|by Jason Steele|
A few weeks ago, The Consumerist printed an excerpt from a book by Bob Sullivan, “Stop Getting Ripped Off: Why Consumers Get Screwed, and How You Can Always Get a Fair Deal “. The idea is that you keep a single card that you pay off in full every month. That is your “clean card” as charges on it do not accrue interest, so long as they are paid in full every month. The the other card is your “dirty card” that you use as a line of credit, and do incur some interest.
How Could This Work?
I won’t go into detail about how this strategy actually works, it is best to just read the excerpt from The Consumerist. My question is; Who can benefit from this strategy? First, I have to say that never carrying a balance and never paying interest on your credit card is ALWAYS the best strategy, period. Unfortunately, this is not realistic for many people. As I have always tried to explain, when you carry a balance at the end of the month, even one penny, you owe interest on all of your charges from the date of purchase. As the credit card companies like to think of it, you are always being charged interest on everything, it is just waived if you happen to pay your balance in full and on time. The difference is merely semantics.
The idea behind the “clean card” theory is that if you were only able to pay off 90% of your balance, you could put that on the “clean card” and the other 10% on your “dirty card”. You would pay no interest on the 90%, only on the 10%. I have one problem with this theory. If you are budgeting your life well enough that you know that you will not be able to pay off some of your credit card balance, why are you charging it in the first place? I guess life happens and people have emergencies, but by definition, you can’t anticipate them.
On the other hand, I can think of some people would benefit from the “clean card” strategy. Certainly if you are in debt already, but are trying to climb out, this would work. Take however much you money know for sure that you will be able to pay at the end of the month, and charge it to your “clean card”, while leaving enough left over to start paying off your “dirty cards”. In this way, your ongoing monthly expenditures will be interest free, while you pay off your charges that are still accruing interest.
Another scenario where this might work is where people are incurring expenses that are reimbursed by their company, such as travel. The last thing you want is to charge your travel expenses to a “dirty card” that is incurring interest on your company expenses, as no company I know of will reimburse you for your interest. In this case, you can get a nice, cash back or reward travel card for all of your company expenses. You can pay the balance in full as your expense checks come in and pocket the rewards. You might even just endorse your expense checks to your credit card company and mail them directly, taking your bank account out of the loop. In the mean time, you can still pay off your personal, “dirty cards” as best you can. As I have written many, many times, these cards should have the lowest interest rates possible, which are almost certainly not found with reward cards.
Holding “Clean Cards” can be a useful strategy for some people. Unfortunately, I worry that there are very small number of people who are consistently unable pay off their balances in full, yet are somehow able to budget properly between their “clean” and “dirty” cards. Ask yourself seriously if you think you are one of those people before attempting to take advantage of this strategy.