When You SHOULD Use Your Credit Card

[00:00:00] Speaker A: In last week's episode, we told you several instances when you should keep that credit card in your wallet. So this week's episode is pretty simple. We're going to tell you some times when you're free to use that credit card. Let's get started. [00:00:10] Speaker B: Let's get some money from new money new problems. It's the new Money New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen. Negotiating compensation, purchasing your first investment property. Helping your family with money, the highs and lows of entrepreneurship. New money brings new problems that require new solutions. Join us as we work through them together. I'm Brenton Harrison, and this is the New Money New Problems podcast. [00:00:48] Speaker A: Hello. My name is Brenton Harrison of New Money new problems and your host for the new money new Problems podcast. We are back following an episode that surprised me. I will tell you that you you never know which episodes are going to pop and which episodes you thought were going to pop in terms of people's interests that end up being not that interesting to people other than myself. But last week, when we did our episode on when you shouldn't use your credit card, we had several people who not only tuned into the episode, but had an opinion about it. I had no idea that so many people had the MX Platinum card and would take personal offense at me. I don't think I attacked it, but in their opinion, attacking it. So I talked to Danielle, and she thought it might be good to have some context and some balance. This week, we're going to talk about ways and times that you should use your credit card, and we're going to start with using your credit card when you travel. Now, you may have been in a situation like I have been back when I use my debit card more frequently, where you've been out of town, out of state, out of the country, and tried to use your debit card. Maybe you get to use it one or two times. Then on that third time, you don't have access to your account, and you find out it's because your bank was worried that your card or your account may have been hacked because they saw that out of state purchase and they froze your account. Now, this happened to me twice. One time it was on like a Monday or Tuesday, called the bank during bank hours, and it was able to be immediately turned back. On. The second time it happened to me, it was on a Saturday evening, and because it was after bank hours and on a weekend, I just didn't have access to my funds until Monday morning when I was able to call that bank. Traveling with a credit card is much easier. Matter of fact, most credit card companies hope, expect and reward you for traveling so you don't have to worry about having your funds cut off in terms of your access to them. But the bigger reasons when it comes to why you should travel with a credit card besides things like cards at the top tier, offering things like no foreign transaction fees has to do more so with deposits and insurance deposits, meaning when you do things like get a hotel room when you rent a rental car, you're familiar that they often make you put a hold on your card of choice. It could be 100, it could be 200, it could be $500. Where until your trip ends, they place that hold for things like damage to the car with a hotel, things like what you might spend at the hotel restaurant or what you might take out of the minibar. And if you're using a debit card for those expenses, you don't want to get in the habit of having those dollars frozen in your actual account when you could just use a credit card instead. From an insurance perspective, I would say that the typical person is woefully unaware of the insurance protections found with most credit card companies. Definitely the top tier credit card companies, but they range from smaller items to more important people related items. On the smaller scale, you could have things like trip cancellation insurance where if you booked a flight that was technically non refundable through the airline, if you have had an injury, an illness, a death in the family, you may be able to have those funds reimbursed by your credit card issuer from trip cancellation insurance. There's also trip interruption insurance that some cards offer where if, for example, you are out of town and for some emergency reason, you have to book some expensive last minute flight back home, you could potentially have that reimbursed by your credit card company if you're looking on screen and we'll put these articles in the show notes, there's even things like travel delay insurance that reimburses you for things like a hotel stay if you have a flight that's delayed or canceled, and even things like baggage insurance so that you're reimbursed if there's damage to your luggage or you have lost your luggage when you travel. Now, those are what I consider smaller items that are still valuable if they happen to you. But the larger people related items are things that have to do with your person or liability from what you're doing in terms of your actions for example, if you're looking on screen, you're looking at an article from nerd wallet saying rental car insurance, how your credit card has you covered. And you'll find in many cases that a credit card offers at, ah, minimum collision insurance for the damage that's done to that rental car. Even though your auto insurance may offer a similar type of coverage, and many times because your auto insurance offers similar type of coverage, auto insurance would be the primary, meaning they would step up to the plate first in the event of a need. But your credit card company would still be secondary coverage, meaning that if there's an instance where you go over the limits of what your actual auto insurance will offer, your credit card could be second in line to pick up some of those uncovered expenses on your behalf. However, there are some cards and if you see this on screen and we'll put this in the show notes, there are some cars that offer primary rental car coverage, cars like the built world Elite Mastercard credit card, the Chase Sapphire preferred, Chase Sapphire reserves, so on and so forth, where you can have protection that says this credit card company steps up first. And I also have auto insurance that puts you in a place where you can likely decline any additional insurance that may be, uh, sold to you from that rental car company when you go up to the counter and they try to milk you for as much as they can. You'll also find that many credit card companies offer medical insurance that acts as a supplement to your primary health insurance for things like ambulances, if you're out of the country or out of town, if you have to be life flighted, if you have to be flown to a country where you have medical care, then the cost of those items may be picked up after your health insurance pays or declines coverage instead by a credit card company who might offer themselves as a supplement. So for all of those reasons, when you are traveling, using a credit card most of the time is more dependable, secure, and offers more protections than using a debit card. The second reason is for fraud protection. Another thing, you'll find that I've made many of the mistakes that I now argue you should not make, but experience can be the best teacher. I have had the experience of using my debit card or an ACH for a vendor that I wasn't familiar with online and subsequently finding out that I had been the victim of fraud and that that vendor had hacked my account and used it for other purchases. But thankfully, if you use a credit card instead, the liability in those cases is minimized when you have trust me. Your checking account hacked, number one, however much they get is what they get. There's no limit. If they find a way to get all the money out of your account while your bank goes through the investigation process and tries to recover those funds, you have lost that money. That bank doesn't come and say, oh, they took $2,000. While you're waiting, we'll give you $2,000. You're just without $2,000, hoping that it is eventually returned to you, the credit card company. However, you can see from this article, and I quote, the Fair Credit Billing act protects you against credit card fraud and limits your maximum liability to dollar 50. Some card issuers expand that law by offering $0 fraud liability on unauthorized charges, which means you won't be held liable for any amount of fraudulent purchases, end quote. So if you're shopping online and you're at Amazon or target or some vendor that's a large vendor, the odds of you being a victim of fraud are probably small. But if you're buying a shirt at some small clothier that you came across and happen to like their clothing, but you've never spent through there before, it may not even be the clothier. It may be the company that they use for card processing. You may be at a heightened risk of fraud. And in those cases, it would be better that you use a credit card for that vendor with which you're unfamiliar and for in person purchases, it's the same if you're going to a place that you're very familiar with, you know, the people there. Uh uh. Not impossible to be a victim of fraud, but maybe a lower bar. But if I'm on a road trip, for example, and I'm buying some gas, it's highly likely that I'm going to pull out my credit card because it's going to be harder to convince my bank to investigate if Pete's gas and Chow in east whatever county may have been the perpetrator of the fraud or the person who hacked my account. So, unfamiliar vendors, online purchases. Whenever you consider yourself a potentially heightened risk of fraud, use your credit card instead. Next is when you are paying for items that either offer you a multiple of points or you are redeeming points for something that gives you a multiplier in terms of credit. So now I'm going to go back to the card that you all were upset about, the Amex Platinum card, and I'm going to give you some examples of times when you should use that card. And all of this is based on the premise or the understanding that if you're taking advantage of these things, you are not struggling with credit card debt. If you're struggling with credit card debt, you used to go back and listen to the episode last week. This is, I'm doing well with my credit card debt. I'm, um, paying it off in full or I'm at least not paying any interest. Here's times when you can use that card, the Amex Platinum card, in spite of its fee, it does have, for people who travel frequently, benefits like multipliers on money that you spend for things like travel. Travel being floating flights and hotels booked through the site. So, for example, you can see that if you spend a dollar on the Amex travel website for flights or hotels, you can get five times worth the points for what you would get if you spent it on a non travel related purchase. So, uh, for example, if you spent a dollar somewhere else or you get one reward point, if you spend it on travel through the Amex site, you get five reward points. And if that point is worth a penny, you're essentially getting $0.05 on the dollar for every dollar that you spent. If you travel frequently, there's also benefits to this card where you may be able to upgrade your hotel, so you may bank on there being availability for a higher level room than what you have. If you're traveling with family, maybe you can pay less for the initial hotel room, but get an upgrade to a room, uh, that's more suitable for you and your family's needs. We also had people who have this card who talk about the benefit of being able to go to the Centurion lounge with their family while they're waiting for a flight. This isn't the only card that does this, but the point is, if you are in charge of your credit, meaning you're managing it well, you understand the perks that come with this card and you know when and how to use it to maximize those perks. There are potentially reasons where you would benefit from doing so. Another popular car that I would say is kind of like the chase competitor to Amex is the Chase Sapphire reserve credit card. So you can look at things like how they incentivize you for travel and you'll see that they also offer you five times points for flights booked through the chase travel site. They also give you a credit towards travel of $300 annually. And in addition, when you redeem these points, this is what I'm talking about, the multiplier for redemptions. You get 50% more value when you redeem through Chase. So, for example, if you have 75,000 points, which is basically the equivalent of dollar 750, then you can actually get $1,125 worth of travel if you book it through the site. Again, if you know how to use them, if you're in charge of your balance, these are instances where you may benefit from using these cards. Now, I'm a fan, when we get to the episode on how to choose a credit card, you'll see why. But, uh, I'm a fan of cashback cards, where instead of all these different random multipliers, I spend a dollar. I get one and a half cents back or two cent back. And in those instances, if you're using your card for fixed expenses, which is actually the next item, then it's something where you can get one and a half, $0.02 on the dollar for dollars that you are already spending in a way that's clear and concise, and you have to have as deep a knowledge of how those multipliers work. But I am a fan for people who are doing well with their credit cards, of you putting all of your expected and required expenses on a credit card, especially one that has strong rewards. So these are things like your utility bill, these are things like gas, these are things like Internet, which I would consider a basic utility. In this day and age, any fixed expense that you know you have to pay for and is not a result of you having or not having discipline, which is often how crazy card debt can spiral out of control. That's an expense where you might as well put it on the credit card so that you can redeem and get the benefit of any points that come from that expense. After the break, we'll give you three more reasons you should use your credit card, and we'll bring this thing on home. [00:13:12] Speaker C: This is the new Money New Problems podcast, um, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles theyve never seen. Well be right back. [00:13:31] Speaker B: Are you wondering what new money problems you might be overlooking in your financial life? If so, weve got great news. Weve crafted the new money new problems gap finder to identify potential weaknesses in your finances in areas ranging from budgeting, insurance, and even the threat your extended family's finances could pose to your household. Please head to newmoneynewproblems.com gapfinder to complete it today. Again, that's newmoneynewproblems.com gapfinder to take the assessment. [00:14:10] Speaker C: You're listening to the new Money New Problems podcast. Subscribe now at New Money, new problems.com. welcome back. [00:14:20] Speaker A: Next up, uh, you should use your credit card if you know yourself and you monitor your budget. The downside to being a high income earner who is busy and using credit cards is oftentimes the expenses that we put on our card can get away from us. Most people are not natural budgeters. They don't sit down or they don't even innately have an idea of how much they're spending on a month to month basis. And when you're putting everything on a credit card and not seeing those funds come out of your account throughout the month, you risk getting in the scenario that many of us get in, where we look at the end of the month and we're saying, oh my goodness, how did I charge 4000, 5000, $10,000 on that card and not even realize it? That is most people's experience. But there are people out there who budget very well and have a deep and thorough knowledge or at least a strong estimate of how much they're spending on a monthly basis. This may also be the case for you and your spouse. If you're on one accord and you budget well, then using your credit card can be great because it not only gives you one line item where you can see if you're within your total expenses and if you fell where you expected to in terms of where you came in this month, but again, it gives you that ability. If you have a card that has strong rewards of racking up those cards without the added risk of you getting out of control with how much you owe at the end of the month, you budget well, you keep track of it. In these cases, you might as well get the rewards for having good discipline so that in addition to your discipline, you also get some money back at the end of the year that you can use for whatever you wish. Next up, we have building credit. But as I said last week, this is not about you building credit by giving someone just unfettered access to your card. This is if you are having trouble establishing good payment history or strong credit, then you can consider using a secured credit card with a low balance where you can go on month to month and just establish some positive payment history. Now, I would argue that this is something that you can do with a secured credit card, but in many cases I think it's unnecessary. The reason I say that is because if you look at a FICO credit score, you will see that a credit card is part of what goes into calculating your score. But there are other things that in combination have a outsized impact compared to credit utilization. So the largest element of your credit score is your payment history, which doesn't have anything to do with having to have a credit card. 10% of your credit is credit mix, 15% is the average age of your credit. So if you have things like a student loan or a car loan, you can have a strong and long age of credit without having to necessarily have a credit card. And 10% is new credit increase, which really is something that can only hurt you. It can't help you to have new credit inquiries. So if you're collectively looking at this, you can have up to 60% of your score positively impacted by your behaviors, all without having to have a credit card. Because while credit utilization is 30% of your score and having a strong utilization can help you, having a poor utilization can hurt you. And you don't necessarily have to have a credit card to have a strong credit score. As a matter of fact, my wife has a little brother recently moved and one of the things he talked about was making sure that his credit stays strong so that when he's ready to buy a house, he'll be in a position to do so. And I encouraged him while he was renting to make sure that his landlord was reporting his on time rent payments to a credit bureau. Now, many lenders will report this themselves, or you have people who are renting who can sell report with their landlord. In conjunction, they can sign up for certain websites like as you see on the screen, self rent reporting, boom, pay, rental karma, rent reporters. These are all services where if you're trying to establish clean payment history, which at 35% is the largest element of your credit score, you can report, or your landlord can report it to the credit bureau which will positively impact your score, all without needing a credit card card. And then lastly, if you're trying to establish business credit, in some cases it can be helpful for you to establish a business credit card to start to build your profile. I'll put an article in the show notes. We're not going to spend too much time on this because not everybody who listens is an entrepreneur. But one of the things that I often encourage entrepreneurs to do is as soon as possible, separate the transactions and the purchasing for business items from personal items. See, when you start a business, it is very common for you to be using your personal credit cards, your personal cash flow to fund items in those businesses. But you want to make sure that as quickly as possible, you're moving towards that business. Being able to stand on its own apart from your personal finances, and be positioning yourself even if you choose not to get business lending, but to be eligible for business lending should that need arise. And one of the ways that you make yourself eligible is by establishing business credit and a business profile. Now, some things that help along that regard are, uh, establishing your Duns number, which is essentially the ah number that will help you get a business credit score. You also can apply for an FeIN number, an employer identification number. You can open a business checking account, and you can establish that separate entity so that if you go to a lender, they can see the cash flow of that business separate from your personal. But if you're trying to put yourself in a position to get a loan, in addition to them seeing your cash flow, they may also want to see that you've paid back other business debts. And one way that you can show them that is by getting a small business credit card. So we'll put a link in the show notes to some of the top small business credit cards for people who are getting their first card. But in our example, before I started this firm, most of the things that I was buying for the business, I was buying in my personal name when we started the firm and then had an employee and are trying to establish a profile for if we need lending, we got a business credit card. So that if I'm traveling, if Danielle is traveling, if I'm taking a client out to eat, if Danielle is buying something for the business, instead of using my personal credit card or my personal debit card, she can put that on the business credit card and we can go on about our way while building a strong profile for any potential lender. So those are some of the reasons and some of the instances when you should use your credit card. I hope this provided the balance that you were looking for coming off of last week's episode. But I'm going to continue to tell the truth as I see it. So if in the future, I say something that you disagree with, but I happen to believe in it, we may not always have this backup episode for you all, but I do hope, in all seriousness, that this one was enjoyable. Uh, I'll see you next week. [00:20:50] Speaker B: From new movies, money new problems. This was the new Money New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen.