The Best Credit Card Ever!

I know, it sounds like a typical marketing ad, tricking customers into debt … but I do think I’ve found the best credit card for people. You’ll find however that my credit card offer is a bit deceiving as well.

If you use credit cards, haven’t you ever dreamed of being in the position of the credit card companies? I mean the part where they’re making money on their money, not the part about ruining peoples lives. I’ve found a way to do this, but it takes a lot of self discipline to pull it off and make it work.

I’ll start off with a little background first. I’ve been saving with ING Direct with their Orange Savings account since 2004. I’ve always been happy with their service and they typically have always been in the top 10 of national banks as far as the best rates for savers. Once you start saving and you see your money start growing, well it has a certain affect on your spending habits. I’d much rather save my money than spend it.

Even though I’ve always been a big saver, I’ve also carried around credit cards and used them frequently as well. I normally always pay off the balance every month before the grace period, but there are times during the holidays or on vacation where I think some of us, including myself go a bit overboard in the spirit of things. I’ve realized that paying money to spend money really is a lousy deal. That’s not a break through when it comes to ideas, but debt really is a horrible thing for consumers. Lenders obviously feel differently. My idea after really sitting down and thinking about this was, why can’t I be the lender? I’m not talking about starting up a bank, but why can’t I play both the role of borrower and the lender with my own finances and spending?

Here’s what I did:

Already being a customer with ING Direct, I decided to open up an Orange Checking account. The Orange Checking account allows you to pay bills online for free, write checks online, withdraw cash from ATM’s, make purchases in the store and online, and it even provides you with a pretty reasonable interest rate for a checking account. Right now the current interest rates for the Orange Checking is somewhere between 1.75% and 3.4%, depending on your account balance.

I started an automatic deposit of $100 per month into this account. Now that I have a debit card with the account, I consider this to be my “Eric’s Bank Credit Card”. My intention for this card is to use it whenever I would think about using a credit card from a real bank. If I use the card for a purchase, I pay myself back interest on the card for the use of my own money. I chose a simple rate of 1% per month for simplicity purposes, you could choose a different rate. So if I spend $100 on this card, I end up paying back $101 if I pay it off within a month. I keep track of my outstanding balance debits from month to month and add 1% to the outstanding debit amount every month. I don’t compound interest from month to month for simplicity reasons as well. What ends up happening is that my money grows if I don’t use the card, but it grows even more if I do. I think this is better than just spending from savings because if you treat this like a credit card, you’ll probably be more inclined to pay it back.

I find that there’s even more benefits. Not only am I saving and growing money with this card, but I’m saving even more by not paying the finance charges to a regular bank for the use of their money via their credit card. There’s also no excessive cash advance charges if you choose to get cash, but I still pay it back with interest. If you can see the whole picture here, you should truly be able to see the large scale benefits. I also realize that this takes a lot of self discipline to manage, but so should using any type of credit card.

You can spend, but you have to pay to spend, which actually can help your savings as well. I’m not saying that spending is a good thing, not spending the money is far better than spending it even if you have to pay yourself back the interest. I do think however that it’s better than the real credit card alternative.

I can imagine the thoughts of some readers out there, “I don’t have the type of money to fund a balance that would be needed to replace my existing card.” Well, that’s why I started with $100 a month as an automatic deposit. After only 5 months you’ll have $500 or more depending if you use the card along the way and with the interest that you’ll accrue. Eventually after over a year, you’ll have over $1200 for sure, unless you slip up a bit with the repayments.

The key here is that even if you do slip up while using this card, you might deplete some of the balance, but at least you are not digging yourself into debt.

I’ve found that I don’t need to use my real credit cards anymore, and next month they are all getting canceled and cut up. But what about needing a real credit card for emergencies? I agree with Dave Ramsey in the fact that an emergency is the absolute wrong time you want to use a credit card and carry a debt. Besides, if you stick to the plan for a few years, you can easily have a card with a $5000+ balance that’s an asset and not a liability. It’s earning you money rather than costing you money.

What do you think?