I love credit cards. They have helped me pay for medical school expenses/tuition on 0% APR, reduced my overall med school debt by 60k in interest, given me lots of cash back & rewards, allowed me to channel my cash flow into my retirement and Mini’s college savings. Thank you, big banks! For giving back to small people once in a blue moon.
While most people see credit cards as the trap/ lock and chain around one’s financial life, when used responsibly and cleverly, one can really turn the table around & use credit cards to free themselves from other higher interest debts such as 6.8% student loans.
Many people are incredulous about my credit utilization style. Here are some numbers & facts…
My credit stats:
- Credit scores from 3 credit bureaus: 780+
- # of credit cards (all you see in the above pile): 52
- # of balance transfer offers with <2% effective annual interest rate (post transaction fee): 10 offers/month
- Late payments*: never in my 18 years of credit history
- total combined credit limit: 250k
- highest credit limit on 1 card: 51k
- revolving debt balance as of 5/18/16: a huge ZERO
Just learned recently that late payments on credit history are not very strict. Payments have to be overdue >60 days before it’s reported to the credit reporting agencies. I have a couple late payments (2-3 days late) in the last 18 years but none impacted my credit score because the credit card companies/banks didn’t report these “late” payments.
I use credit cards for:
- Everything chargeable. why not, simplify my life, gives me cash back or rewards, track my expenses in one place (I usually only use 1/2 cards actively at any time.)
- Cash back: 10-30% of each dollar charged
- Emergency fund: why would I set cash away (idly not making me any return for emergency fund when I can charge onto Citibank Simplicity card and ride the balance 21 month interest free? at the end of 1.75 years, I would have enough money saved in a brokerage to pay it off completely anyways.)
- Fund my 401k, Roth IRA, Mini’s 529: Chase Slate offers 0% transaction fee for me to write a check to myself for anything (up to my credit limit of 25k.)
- Pay off other high interest debt: I initially paid off my student loans when I was rejected by DRB for student loan refinancing (yes, in a few months DRB rolled out product to refinance PGY’s for the first time in history. I would have qualify to refi with DRB if I waited a few months. oh well.)
- Live a little: I will charge Mini’s art studio set up in our new home… enjoy it while paying the costs back in 21 months. For once, gratification is not delayed, pay back is.
A Minimalist’s Approach to USMLE I: You Can Excel in Medical Boards and Beyond.
Key principles to smart credit use:
Cash is King.
Discipline: be realistic with how and when you can pay the credit cards off. Transferring to another card is an option, but paying off is even better 🙂
Take advantage of Time value of $. If you can borrow at -10% to 0% from credit card to fund your ROTH IRA earning 8%… Why not leverage this debt?
Be on the right side of the bank. In other words, Be The Bank. Collect rather than pay interest.
Organization: remember VSAS & ERAS & AAMC? you must be an expert organizer by this point of your medical career. Start a master excel sheet, keep track of your credit card due dates, debt amount, monthly minimum payments. Stay on top of, just a month before, your sweet 0% interest rate (APR) converts to the nasty 29% big banks are waiting for.
Take the bait and bounce before the switch.
Most importantly, know thyself. If playing the big banks doesn’t gyve with you, don’t do it.
Know thy enemy. It’s simple. They want to get 30% more money back from you than what you charged/borrowed. Don’t let that happen.
So what do you think? Comment below.
Doesn’t it reflect poorly on person’s credit score to have a large balance though? How come it doesn’t negatively impact your credit score when you charge the tuition to the new card and let it sit for 1-2 years?
I’m new to credit cards. I got my first card as a junior in college with a $300 limit. Couple years later I qualified for another with a $1400, 0% APR for 18 months.
great question. yes, credit score goes up and down.
but if you use your credit mindfully, and build up a large denominator (in the credit limit), you have much more buffer.
because
carrying 20k debt on 22k total credit limit will negatively impact your score tremendously
yet carrying 20k debt on 250k total credit limit will negatively impact your score just a hair, by 5-10 points… (in my experience)
i didn’t have a large credit limit right when i started medical school, but i built it up over med school simply because i appeared to the banks/lenders as a Big Spender and Big Payer (I paid off cards with working cash flow, serial balance transfers, and student loans occasionally [as last resort because student loans had the highest origination fees and interest rates])
here are a few posts that may be helpful to provide more details…
https://www.drwisemoney.com/2015/03/14/credit-if-you-dont-stretch-it-aint-gonna-grow/
https://www.drwisemoney.com/2015/05/24/timing-credit-troughs/
https://www.drwisemoney.com/2015/03/13/how-i-fixed-my-once-bad-small-credit/
i think the lowest my credit score went down to was 690 at one point (right after i bought my first home as MS4, I opened multiple credit cards and used them aggressively for new AC/roof and pay down my student loans.)
hope this helps. let me know if you have any other question.
Jeez, I find it crazy to believe! How much student loan debt did you start with?
I’m not too certain, I do know that at one point, I had 75k-100k on my credit cards, plus some student loans that were subsidized (we got 8k of sub loans/ year or semester during my med school years). I haven’t looked at my student loan statements since 2015 March… But I’ll try to find the numbers at some point and get back to you!
You say you have “paid off your student loans” in your about section. Does this mean that the balance is physically zero, or that you have shifted your student loan balance onto credit cards at 0% interest?
great question! I did initially shift my student loans to 0% APR credit cards. But thanks to the low cost of living in Tucson, I actually paid off Both my student loans and credit cards at this point. The only debt I’m about to take on is 3% interest rate mortgage on my dream home (2nd home). I should get the keys to my dream home in a few weeks! if you are ever in Southwest, you’re welcome to visit!
Thanks for these ideas (I “found” you from your post at Berkeley Parents Recommendation, btw). I understand that you charge everything using CC, but is it worth in all categories? For example, if you can pay much less (10%) for gasoline in cash, would you still use a CC at another gas station?
wonderful to meet you Selena! yes, i get 10% cash back from discover when i use it for gas (yes you are right about the rotating category, so only 3-6 months of the year I get 10% on discover). the 10% comes for 5% on gas and double cash reward for 1st year anniversary. even if let’s say i only earn 2% cash back on gas when I charge on credit cards, which is pretty standard, if you are getting any less than 2%, time to get a better card.
back to my point, say you get 2% cash back, but you free up that tank of gas money (used to $80 dollars for me when I was in california drying a honda pilot), i get to put borrow that cash for interest free for 15-21 months (depending on which card) this $80 can sit in Mini’s 529 in index funds, bearing at least 8-10% long term annualized return.
conclusion, any day, I would charge all my gas money on cards 🙂 hope this answer your question.
but 10% back paying cash is pretty good too! good job on that! no wrong way to do it.
Agree with the post, I deal with credit cards almost the exact same way.
On a different note – I’m ok with sidebar ads but I “hate” in-text banner ads. Huge reason that I don’t visit KevinMD and WCI as much as I use to. At least with KevinMD, I can just turn on Adblock. But when you self host the ads, I can’t block them. Highly recommend removing in-text banner ads.
thanks for the advice! i’ll look into how to allow self-blocking 🙂
i just though breaking up the texts with colorful pictures is a good idea…
i’m living and learning. always appreciate ideas! especially from my comrade rads/blogger