Review Your Credit Card Statement!

Do you carefully check your credit card statements, and review the transactions? It can help ensure that you’re not being charged unnecessarily for any ”phantom” transactions, unauthorized purchases, or mistakes.  I had an experience recently that serves as another example of why we take the time to at least scan through our statements each month.

First off, I make it a practice to pay off any bills in full each month. I don’t like to carry credit card balances, and simply don’t do that. Rather, I pay it all in full and on time each month. So, when reviewing a credit card bill, I typically don’t think of there being any issues in those areas. I’m usually focusing on transactions instead.

A recent review of a statement showed that all the transactions seemed fine, but something else jumped out at me: an interest charge! Impossible, right? After all, I pay may bills on time and in full, so there should be no problems.

Immediately, I called the credit card company. After describing the situation, and asking why it happened, it turns out that my last payment had been received late. Now, that’s not something I wanted to hear, since you just don’t want to be paying bills late.  There must have been some kind of mistake on their part!

Well, after they described the situation, I froze for a second and realized that I had been busy the month before and my payment was made close to the deadline. I normally don’t do that, but it was just one of those things. However, I pay bills online and the payment date was supposed to be right at the deadline date. Apparently, it must have hit right after that so thus the late fee.

Ouch.  Obviously, if you read this blog, you know that this is NOT something I would be happy about. Being someone that takes pride in financial responsibility, I didn’t like that this happened.

I explained the situation to the person on the phone, and stated that I pay my bills on time in full every month, and that was the reason I was surprised and called. The guy on the line then said he would make sure that the fees were reversed and charges removed. Great!

After getting charges reversed, I felt some satisfaction in knowing that reviewing a credit card statement saved money. Of course, I also learned a lesson that even people who are responsible can slip and make a mistake by procrastinating. Best to pay bills well ahead of the deadline, to avoid any situations like this where you have to call. Separately, one might also consider looking for a cheap credit card. Minimizing credit card expenses is a good thing.

Finally a big thing I learned from the experience is that building up a stellar track record of paying in full on time can build goodwill.

My Questions for You

Do you review your credit card statements each month?

Have you ever found any surprise charges on there? If so, how did you handle the situation?

What is your process for making the payments each month?

Have you ever been in credit card debt?

Personally, I’m fortunate enough to have never been in credit card debt. It’s always been a part of my financial ways to try to pay off credit card bills in full during each billing cycle.  So, thankfully, I’ve avoided the stress involved with over reliance on credit cards.

A few months ago, I was talking to a friend about somebody we both knew. I don’t keep in touch with this other person, and see her extremely infrequently, as in once every few years. However, my friend is more involved in a different circle of people, and communicates more with this other person. Anyway, he shared with me that this person – we’ll call her “Jill” – was unemployed and running out of money. Being single, she didn’t have a spouse’s income to help her. Clearly, she hadn’t saved much, and now was carrying a credit card balance.

My friend was suggesting (to me, not her) that Jill should just stop using cards altogether, as that’s what probably got her into the mess in the first place, or at least contributed to it. In his view, anyway.  To me, this isn’t the problem. If overspending is the issue, it’s more her self-discipline and financial literacy that’s the problem. I don’t know her that well at all, but recall talking about jobs and careers with her once. She seemed to have her head on straight and seemed otherwise intelligent. This is why I’m guessing it’s discipline and knowledge that are the culprits.

Now, I do think that Jill should focus on A) finding a source of income, some way, some how; and B) eradicate that credit card debt as soon as possible.  However, In my view, credit cards in general can be a valuable tool for people to use. Thus, I don’t advocate her giving up credit cards altogether.

Here are some benefits of using credit cards:

1. Rewards. First off, I will say that paying cash can sometimes provide a benefit. When you ask for a discount and offer to pay in cash, you might get a deal.  However, this is tough to do for most purchases. Thus, if you charge a lot of your day to day shopping, you’re not missing out on cash discounts and can in fact receive rewards. I slowly accumulate airline miles with one of my credit cards, and have a round trip airfare awaiting for my efforts!
2. Cash Back. Some cards can offer a different kind of “reward” – money back. There are some interesting cash back credit cards out there, and quite a number of people like this option.  An effective discount on purchases, if possible, is a nice perk.
3. Building Credit. By having credit, and paying off bills regularly and on time, people can prove themselves to be creditworthy. When buying a home, for example, having a good credit score can help secure a good interest rate, much less a loan in the first place.
4. Float. By paying cash, you’re shelling out money right away. By charging, you’re delaying payment. If you could let the money sit in an interest-bearing account for an extra 20 days, for example, you might earn a little extra money this way. When aggregated throughout the year, this can amount to something more than just a few pennies. Why not take advantage?
5. Tracking Expenses. With credit cards, each transaction is automatically recorded, and you can easily view a summarized list of expenses for a given time period. By paying cash, it makes it that much more time consuming to keep track of expenses. More knowledge can result in taking action on potential overspending, and can engender better habits.
6. Consumer Protection. In some cases, there is some level of insurance involved with credit card use. In other words, some cards can offer you warranty protection in certain cases, travel insurance, or even rental car insurance.
7. Ability to Make Certain Purchases.  Whenever I have rented a hotel room or a car, I’ve needed to have a credit card to complete the transaction. Avoiding having a credit card can make such transactions more difficult.
8. Convenience.  Let’s say you charge something that cost $11.02. Yeah, it’s a random number, but work with me for this example. If you pay with a credit card, you get a receipt back. If you pay by cash, you get change. If you hand over a $20 bill, you’ll back get one $5 bill, three $1 bills, three quarters, two dimes, and three pennies. That’s the best case. Who wants to lug around that much change?

Now, these are all great reasons to use credit cards. However, use of credit cards should be accompanied by self-discipline. Pay your bills on time, in full, every month. Additionally, don’t buy more than you would otherwise buy if paying in cash. If you can do those things, credit cards can be an essential part of one’s finances.

As for Jill, from the discussion above? I think that the notion that she should abandon credit cards altogether is overreacting. Self-discipline is the key for her, along with reducing that card balance ASAP.

My Questions For You:

What’s your view on self-discipline and credit cards? Is it different than mine?

Do you know of any other advantages (or disadvantages) of using credit cards, that you can share?

What do you think of the notion that Jill’s biggest problem is self-discipline, as opposed to the use of credit cards?

I absolutely detest debt.  The idea of having a financial obligation as a monkey on my back is not something that works for me.

By carrying debt, and using cash flow to pay it off, you’re not directing income toward savings. By postponing savings, you’re forcing yourself to work more – whether more hours during the week or month, or for more years in total. To me, financial freedom is a long-term goal, and debt inhibits the accomplishment of that goal.  Most of us would like to reach financial freedom, right?

So, with that in mind, I have come up with 5 rules for staying free and clear of debt:

1. Visualize Working Hard While Old.  Does this take you by surprise? Well, I know it’s a bit unusual, but it’s what works for me. Give it a try, and think about it. Realizing how people that are well past traditional retirement age tend to have less energy and more health issues that those of us much younger, it stands to reason that we don’t want to be in that position of having to work then. Envisioning it is a real motivator to avoid debt, and free up cash flow for retirement savings.
2. Pay Yourself First.  Put money away for yourself upon receiving it through your income. Set it aside, then forget about it. Well, don’t really forget about it, but make the effort to prioritize savings. This way, if you really need money for whatever reason, you have it.  You won’t have to go into debt, and can prevent such a situation from arising.
3. Pay Off Credit Cards in Full Each Month.  No matter what you might charge within a given month, focus on debt reduction and make a plan to have it paid off in full when the bill comes due. Interest charges and late fees can be very costly. If you do have it, pay down debt without taking from other sources. For example, using 401k for credit card debt.
4. Know Your Expenses.  This can also be seen as learning how to budget, or spending within your means. Either way, the key action point is to understand where your money goes, and how much you can effectively spend each month. And part of knowing your expenses includes knowing wasy to reduce those expenses; for example, if you have to make home improvements, think about shopping around, getting multiple bids for work, and remembering the 2011 home improvement tax credit. Bottom line: know what you’re spending and how it can be smartly reduced.
5. Discern Wants from Needs.  There are some things that are needs, such as food, shelter, and basic medical care. Then, there are are similar things that are wants – an expensive dinner, a newly constructed McMansion, or cosmetic vanity procedures. Or, more pervasive, smaller expenses that chip away at your cash flow. Wants are wonderful, and needs are just that: things you need. Understanding this distinction can help you get out of debt, or avoid it altogether.

Do you have any rules for keeping out of debt?