On paper, managing plastic perfectly should be a breeze. Other than paying the entire balance by the due date, what more is there to know? A lot. Because as effortless as that two-step system sounds, millions of well-intentioned cardholders descend into the red with a little swipe here and a big one there.
The average credit card balance is about $5,000 for each person in America with a credit card -- and more than $8,000 per card that usually carries a balance. Carrying such a high balance is not a good idea, as financing fees escalate the amount you owe. Moreover, monthly payments for past spending inhibit your ability to meet current expenses and save for the future.
Some cardholders, however, have learned how to charge and pay off massive sums on their credit cards while always coming out ahead. Here's what they're doing right. And (shock!) how anyone really can do it.
1. Use software for hard numbers. Even mathematically gifted high-volume credit users rely on technology to help them see where their money goes. Without knowing the exact figures it takes to run a household, mystery shortfalls are likely to wind up as debt. Most employ software that tracks cash and credit flow, so they never accidentally overborrow.
"Knowing that you can pay off your credit card based on regular usage without affecting a checking balance or other areas of your financial well-being is step No. 1," says Greg Smith, an Atlanta-based project manager whose monthly charges are often $2,500. "I understand all of my finances using Mint.com and a spreadsheet on Google docs that my fiancee and I share."
Explore available personal finance programs and then choose the one that works best for you. Matt Becker from Boston is a financial planner who regularly charges about $3,000 a month, and uses Quicken to keep his charging in check. "I put the receipts in my wallet and then I don't let them build up. I enter them into the system immediately."
2. Earn from charging. Ultra-accomplished cardholders turn the tables on the system. Instead of paying interest, they make money via the product's rewards programs. Their most wanted cards: those offering straight-up cash back.
For example, Becker's two main card accounts are a Target card, which gives 5 percent cash back on purchases, and a Fidelity American Express that has a 2 percent cash-back reward program. Barry Mahar, a motivational speaker out of Corona, Calif., also prefers a Fidelity card, since, for each $5,000 he spends (about every two months in his case), the issuer deposits a cool $75 into his linked investment account.
Scott Bilker, founder of DebtSmart.com, charges more than $60,000 annually and extols the benefits of cash-back cards. "Years ago I was remodeling my kitchen and found out that Citibank was offering a 10 percent rebate on all home improvements. I called to see if it was correct and it was." His $50,000 charge put $5,000 back in his account. He then avoided interest charges by moving the entire debt to a 0-percent balance transfer card. Tricky, but lucrative.
3. Prep for the inevitable. What trips up most normal cardholders? Expensive emergencies, such as surgery for an aging pet or a broken-down car. Since these situations exist outside ordinary expenditures, they feel like surprises. Without the cash to cover them, on the cards they go. Unless you've taken that extra step to prepare for financial emergencies, that is.
Planning ahead is a must, says food blogger Susan Nye, who lives in New London, N.H. Her monthly credit card bill for work on her house recently topped $6,700, but she anticipated the cost and paid it off with savings. "Just because your average monthly expenses are $2,500, that doesn't mean there aren't ebbs and flows," says Nye. "When you're in a month when it's only $1,000 to run the house, the extra should be put somewhere."
Becker, too, is dedicated to setting funds aside for the inevitable, saving for car maintenance, travel and health care on a monthly basis. "We have separate savings accounts, and we name them for what they're for," says Becker. "All savings is automated. Through trial and error, we've decided on the amounts. All of this wouldn't work if we didn't do that."
4. Hold continuous credit conversations. Who wants to talk about money and spending? It just ends up in an argument, right? Not for the pros who have the willing cooperation and participation of their partners. They've found that the best way to avoid combined debt is to communicate. Constantly.
John Singh, a Los Angeles public relations consultant, had no trouble borrowing and repaying $45,000 from his two credit cards last year. His spouse, however, initially didn't possess such acumen.
When they first met, Singh said his partner owed a "whopping" amount. "So we made an agreement right there on how to tackle the debt: any windfall goes right to that," he says.
The couple discussed the importance of deferred gratification. "I said, 'You're gonna get what you want, but you're not gonna get it now,'" says Singh. "But it's a long-term daily commitment. If we spend $300 on a new printer, we know we will either incur $300 debt or we're going to pay it off. So we pay it off. It needs to be a joint decision and one that both sides agree."
These savvy card users don't wait for problems to erupt, but include credit discussions in everyday discourse, particularly when they have conjoined accounts. Atlanta project manager Greg Smith and his wife avoid "oops" obligations by maintaining a regular online dialog. "We don't have structured meetings, but we have a lot of email exchanges about charging and spending," he says.
5. Commit to owing nothing. According to a recent National Foundation for Credit Counseling poll, one out of every five Americans believe that carrying over credit card debt is not just inevitable, but a responsible way to manage your finances. If you're among this group, it's time to change your perspective. Credit card debt is not a fact of life, contend these uber-chargers, and income status is irrelevant. Just pledge to borrow only what you'll cover immediately, and then follow through -- no matter how painful the check is to write.
"My secret is never buying things I can't afford and always paying my credit card in full, on time," says food blogger Nye. "To some extent, the credit card companies make it easy. They charge such high interest rates and penalties, it seems positively foolish to miss a payment or not pay in full."
"It's discipline," says motivational speaker Mahar. "Whenever I buy something, I know I'm going to be paying for it at the end of the month. And knowing I'm going to have to do that keeps my purchases in check." As for Singh and his partner, "If we can't cover a charge, the answer is simple: We wait to buy the item." The option to have now and pay over time is, quite simply, rejected.
6. Pay early and often. Most credit cards provide about a 30-day window to send a payment in full, thus avoiding any finance fees from being applied. The due date is on the statement, but to make absolutely certain there's enough cash available to cover the balance, some pay as they go instead.
Singh, for example, deletes his debt weekly -- no matter what. "Every Friday, I have a new $0 balance on the American Express and we start the week fresh." Paying often and in small pieces eases the agony of one huge payment.
Smith, the project manager in Atlanta, also eschews the issuer's due dates. "I pay off my credit card entirely as soon as I am paid, which is twice a month. I never miss this step, and never compromise. It is the top priority."
7. Reduce plastic waste. Most major chargers have streamlined their accounts to just a few. Excess leads to confusion, they say. David Jones, president of the Association of Independent Consumer Credit Counseling Agencies, agrees. "The more credit cards people have, the more tendency they have to get into trouble," says Jones. It's better to have a couple of accounts with large limits than a slew with more limited lines.
Nye never has to wonder what her debt is on various cards. She's pared it down to one card that she uses all the time, and a second card that she never swipes but keeps as backup. Meanwhile, both Mahar and Becker have fewer than four accounts each, and Smith has just one personal card and another that he jointly holds with his fiancé.
8. Respect your personal limit. The fact that your credit issuer lets you charge up to $20,000 is inconsequential. What your friends are buying with their cards is not your business. Forget these facts at your financial peril, say the most successful high-volume borrowers.
"The key is having the confidence to know how much money you make and not worry what other people think," says Nye. "The people I know who get into trouble are those who do things they can't afford because of peer pressure. Just say, 'No, I don't want to.' You don't have to say why. When they ask you to go to the most expense restaurant in town, decline."
"The important number is not the credit limit, but the amount you can afford to repay," says Jones. "Focus on your budget and live beneath your means. Everybody can change their lifestyle to do it."
So can you borrow many thousands of dollars, yet stay debt-free and even increase your net worth as you charge ever more? The experts say sure, as long as you follow their rules, which go only slightly beyond the most basic of credit management fundamentals.