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What I Most Don’t Like about Credit Cards: Betting on the Come

Craps_table_layoutWhen it comes to finances, I have two exceptionally bad habits. One is to overcomplicate things (which you surely have observed if you’ve been around this blog any length of time). And the other is to just let things go if the status quo sort of works. In the credit card department, there’s something I’ve been letting go for years, a status quo that I’ve always disliked, that I managed to break free of once about 20 years ago (the first time I figured to be camping under the Seventh Avenue Overpass), and that I allowed back into my life after I got a job with a steady salary.

To wit: If a credit card’s billing cycle doesn’t happen to coincide with your budget cycle (which it never does), then at least a portion of each month’s charges amounts to a loan against next month’s income. In effect, every time you charge something during a certain part of the billing cycle, you’re betting on the come: that the income you expect actually will materialize.

And you know…that’s not necessarily a sure thing. Even when you pay off your credit-card bill every month, this hiatus puts you at some risk of one day not being able to do so.

All the time I was working for the Great Desert University, I thought betting on the come pretty much was a sure thing. Even when a layoff loomed, the university owed me so much money that I had little concern about making the transition from paychecks to (too-goddamn-early) Social Security. So I didn’t do anything about the fact that the credit-card billing cycle ran from the 21st of any given month to the 20th of the following month, while, because of the way Social Security and adjunct teaching income were paid, my actual budget ran from the first of a month to the last day of said month.

As a consequence, everything that is charged from, for example, August 21 to August 31st is paid with September income — because the August-September credit-card bill shows up along about the end of September.

While it’s not untenable — it’s been working fine ever since I was canned at the end of 2009 — still, it makes me itch.

Because, being the wacko paranoid that I am, between you and me and the lamppost I don’t think there’s any guarantee that those Social Security payments, which cover all my discretionary budget, are a sure thing.

Come the end of Obama’s second term — which before you know it will be upon us — the crazy Tea-Baggers will go all-out to get more of their avatars voted into office. Even if they fail to get one of their colleagues into the White House, they very well could win enough seats in Congress to tie up the business of government even worse than they already have done. Which is quite enough, thank you.

As we’ve seen, this set feels no compunction about shutting down the federal government to get its way. Matter of fact, shutting down the government is, according to their utterances, what some of them covet. That veterans, seniors, retired government workers, disabled people, the unemployed, and the poor depend on benefits emanating from said government is of little or no concern to them.

So even though I don’t expect my Social Security check not to show up, neither do I think that eventuality is impossible. And that is what makes me itch every time I charge something on the AMEX card between the 21st of a month and the 1st of the next month.

I’ve asked American Express if we could please adjust the billing cycle so it runs from the first to the thirty-first. No way, said their CSR. So I resigned myself to the disjunct and each month have been paying 10 days worth of expenses out of the following month’s income. Even though I hate that.

This policy is probably deliberate. Think about it: a credit-card billing cycle that opens a few days before the start of a normal month-to-month household budget cycle predisposes customers to disconnect from their budgets, leading them to spend more than they can afford. Et voilà: interest payments. Highly profitable for the credit-card issuer.

Recently, while contemplating a scheme to use cash to avoid small, junk credit-card charges, it occurred to me that I could kill off the disjunct annoyance…simply by using cash only between the 21st of a given month and the first of the following month. In other words, discretionary costs would be charged on AMEX if they occur between the first and the 21st. But those that occur during the ten days that AMEX wants me to bet on the come (from the 21st or 22nd to the last day of the month) would be paid for in cash.

Thus I would never borrow against next month’s income to pay this month’s bills.

I like it.

The goal: Stop borrowing against next month’s income for the last 10 days of this month’s purchases.

Advantages

No more betting on the come against next month’s income.
Whatever day the new billing cycle occurs no longer matters! (American Express vacillates unpredictably between closing its billing cycle on the 20th or the 21st. By the 20th, I’m typically out of food and need to go to Costco or at least a grocery store. Indeed, last month I assumed the new cycle would begin on the 21st and had planned a full day of errands spanning the Valley from Scottsdale to the near Westside. Luckily, moments before flying out of the house, I called and was informed by a CSR that the July/August cycle ended at 11:30 p.m. that night! In-flicking-FURIATING.)
Chances of overspending are reduced to almost nil.

Disadvantages

The estimate of discretionary spending in the last 10 days of the month will have to be accurate.
The AMEX budget will have to be much smaller.
Records of AMEX & MasterCard charges will have to be more accurate than they have been.
Online purchases will be verboten during the last 10 days of the month.
This scheme will reduce the annual AMEX kickback.

The Strategy

1. Calculate the amount needed between the 21st and the 1st.
2. Subtract that amount from the total discretionary budget.
3. Charge all discretionary items between the 1st and the 21st.
4. Pay cash for all discretionary purchases, except extraordinary costs paid from a different kitty, between the 21st and the 1st.

But…how on earth to make it happen? The bet-on-the-come pattern has been going on so long hereabouts that it’s come institutionalized. And my budget is calculated to the penny: I don’t happen to have an extra $350 (discretionary spending prorated over ten days) sitting in the checking account. The short-term emergency fund has been drawn down to barely a thousand bucks — way too low — by the usual array of harassments that invariably occur during the summer, when routine costs hit the stratosphere. So making the transition from the enforced AMEX budget cycle to my budget cycle presented a challenge.

Thanks to the billing/budget cycle overlap, I’ve already spent $363 of my discretionary budget this month, and as I write this, today is only the first. (You see what I mean about betting on the come? It’s only the 1st, and a third of September’s discretionary budget is gone!) The figure is a little high — the budget averages out to $35.48 a day during a 31-day month, and so during the ten days between August 22 and August 31, I should theoretically have spent only $355. But being out of food and everything else, I made a Costco run on the 22nd, and then made an unplanned $80 purchase a day or two ago.

Only two choices presented themselves:

1. Try to charge nothing for 10 days at the end of September, getting by on only $180 in cash for that period.

…or…

2. Pay off the $363 from savings and reset the discretionary budget ($1100) starting on September 1.

The first option called for another spate of asceticism, a habit of life that has become, shall we say, tiresome. It meant all food and gasoline would have to be purchased before the 21st, and just one emergency bill could break the bank. It also delayed the escape from AMEX’s dictatorship a full month.

However, short-term emergency savings (in weak moments called “diddle-it-away savings…”) isn’t the only emergency savings fund I happen to have. 😉

A much larger fund, set aside for middling dire circumstances, contains several thousand dollars; it has gone untouched for years.

This made option 2 look pretty darned attractive. And because September is a short month (only 30 days), I’d have a pretty good chance at pulling the scheme off.

So, I transferred $365 from long-term emergency savings to checking and used it to pay off the amount I charged on AMEX in the last 10 days of August. The $1100 discretionary budget now comprises two sub-budgets:

$745, for charges only (on AMEX and MasterCard), covering the 1st to the 20th
$355, to be disbursed in cash during the last 10 days of the month.

In this scenario, I’ll never charge anything between the 21st and the end of any month (unless it’s some truly huge emergency). Discretionary costs during the last week and a half of the month will be paid in cash. If any money is left over from the cash disbursed to cover costs during this period, it will be transferred to short-term emergency savings. Once I’ve repaid the $365 to long-term emergency savings, that is.

CreditCardBudgeting

So, say I took out $355 on January 21 and only spent $250 between then and January 31: the $105 difference would go to short-term emergency/indulgences savings. This habit plus the monthly $200 contribution to that fund would plump up that little savings fund pretty quickly.

While it doesn’t allow me to use cash to eliminate the ditzy little credit-card transactions that I hate keeping track of, it will have the effect of reducing the total number of transactions. And since I usually exercise a great deal of restraint during the last week or so of the month, probably a fair amount of the cash budget will end up back in savings. And — mirabilis! — it will bring a stop to borrowing against next month’s Social Security check to pay this month’s bills.

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Dice used in craps: Roland Scheicher. Public domain.
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16 thoughts on “What I Most Don’t Like about Credit Cards: Betting on the Come”

  1. I’m surprised that AmEx wouldn’t let you change your billing cycle end date. I did this with my Chase and an old AmEx corporate card ages ago and it was no big deal, just a simple phone call in both cases. Did you try escalating the request to a CS supervisor?

    • She said it couldn’t be done — that American Express doesn’t do that.

      Never entered my mind to ask to speak to a supervisor. Besides, I’ve found that when you escalate, they just put you on hold for ten minutes and then hand you off to another CSR, who repeats what the first one said.

  2. OK, I just dont get this. Why would you forbid online purchases during the second half of your billing cycle? As long as you HAVE the cash, you dont need to SPEND cash. You just need to have the money in your account to pay for whatever you ordered.
    Then, it can happily sit there until whenever your credit card is due.

    • First 10 days of the next month’s billing cycle, actually. From the 21st to the 1st, anything charged on AMEX is paid out of the following month’s income. The game here is to avoid running up +/-$300 that amounts to a loan to be paid a month and a half hence, when I really can’t be sure, absolutely dead s ure, what my financial situation will be. I want my budget cycle to coincide with my billing cycle.

      Since I can’t pay online with cash — you have to charge it (I don’t use a debit card and even if I did you can be real sure I wouldn’t use it online) — then between the 21st and the last day of a given month, I’ll have to defer online purchases into the following month.

  3. You really do make your financial life far more complicated than it ought to be. No matter how much you compartmentalize your funds, money still is entirely fungible. If you can afford to buy something, whether you buy it on the 19th or the 22nd of any given month really doesn’t made a bit of difference in the overall scheme of things. It’s just a matter of timing. Why don’t you take $1,000 from you savings and put it into your checking account and just “pretend” it isn’t there. If you’re short one month for the amount you need to pay off your AmEx charges, just write the check (assuming it’s not so large that the $1,000 cushion won’t cover it) and enter the negative number in your check register (or wherever you document the balance) and then let it catch up the next month. It really is quite easy and it makes budgeting much easier.

    • 🙂 That’s EXACTLY what my ex-husband used to do with hour checking account. Only problem was, he never told me about it, nor did he ever lit me know how much “off” the checkbook’s bottom line really was.

      This would be the same ex- that ran us $1 million into debt. Admittedly, we were only three-quarters of a million in debt by the time I ran out the door, but… LOL! It’s left me a bit hypersensitive about debt of any kind, for any period of time.

    • Actually, as I think about the fungibility point, I’m reminded of the difficulty I have in making it work for me.

      To my mind, money is finite. And although it may seem to be fungible, it really isn’t, especially if a savings account is dedicated to a specific purpose, such as, say, future dental bills or car repairs. The scenario looks like this:

      In Month 1, I have $xxxx to live on.

      In Month 2, I will have $xxxx to live on.

      Also, I have a credit card that lets me spend $xxxx + $12,000.

      My heartfelt goal is NEVER to pay usurious finance charges to a credit-card company. That goal actually imposes a limit on each month’s spending: a limit of $xxxx.

      If in Month 1, then , I spend $xxxx + $500, I then have $xxxx – $500 to live in in Month 2. But in month 2, I actually need all of that $xxxx to buy groceries, cover the utility bills, and live with a modicum of comfort. An extra debit of $500 puts a crimp on an already modest lifestyle.

      If I use my savings to pay the $500, yes, it’s true, I still have $xxxx to spend in Month 2. However, my savings account is now down by $500. To replenish it, I either have to take $500 away from Month 2, or I have to take smaller amounts away from Months 2, 3, 4, 5,…and so on to infinity. If my teeth have to be fixed in Month 3, I may not have enough to pay for it…and lo! Now, to pay the dentist I have to go into debt to the voracious credit-card lenders.

      I don’t see that as fungible. To my mind, it’s pretty limited, and the only way to stay out of debt is to avoid borrowing against future incoming funds…which in the worst case may NOT come in.

  4. When I retired my “paycheck” went from bi-weekly to the first of the month. I called all credit cards, mortgage company, etc. Every company (except the utilities) was able to change my date, even American Express. It can be confusing because credit cards go by due date, not closing date. The closing date varies according to the number of days in the month. The due date remains the same. I have mine all close between the 27th-30th. When I get paid on the first all charges are in. Bills paid in full.

    For your scenario, have American Express push your DUE date forward one week or even 10 days. There is NO reason for them to tell you NO.

    • That sounds sensible.

      If you check on the AMEX credit card FAQ website, they say they’ll change these dates IF your account is “eligible.” No explanation of what counts as eligible — they suggest simply calling and asking.

  5. This does seem very complicated. As you do have your emergency fund, can you get ahead a cycle? I’m set up (although it took me a few cycles) so that my current charges are not waiting on my next paycheck — that would make me too nervous. Although I pay it all off in one chunk when the billing cycle ends, I have the cash in my checking account when I make the charges, so it’s not a concern.

    • ooohhhh that’s ingenious! In other words, let’s say you had a $1,000/month credit-card budget (i.e., “this is the amount I will spend using thus-&-such a card in a given month, and no more”), you would prepay $1,000? So there’d always be a $1,000 credit. If you lost your job, you’d at least have a month’s free ride (heh…as it were!), and in the event of an emergency charge, you’d be less likely to overspend the account. On the last day of the billing cycle, you have to go to the ER; they make you pay the $500 deductible up-front, and even though you’d already charged $999.95, the unplanned $500 bill doesn’t run you into the red. At least, not on the card issuer’s books. Nice idea…self-insurance!

  6. OUCH!! My head hurts…wow…this makes things really complicated. My thought is no matter what, you have certain needs no matter if you need to purchase on the 21st …31st….or the 1st….and as others have said as long as you have the cash to pay the bill..who cares. Now if you didn’t have the money and had to carry a balance that would be another story. Aaaand as others have said, Amex has also offered to let me set my cutoff dates for my card. And for the record the fine folks at Amex do an outstanding job. I do pay a fee for my card BUT if you ever have a problem….you have someone definetly in your corner. I just like using the CC’s for as many purchases as I can…to get the rewards dollars, double my warrranties on purchases and to have an excellent log of spending …where it took place and who did the spending. Works out great tax time!

    • Amex really does have good customer service…well, at least in my experience (can’t speak for the anyone else). I sure could ask again if they’d change the closing date/billing date. What’s the worst that could happen…they say “no” again???

  7. It is absolutely worth calling and asking again. Do not mention that you called previously with the same request. Just ask (as if it is your first request) if they will change your due date. I have found on more than one occasion that sometimes you get someone who gives you incorrect information. Definitely worth another ask, I say!

  8. I got my Amex bill today–my closing date is the 25th. It is not due for 3-4 weeks. If I wanted to pay for charges up to the first of Sept, I could check online–or call–and pay for the remaining charges. That would keep it within the month.

    I wonder if your due date issues have to do with its being a Costco Amex.

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