Using the credit card as a way to increase savings interest

To use your credit card so it increases savings there are a few guidelines

- Credit card must have NO ANNUAL FEE

- No hidden fees

- All credit cards will charge you for cash advances - so never do a cash advance

- pay the credit card in full by the due date

When I started with this theory, I had a good amount of savings in my account and was seeing that withdrawing money out of it as counter productive to my savings. I could save so much more if somebody else held my debt for a month, even my interest would go up, as my bank account accrues interest daily.

This started me on thinking of getting a credit card. Not because I needed extra funds, but because I wanted to get as much benefit out of my interest rate in my bank account.

I looked in a number of credit cards. I only wanted a small limit one that would accomodate our budget (This budget can be found at http://hubpages.com/hub/Budget-Theory-grows-savings, it was a very small budget.)

I looked in to a few credit cards. Read right through all the fees and charges. I chose one that had no annual fee, no fees for using it, except for cash advances.

I applied and was successful in obtaining a $2000.00 credit card limit.

Budgeting on a credit card, is exactly the same as budgeting on a debit basis or cash basis. Only spend what you need. If you can't earn $10,000.00 in 55 days. Don't spend $10,000.00 in 55 days.

It is vital that you remember you have to pay off that credit card preferably at the end of the free interest period. Mine is around the 20th of every month for the month previous. I have a 55 days interest free.

If you don't want to have to write up a budget or things are more difficult to budget for. For example when we were renovating; we hoped and thought it was just going to a be a quick paint job. It turned in to having to do re-do the entire bathroom, due to number of factors, however that is another story.

Thankfully we had savings going in to it. Which should have left us still in a good position, until we hit the bathroom. The hours we worked on the house whilst both working full time - were insane. Particuarly since we finished the entire project within 4 months of starting.

I had little time to really watch the budget, even lost the ability to budget as we would have to wait -which we couldn't afford to do either.

How I managed this was to watch the credit card, vs the bank account and work out what was coming in and out, which was a quicker way to budget, however it was not anticipating incoming bills.

For example -

The bank has direct debits coming out - calculated those, against the income that was coming in, and how much I could take or put in to the savings account. The savings account that was begging to virtually become the payment for the credit card.

Our credit card is now higher than our first credit card however not higher than our combined monthly income. This is a very important decision we have made to keep it so it can be paid off in a month.

Sometimes, when I was not coping well and I couldn't think as clearly as I would have liked to I would state that the credit card can't go over $2000.00 and would cease spending until the credit card rebooted. This was based loosely on our budget, and because it was similar to the credit card bills we had been paying when I had been budgeting,and facilitated saving. If you work with a budget for a little while to get an idea of how it works, and what your savings can cope with paying, this would be the most beneficial course of action for the budget adverse person.

Remember paying the credit card out in full will make it easier to have the ability to buy things as you want them, than spending up really big and having to spend the next 10-20years paying off the things you bought. Which leaves you little flexibility in the future of your finances.

Abbasangel definition of rebooted - Even though you pay your credit card around the 20th, because that is when it is due the amount stated is the minimum repayment amount - it is actually rebooted about 5 days after that - when your next statement is available. If you spend within those five days that money will be due in about 20days. Which you may have to spend just recognise it will not be 55days away to you will pay for those expenditures.

Abbasangels definition of "minimum repayment" - Paying the minimum payment will generally save you a late fee of around $15.00. Trap of only paying the minimum repayment is interest on a credit card is around 13% and up. If you are balking at the amount you need to pay on the expenditures you made this month; Will you be able to pay this months expenditures + plus 13% or more on them? The answer is probably not. This can amount to really big numbers very quickly and take a very long to pay to payback, stifling your future spending capacity severely.

Abbasangels definition of "Interest" - The money you should be making, not paying! So interest is sometimes unavoidable, yep. Sometimes it is. However If you only need the credit to boost your interest in your account you need to understand how interest accrues.

The example I gave before 13% that is an annual figure. So when you rack up a credit card bill of $2000.00, for the month you will only 'need' pay $21.667 according the generous credit card company.

How I worked this out is $2000.00 (card amount) x .13 (which is what 13% looks like when converted to decimal as 100% equals 1 (a whole)). Divide by 12 months.

However if you have 55 day rotation this amount will be slightly higher as you won't have 12 months.

That doesn't look like that much does it? But did you see now you owe, $2021.667 dollars minus the minimum repayment. If you don't connect these dots you may find yourself with this x2 at the next bill = $4043.12. Stop for a minute and work out exactly how much money you make in a 55 day cycle. That rent is generally not on the credit card, and a few other bills, are you still paying for some things with cash?You know the billers who won't give a Bpay details or who you know charge you extra for using a credit card.

This is why the credit card needs to be paid in full, for your own financial security.