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Company and product names mentioned herein are the trademarks or registered trademarks of their respective owners. All rights reserved. No part of this book may be reproduced, in any form or by any means, without permission in writing from the publisher. Printed in the United States of America First Printing: June 2008 ISBN-10: 0-13-235377-6 ISBN-13: 978-0-13-235377-9 Pearson Education LTD. Pearson Education Australia PTY, Limited. Pearson Education Singapore, Pte. Ltd. Pearson Education North Asia, Ltd. Pearson Education Canada, Ltd. Pearson Educatión de Mexico, S.A. de C.V. Pearson Education—Japan Pearson Education Malaysia, Pte. Ltd. Library of Congress Cataloging-in-Publication Data Arnold, Curtis E. How you can profit from credit cards : using credit to improve your financial life and bottom line / Curtis E Arnold. p. cm. ISBN 0-13-235377-6 (pbk. : alk. paper) 1. Credit cards. 2. Consumer credit. 3. Finance, Personal. I. Title. HG3755.7.A76 2008 332.7’65—dc22 2008011159 C H A P T E R 1 It’s Not Just Plastic—It’s Money hat would we do without credit cards?1 Most of us have at least one in our wallet. From purchas- Wing airline tickets and shopping online to filling up the grocery cart and topping off the gas tank, we use credit cards as a convenient, quick way to pay. But they can be far more than just fast and easy. Although it sounds counterintuitive and even an oxy- moron, you can actually profit from credit cards if you apply the insider tips I share in the following chapters: • Your cards will pay you between 1% and 5% in cash just for charging things you would have bought anyway. • You can use cards as creative financing tools to buy virtually anything, at rates as low as 0%. These ideas have helped countless consumers, including me, get hundreds and even thousands of dollars from their credit cards. It’s my sincere hope and expectation that this book will do the same for you. The Power of Credit Cards With more than a billion cards out there—around five cards for every American—it’s a safe bet that you’ve got at least one handy. Take a good look at it. What does it 1 This term and others that you see in bold are defined in the Glossary. 1 2 How You Can Profit from Credit Cards represent to you—a financial management tool or a bur- den? Do you receive many benefits from your cards, or is the lender the one receiving all the benefits, in the form of interest payments and fees from you? Credit makes it easy to buy what we need and want, but in this society obsessed with obtaining all kinds of things, credit can become a crutch instead of a convenience. Still, credit cards have become virtual necessities in our capital- istic, technology-driven society. Try to rent a car without a card, and you’ll see what I mean! With credit cards, shopping online is a breeze. What about reserving airline tickets? Ordering from a catalog? And mailing a check is almost a thing of the past. Using a credit card is faster, easier, and generally a more secure way of doing business. What’s more, if you follow my advice and strategically use the right cards, you’ll get many other benefits from them, including generous gift certificates, airline tickets, and cash rebates. If you’re wondering how that can be pos- sible, it’s largely because of competition. At any given time, typically thousands of competing credit card offers are tar- geting you. Card issuers want your business so badly that they’re willing to dangle all sorts of juicy carrots in front of you, chock full of tempting rewards and rebates. Industry research indicates U.S. card issuers will spend $18.4 billion on rewards in 2010. In 2006, they “only” spent $10.3 billion. If they’re giving away that much to get and keep our business, imagine how much money they’re making! Still, isn’t it great that competition is so tough for them, they have to offer generous perks just to woo and keep us?2 If you “play your cards right,” you’ll become what lenders call a deadbeat, meaning you reap the rewards of your cards without paying any interest or fees. Or maybe you’re a cardholder with revolving debt, which 2 Bézard, Gwenn. (2007, January 18). Loyalty & Rewards: A Market Overview. Aite Group. Statistic retrieved from aitegroup.com/reports/200701181.php It’s Not Just Plastic—It’s Money 3 means you don’t pay off your balance in full each month— and you do pay interest. If you fall into this category, you’re the credit card issuers’ ideal customer. Whichever type of card user you happen to be, you can learn a lot about using credit wisely, getting out of debt, avoiding a high-debt lifestyle, and taking advantage of the benefits and rewards of card usage. That’s just the kind of valuable information we focus on in this book. In fact, a very unique value proposition of this book is that credit cards can significantly enhance your financial well-being. Stick around, and I’ll empower you to become a savvy credit card user who wisely manages your plastic for personal profit! Choosing a Credit Card That Will Benefit Your Bottom Line Comparison shopping is the best way to find a card with the right perks for you. Before we get to fun subjects like deciphering the fine print in credit card offers, let’s quickly go over the basic characteristics of a credit card. One of the easiest ways to understand how a credit card works is to compare it to a debit card. Even though a debit and credit card look the same, their functions are very different. Credit Card Basics Every time you use a credit card, you’re actually borrowing money from a bank or other financial institution. When you charge something, the card-issuing bank pays what you owe to the merchant that accepted your card for pay- ment. In turn, you pay the money back to the bank. By signing up for a credit card, you agree to pay back the money that you borrow, plus any interest or finance charges that accrue on the amount you owe until you’ve paid it all back. Put simply, credit cards are a type of loan. 4 How You Can Profit from Credit Cards Debit Card Basics Most banks now give you the option of using a debit or check card to get instant access to the money in your checking account. When you use one, your bank takes the funds directly from your bank account on the same day or soon thereafter. With a debit card, you don’t have to carry cash or checks, and you don’t have to pay interest or finance charges. Now that they’re accepted at a variety of places, including gas stations, grocery stores, restaurants, and retail stores worldwide, it’s no surprise that debit cards are becoming more popular. In fact, for the first time, debit card usage actually surpassed credit card usage in 2006. Debit or Credit—Which Is Better? The answer is, it depends. How careful are you? How do you actually use your card? Can you trust yourself not to rack up a pile of debts? The features that make debit cards convenient—instant access to your money, plus the ease of not having to write a check and often not having to drag out your photo ID— also make fraud much easier. Unless reported quickly, theft of your debit card can quickly deplete your bank account. A thief can spend all the money in your checking account in a matter of minutes, leading to bounced checks, overdraft fees, and a major headache! This is where there’s a big difference between credit and debit cards. Stricter Liability Laws Credit cards are subject to strict liability laws that limit a consumer’s cost for credit card fraud to $50. Even better, almost all credit cards now come with zero liability poli- cies, meaning you generally don’t have to pay a cent for any unauthorized charges. Of course, restrictions apply, It’s Not Just Plastic—It’s Money 5 but most consumer feedback regarding this benefit has TIP been quite positive. No matter what your liabil- With debit card fraud, ity, report fraud as soon as your liability is $50 if you possible. It will often save notify the bank within two you time, grief, and money. days. After two days, your liability increases to $500 for purchases and charges you didn’t make—and up to your entire account balance after 60 days.