Why you want to be a deadbeat
In any other world, the idea of being called a deadbeat, let alone a credit card deadbeat, would be insanely offensive. But in the credit card industry, it would be an absolute honor and a privilege. One you probably didn’t even know existed. But it does exist. It’s an actual term used by the credit card industry to describe someone who pays off their card in full each month. So in this case, yes, you absolutely want to be a deadbeat.
Why? Let’s track the money.
If you are someone who pays your credit card off in full each month, the credit card companies make no money off of you. No fees. No interest charges. Nothing from a user who is gaining perks of anything from airline travel to free hotel stays simply by using their credit card like an adult.
So let’s get you on the road to deadbeat-status. It’s about time you hopped in.
The best way to use a credit card (so that you can be a deadbeat)
The best way to use a credit card is to pay the bill off in full every billing cycle. This way, you don’t even have to worry about what the interest rate (aka APR) on the card is. Because even a 25% interest rate on a $0 balance is still $0.
If paying off your credit card in full each billing cycle isn’t likely to happen, you’re not alone. The average American has $6K in credit card debt. But just because misery loves company doesn’t mean you should get comfortable being miserable.
If you are carrying a balance, consider transferring to a credit card with zero-interest and prioritize that debt paydown while the introductory rate of 0% is still active. This is typically your best shot at the best chance of getting out of credit card debt quickly.
How to take advantage of your credit card
Points are not complicated. Cashback is not complicated. There are so many resources out there breaking down which credit cards offer the best perks. Bet you expect us to link to The Points Guy here…good call. But you can also take full advantage of the cards in your wallet for rewards outside of the immediate billing cycle. Sure, a fully-covered flight to Lake Tahoe is nice. And so is getting 3% cash back on groceries. But there are two other major benefits to using your credit card wisely.
Improving your credit score
The three most important factors in determining your credit score are:
Length of credit history
Credit utilization ratio (how much you’re currently borrowing divided by how much you’re allowed to borrow)
Consistent record of on-time payments
So if you’ve had your card for a while, your available credit is high, and your balance is low (if not zero), your credit score is probably in the high-700s-800s range. Well done.
While it’s been said that your credit score is just a way to tell how good you are at paying back the money you’ve borrowed, we believe you can flip that methodology on its head. Using a credit card successfully means an increase in your credit score. And an increase in your credit score comes with so many benefits.
Lowering your interest rate
When you pay back your debts on a timely basis, the likelihood of you defaulting on future payments decreases. You’re proving to the lenders that you are responsible and can stick to an agreed upon repayment schedule. For this reason, the interest rates charged for borrowing money in the future will decrease. This means you can make those big purchases for significantly less money than what you would have to spend with a weaker credit score.
Think about it this way - you have student loans. Private loans can carry an interest rate ranging anywhere from 1 -13%. If you take out $50K to pay for your degree and give yourself 10 years to pay it back, your monthly payment is going to land around $530/month with a 5% interest rate. That’s you spending about $63,639 to borrow $50,000. Let’s take that same scenario and bump it to 8% interest rate instead of 5%. You would pay around the same monthly payment ($607), but you’re now spending almost $73K total to borrow that money.
TL;DR: the lower the interest rate you qualify for, the less amount of money you end up spending.
What you can do when you use your credit card well
Using your credit card like an adult removes you from the prey pool the credit card companies feed on. We’re empowering you to feel like a grown-up who can control your spending. As opposed to advising you to cut up your credit cards because you’re a child who can’t control yourself… looking at you, Dave Ramsey.
Because when you use your credit card wisely (paying it off in full and on time) your financial life is probably going to get a lot easier. And we say probably for compliance reasons, but know we mean it.
The benefits you gain from using your credit card like a deadbeat range anywhere from it being easier to travel to see your friends and family to your ability to afford a larger first home. Free hotel stays, cash back, flight upgrades, free Global Entry, early access to concert tickets, and we’re barely scratching the surface.
All because you use your credit card like a debit card (that debits once a month instead of after each purchase). Because no one pays in cash anymore for anything other than late-night pizza or things we aren’t allowed to talk about on a finance blog.
Ready to move on to the next step after the basics? Or maybe you just want someone to make sure you have the basics covered? Check out the Stash Plan. You’re partnered with an advisor and get to walk away with all of your questions answered. Fully-personalized, full-service, fully-functional game plan. No strings attached.
Stash Wealth provides financial plans designed to assist high earning young professionals build and manage their wealth.
Stash Wealth offers a pragmatic approach to financial planning and wealth management. Whether saving up for Tahiti or a Tesla, we help you achieve your short-term and long-term goals.
Written by Stash Wealth Staff Writer
Stash Wealth Staff Writers are knowledgeable about personal finance topics. Their objective is to unravel the complexities of finance trade jargon, products, and services in order to equip HENRYs with a sound understanding of financial matters.