Manage Credit Cards

Banks want people to use credit cards. Credit cards are generally more profitable to banks then debit cards. So Banks put a lot of carrots for us to snack on:

  • Credit cards help building credit history
  • Banks give you cashback / points / airmiles when you use credit cards
  • A lot of credit cards are free to open / free to use or first year is free.

“Everyone around uses credit cards. So I should too or I will miss the boat” – that’s what people think when they first open credit card account.
It seems so obvious. Why would anyone use debit?!!

Banks say: “We give you free credit for 30 days or so. You buy stuff. You just swipe a credit card. But you don’t pay for 30 days. Bank will pay it for you. And you will pay the bank only after 30 days. It is like free money”. Well… there is no such thing as “free money”. If you don’t have cash for something today – don’t buy it, because most probably in 30 days you won’t have that cash again.
There is no point of taking a “carrot” if you know you have to return it in 30 days. You can’t eat it. Yet, so many people got into that trap over and over again.

So every month you have to pay off the amount due. If you miss the date – you will be charged the highest interest. Most people think: “Well… I am well-organized. I can manage that. I can pay off my amount due every month and then I will only gain, I will never lose.” In fact even the most organized people sometimes miss their payment date. People also use credit cards for big-ticket purchases and then they just don’t have enough money on checking account to pay off the full amount due on credit card.

You spend money when you swipe the card in the store not when you pay off amount due. Your budget should reflect the swipe date, not the due date. The amount due payment is merely a transfer from checking account to credit card account. It has no impact on your budget. It is important to account for expense when it happens, not when you pay off credit card bill.

This two-step process simplifies credit card management by providing clear cash forecast and generating payment reminders:

1) Because Credit Cards require special treatment we propose to display them separately from all the other accounts. This will allow you to see how much you owe in total for all your credit cards.
Enter Credit Card accounts in the lower portion of the account screen.
Enter Debit accounts in the upper half of the account screen.

HowTo_CreditCards_Accounts

Note: If you don’t use credit cards or if your country banking system only provide pre-paid “credit” cards then you don’t have due dates. In this case you can enter all your accounts in the top section of account screen. You can even turn off credit card management in Options – it will hide certain fields that are of no interest to you.
HowTo_CreditCards_Options

2) Enter due date payments for all your credit cards as Scheduled Transactions. Type – “Transfer”.
From your checking account to the credit card account with approximate amount that you pay every month.
Transaction Date should be about 10 days prior to your due date to provide enough time for banks to clear transaction.

HowTo_CreditCards_Scheduled_Due_Dates

This will trigger a transfer transaction on certain date every month.

HowTo_CreditCards_Scheduled_Transactions

You will adjust amount every month once you will know the amount due from your statement. But having even approximate amount will start building a cash forecast.
Cash forecasting might not matter to you if you only use credit cards for small purchases. But if you consider buying a trip or making another substantial purchase using your credit card (big purchase means a lot of points) – you better know in advance if you will have enough funds on your checking account when the due date will come. Besides even small purchases may accumulate quickly to several thousand in total in one month.