The Golden Mean was the concept from ancient Greece that you should do everything in moderation and nothing in excess (at least according to Rick Steves on PBS this weekend).    Keep that in mind as I would like to revisit the two  “extremist” views that I have been debating.   On one hand, is the people who feel that credit cards encourage debt, and are therefore bad.    On the other hand are those, like myself, who feel that they can reap rewards from their credit cards and control their spending.

My Perspective

Many people responded to my debate last week on this subject.   Some felt that it is impossible that I can use reward cards and control spending at the same time.    Personally, I think it is impossible to speak French, and yet I have personally witnessed many people who appear to do so fluently.    For most French speakers, that is all they know, so it comes naturally.     For me with my spending, it is pretty much the same.   I have been using plastic as my preferred form of payment for so long, I rarely have a dollar in my wallet.

In fact, I could make the opposite argument that if I carry cash, I think that I am more likely to spend it.    When I was growing up, my mother would give me some money to run some errands.   She might give me a twenty dollar bill and ask me to buy a loaf of bread.   When I got home, she would ask me for the change.   A few times, I would come home with very little change.    I would explain to her that I had extra money, so I decided to buy more  things.    I quickly learned that I should not spend money just because I have extra in my pocket.

Later, I would be given a credit card from my parents, but I would be held accountable for anything I charged.    Usually, I would have to ask permission to charge something.    If I purchased something for myself, I would have to pay my parents back out of my savings.   I was in trouble if I could not.    That is how I learned how to manage my money.    Later in life, my parents would constantly ask me if I was paying my credit card bill in full every month.    I was asked that so often, I would roll my eyes and interrupt mid sentence, confirming that I was being financially responsible.

Everyone Else

I have a greater appreciation that my spending habits place me in a minority.    There are also plenty of people who rarely pay their credit card bill in full.    Most people are just hoping to pay off their car loan so they can start reducing their credit card debt.

The Hybrid Way

Then there are those in the middle.    They try hard to pay their bill all of the time and avoid interest.   Sometimes, however, life happens and they just cannot.    To those people, I have the following advice.    Try to separate your spending between cards optimized for each eventuality.     Yes, have a reward card for those months that you can pay your balance in full.    When you know you cannot, shift your spending to the best, low interest card you can find.    Always pay off your higher interest, reward card in full, and then pay as much as you can on your low interest credit card.

In this way, you can maximize the best qualities of each card you have, while minimizing your interest payments.    You will earn reward points more slowly, but you will be curbing your interest, which is far more important.

Emergencies

I have made the claim that I never, ever pay interest on my credit cards.   That claim has been met with scepticism and even outrage by some commenters.   While I stand by this statement, I should explain.     I have always kept money in reserve for emergencies.    I also keep my monthly recurring payments to a minimum.    With a mortgage loan lower than I could have gotten, and without a car payment, it is fairly easy for me to conserve my spending when “life happens”.     I am living somewhat conservatively for my income, in order to have that cushion.    Beyond that, I can rely on home equity loans, which are tax deductible as well.

Finally, I will repeat what I wrote last year, “…thankfully, I have not experienced any tragedies or other circumstances that have devastated me financially. I know that not everyone has it so easy. I freely admit that I would max out my credit cards and declare bankruptcy in a moment if someone I love required an medical procedure to save their life, and insurance wouldn’t cover it. I know that families have children with special needs, and wage earners that are unable to find a job. These are the rules I try to live by and they have served me well, but I still make mistakes. I welcome your comments, concerns, additions, and revisions.”

“What rules do you live by? What works for you?”

This entry was posted on Monday, May 11th, 2009 at 20:00 and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.