Netflix Method for Building Credit

Sticking to a budget is easier when you know how much you are going to pay each month.  That’s why subscription services are so great, you don’t have to budget in the number of times you use the service.

Just like the Gas Method of building credit, my completely un-patented and unoriginal “Netflix Method of building credit” is a way to keep credit card usage consistent. Putting a subscription service on your credit card could be a good way to budget your credit usage, but like all credit tips, it can come with its potential risks.

How to do it?

1.) Set your payment method for Netflix (or any other subscription service) on auto-pay with your credit card

2.) Use Netflix (as we all do)

3.) Remember to pay it off every month!

The 3rd step is the real kicker. If you forget that you paid for Netflix on your credit card, the payments could add up and gain interest! Thankfully, a Netflix subscription is cheaper than a tank of gas a month, so forgetting it isn’t going to blow your credit if you only forget once. But forgetting for a year or more could easily begin to put you hundreds of dollars in debt.

Is this right for me?

If you like having a steady, consistent budget and have a good memory then I think this is a great budgeting technique. But, I do know it’s already easy to forget about auto-renewing payments and having one on a separate card than your regular account does make it hard to remember. Someone on a tighter budget may not find it worth the hassle of remembering.

Is it Good to Close Credit Cards?

Yes! But also, no! Like everything, it depends on your financial situation.  You may think about closing a credit card that you don’t use anymore, but that could hurt your credit score.

Pros:

Closing your card gives you one less credit card to worry about.  Whether you worry about missing a payment or having the card lost/stolen.  If you have one card that you consistently miss payments on, it’s probably best to just lose the card.

Cons:

Your credit score increases the older it is.  If you close your oldest credit card, your credit score will likely drop.

Also, dropping the card will decrease your overall available credit.  That means any credit you do use on other card will have a larger effect on your total credit usage; which is a number you ideally want to keep low.

Alternatives:

Instead of dropping the card completely, you could make a single purchase once every few months.  Don’t ignore the card completely, or the bank will close the card for you. If you have some other credit cards that are about the same age, then it shouldn’t affect you too much to drop one. I would just try to keep my oldest card, until my next oldest is at least a couple of years old.

Is it worth it to use a Coinstar?

Coinstars offers a helpful service for a very costly fee.  At 11.9% you can have your coins converted to cash at your local grocery store.  Although I’m all for saving every bit of money you can, sometimes the Coinstar is more convenient.  Also, it’s better to have the money in easy to spend dollars than sitting on your shelf.

Here’s when it’s worth it to go to the Coinstar:

Your personal bank doesn’t have a coin machine.

Some banks have coin machines where you can convert your change into cash for free. Personally, I haven’t seen one in any of the banks I’ve been to, but it’s worth it to call and ask around.  If a local bank has a coin machine that you don’t have a bank account with, you can make an account, but this is pretty drastic unless you are converting large sums of change consistently.

You have under $100 in change.

If you have a small amount of money, it’s better just to take it to the bank.  If your bank doesn’t have a coin machine you can ask the teller for coin wrappers to hand-roll them. I’m not going to sugar coat it.  Rolling coins is a bitch. The first few minutes can be very relaxing, but over $100 it becomes a pain to roll and to transport it to the bank.

You don’t have lots of free time.

Going to the Coinstar and paying the 11.9% fee is sometimes worth it just for the amount of time it saves you.  However, if you have a lot of free time, there are tons of fun things you can do with the coins as you roll them.  Look for interesting dates or coins with a high silver content. I always look for wheat-back pennies and war nickels.

You shop at a few places consistently.

GIFT CARDS! Check the Coinstar website to see if any places you shop at offer gift cards from the Coinstar kiosk. The best part is, if you convert your money to a gift card, you don’t have to pay the fee!  This is definitely the best option, but be warned that not all Coinstar kiosks offer the same gift cards.  I always convert mine to an Amazon gift card, because it gives me the most options.

You want the silver content.

Because of the way Coinstar evaluates the coins, it will reject most silver dimes, quarters, nickels, and half dollars. You can sell these online or keep them for their solver content. There is some dispute online about what machines reject silver.  But currently, the consensus seems to be that almost every green Coinstar machine will reject silver, but some bank machines do not.

You just want the coins gone.

If you just want the coins to stop cluttering off your shelves and are feeling particularly charitable you can use the Coinstar to donate to a charity. The donation you make is tax-deductible. Currently, Coinstar has 8 charities you can donate to including the Red Cross, Feeding America, and the Leukemia and Lymphoma Society.

Whatever you do, make sure to save the receipt.

Do you use Coinstar or prefer to hand-roll your coins?

 

 

The Gas Method of Building Credit

It can be hard not to reach for your credit card when you see a shiny pair of shoes or drive by that expensive sushi place down the block before your next paycheck, but keeping your purchases consistent is the best way to track your credit.  We’ve all put purchases on our credit card that we’ve forgotten about until we check our statement at the end of the month.  These small inconsistencies can be prevented if you use the Gas Method.

What is the Gas Method?

The Gas Method means that you use your credit card only for purchasing gas.  This method works because, for most people, gas is a purchase you have to make once or twice a month and is small enough to not use up too much credit, but large enough that you’ll remember to pay it off.

Did you make it?

No.  I’m just giving it a capitalized name to make it sound more attractive.

What are the benefits?

Because most people use a set amount of gas each month, you are much less likely to be swayed by rewards programs or deals.  Unlike with spending money on groceries or shopping, buying extra gas on your credit card is much less attractive.  It is also easy to budget, because although gas prices and the amount you use may change, it is often within an easy to predict range.

Why gas? What if I don’t drive?

There are many other things you could use to get the same results.  In fact, some people might prefer putting a subscription service on their credit card such as Netflix.  That way, you know exactly how much you’ll be charged each  month.

 

What purchases do you usually make on your credit card? How do you stick to your credit card budget?

Compound Interest: When Less is More

Did you know that you can invest less money, but still end up with more money saved for retirement? Because interest is compounding, money you invest grows larger the longer it is invested.

Here’s a helpful chart to help you understand:

chart

This chart shows $100 growing at 8% annually over 30 years. Compound interest means that the 8% interest rate keeps growing off the interest you earned in all the years prior.  By year 10, your $100 is worth $200!  With simple interest however, you gain $8 per year every year.

Compound interest is the reason why you can invest less money earlier, and get huge gains in the long term.

Take the example of Chloe and Zack.  Chloe invests $2,000 each year from age 20 to 30.  Zack invests $5,000 each year from age 35 to 49.  Zack is investing more money, but Chloe has her money invested for a longer amount of time.  Here’s how their worth compares:

chart (1)

Although Chloe invests $22,000 dollars total, while Zack invests $75,000, she still ends up with slightly more money.  That’s because Chloe’s investment had more time to benefit from the compounding interest. (Interest rate here is 8%.)  Had Zack invested 5,000 for a couple extra years, or started investing a few years earlier, he could have caught up with Chloe, but at a much higher cost.

Not everyone is capable of beginning to invest as early as 20, but everyone should be aware of the benefits of compounding interest.  Retirement is not about being rich, it’s about being money aware.