Credit Cards-The Good, The Bad, and The Ugly

(This is a transcript from my Facebook Live video on March 21.)

Today we are going to talk about credit cards. How they are used and misused. Tips and tricks and the need to reconcile your credit card accounts for both business and personal use.

We can all agree they are convenient. You don’t have to worry about getting to the bank for cash, if you lose your wallet, you can call to have it canceled and there is a legal limit to the loss if you report in within the contractual time, and you might get cash back or airline perks.

But as with most everything else, convenience comes with a price. Merchants are required to pay an ever-increasing fee when you use the card to cover those perks, so they must price their products accordingly.

The easier it is to pay, the more money you will spend. This concept was proven by a study 2008 study by NYU and University of Maryland professors titled Monopoly Money concluded that “the more transparent the payment outflow, the greater the aversion to spending, or higher the ‘pain of paying.’”

If you only have a couple of dollars in your pocket, you may by the burger but forgo the drink. But with the convenience of a credit or debit card, you can get both. Now add in the additional convenience of the Apple Pay type products of not even having to swipe and your purchases go up 20%.

Companies like Starbucks and Uber take it even further. You register your credit card in their app, and now you just place your order. “I’d rather take Uber than the taxi because it’s a hassle to pay the driver” Really??

Then your credit card comes and WOW you’ve really overshot your budget. “Did I not walk anywhere last month? How could I have possibly spent that much on ride sharing?”

If you are consistently overrunning your budget-you do have a budget, right? Try designating an amount you for the thought-free transactions, like coffee and ride sharing, and get that much cash. Pay with cash and when you see you are getting low, you know to dial it back a bit. Once you’ve run out of the cash, you’ll need to ask yourself, is this worth going over budget? Do I need the extras muffin? Would I be better off to get up 5 minutes earlier and make my own coffee? Perhaps I could offer to be the designated driver and take my car out with friends. Save money on both the ride sharing and the alcohol.

Once you get your statement in, you are amazed how quickly those $10-$20 purchases add up and wonder how could you possibly owe that much? You may not. With hackers and credit card scammers, you may still have that credit card in your wallet and someone may be using the number to buy other things.

Last year, I noticed a several charges between $25-$100 at common gas station and grocery store chains. But when I looked closer, the charges were in Tennessee and I’m in NC. Not only that I had bought gas in my hometown around the same day. I immediately called my credit card company and between the two of us, we found over $300 of small charges that had I just glanced at my statement, I would have never noticed. Because I caught it right aways, I was reimbursed, and they issued me a new credit card.

Catching it right away is key. (pay attention to your contractual agreements, they show how far you can go back. The best way to catch these things is to be sure you have receipts for every charge. And if this is a business account, you need the receipts for the item to be deductible.

Use the camera on your phone to take a picture of the receipt and then save it to an album title 2018 Business Receipts.

In case you have never had a credit card canceled, this is a hassle because you have to reset up any recurring charges you had authorized, like your mobile phone bill, websites, etc. That hassle ended up being a blessing in disguise.

I reset the auto pay on the important things and then started getting emails from companies letting me know my credit card was no longer valid on other items. “Had I really been paying for what started as a free trial and I forgot to cancel?”

This booted me into action and I took a better look at my business card as well. There are so many wonderful apps out there to help run your website, but did I really need all of them? It was time to reexamine. And save a bunch.

This leads me to my last point. Reconcile your credit card statements! If you use an accounting system like QBs, you can use the same menu as the Bank reconciliation, just chose the credit card account instead.  This allows you to see that the transactions recorded in the bank have all been recorded in your books and you can attach the picture of the receipts to charge.