just reacting? But I guess it’s important for us to be grateful that they do call rather than not Because if they didn’t call, then that problem could become worse Especially if somebody racked up a whole bunch of charges and left the credit card with no available balance

[16:25] And you were traveling and needed to eat, etc. So another reason, by the way, to have to just as a backup if you do travel and you don’t want to get stuck somewhere with it But while we’re on the subject, let’s just make a note that the best way to handle it, of course, of course, is to pay it off every month Or make a very specific game plan for if you can’t pay it off So let’s say you’re a younger person. You’ve got a plane ticket that you’re going to put on there You absolutely know you can’t pay it off. Well, make a game plan to not put anything else on the card until the plane ticket is paid off And, you know, maybe do it over three months or two months or four at the most or something like that

[17:05] Something else that I want to just put out there and I don’t think this is very common anymore But there used to be offers that would come in the mail where you could get a Bose stereo or whatever for signing up for a new credit card But then they would put that Bose stereo on at the lower interest rate and then all of your new stuff when at a higher interest rate But you couldn’t pay off the Bose stereo until you paid off everything else Or some sort of convoluted thing that they would do with interest rates and time frames and time mean of payments And the bottom line is that made very, very expensive Bose stereo instead of the good deal that you thought you were getting Have you seen any of those of late? I think those have kind of gone by the wayside

[17:53] No, I think the consumer watch agencies have kind of chased that out of at least being popular anyway Agreed. Yeah, that’s a good thing. So any final thoughts? No, I would just say that, you know, as you head into it into this world, you know I think you have to accept that credit cards are part of this world and you do need to participate in them My understanding is is that the more credit transactions you make, the more protected you are in a credit versus a debit situation So I would encourage you use the credit but pay it off monthly It has the same effect and also will get you, you know, more points And, you know, most people, I don’t think they realize that if they really focused on one card, there’s some significant rewards that add up

[18:52] Yes, absolutely. Especially if you’re doing miles or something like that and can be very, very valuable And if you also can connect it to hotels and I think maybe in time some of these various travel points will get all consolidated down And that’ll be even more beneficial. But yeah, use the credit card for what it’s meant to do, which is convenience Pay the bill off every month most of the time and you won’t have any trouble with it at all Super. And again, there’s one of our listeners out there that’s a credit counselor involved in the credit card business or something who would like to come on I’d love to do an interview with you to have somebody on the inside actually maybe talking about what it’s like to be inside the credit card companies

[19:41] I know I’m amazed at some of the figures I’m told that, you know, a 500, if you get ripped off for $500, a credit card company cannot even afford to investigate it They just eat those and move on. And it takes up to $5,000 if it’s an international, which most credit card fraud is international Now, there’s even like a $5,000 minimum before they’ll investigate. So I’d love to hear some of that Sounds good. Yes. Hello at partners number four, Prosperity.com is our special email for our podcast listeners Stories of success, stories of good strategies, stories of challenges or any help that you think the listeners would benefit from Again, that’s hello at partners number four, Prosperity.com Super. Thanks again to all our listeners of the Prosperity podcast and we’ll be talking again real soon

[20:39] Thank you for listening to the Prosperity podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com If you liked this episode, make sure you subscribe and leave a review