How I Manage My Credit Card Payments
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One of the ways that I save money is to avoid paying fees on credit cards. These fees can come in the form of:
1. late payment fees
2. interest fees for carrying a balance
I used to pay my credit cards in a very strange way that ended up being very time consuming. I have two credit cards that give me cash back rewards and I used them for ALL purchases and bills.
I started off with having a zero balance on the cards to make sure that I did not already have interest pending. I then had regular payments like the rent set to go out on specific days every month so that I did not have to worry about those payments. These payments were set to go out of my Electric Orange account one week after the actual date so that I would have the float time to earn interest on my money but the credit card would still get paid before the due date so that I would not pay interest fees.
I would put items like gas and groceries on the credit cards as well since I could get cash back for making those purchases. I would then log into my ING account every time I made a purchase and send a check for that amount to the card. This was also set to go to the card about one week later, to take advantage of the float.
This method meant that I had a few payments going to each card on numerous days during the week. If you note that I go to WalMart every Sunday to get groceries (I like bananas kind of green instead of riper so I need to buy them every week) then there were at least four payments for groceries going to a card.
It became time consuming (and a bit nerdy) to log in each time to send checks off so I decided to change the way I pay the credit cards.
I took a look at my zero based budget to get an idea of what I spend on each card every month. I found that with all of my regular payments I spent a certain amount of money on card X and a certain amount on card Y each month.
I then decided to simplify my payments even more. I took the approximate total that I spent on each card every month and divided it into four payments. This total included:
2. budgeted amounts like gas, food, and toiletries
I then set up four monthly payments in ING to go out every Monday for those averages. I actually reduced the amount a little bit so that if by the time the final payment needed to go through and I had not spent that much then I would not be overpaying the card.
Both of those cards have the same due date (yippee!!!!) so I only needed to check the balance left on them at time. If they still have a balance on the due date then I would make an online payment to get the card to zero and avoid any finance charges for the month.
Let me illustrate this a bit more clearly. I found that on card X I was spending about $220 a month with both fixed and irregular spending. I set up four automatic payments of $45 each from ING. The fourth payment clears one week before the due date so on the due date I can log in two days before the due date (11th of the month).
If by the due date I had spent less than $220 then the four payments should have it covered. If I had spent more (and gone over budget…which is BAD) then I could just pay the difference in an online payment and have it clear on the due date.
I know it sounds complicated now but I am starting this new style in December 2008 to see how it works out. I know that I will need at least one full cycle to see how efficient it is and see if I need to make any changes.
Since the payments are all handled through ING I can always go back in and edit the monthly payments as needed with a few simple clicks.
Have you changed the way you budget or are you still using the same budget you always have?
I think I get too excited about my budget…well at least Baz seems to think so!