Yes you read that title correctly, Self Issued Credit Card, here is how it works.
We should always start out with a small credit balance (Much like the credit card issuers do). Let's start this example with a $300 credit limit (CL) as this is the CL that I received on my first credit card.
Take your $300 and put it in a savings/checking account that is earning interest (Electric Orange from ING Direct is a good place to work yourself issued credit card, let me know if I can send you a link for the free $25 bonus for you and the $10 dollar bonus for me). This amount is your credit limit (As all credit cards (cc) have credit limits and as with any credit card, you should not exceed this credit limit.
The next step is to get a debt card for this account (We have this set up in ING Direct Electric Orange Checking account).
Now, you use your debt card which is accepted everywhere a credit card is accepted and you have your self issued credit card.
The key is to have a plan to pay the balance on your credit card, so, if you charge $35 dollars for a meal, by the end of the month you need to pay that balance back (To bring your balance back up to your max credit limit which is $300 in this case).
You can even set up overdraft protection on your checking account to cover you just in case you do "Over draft" on your self issued account.
Let's look at the Pro's and Con's of this set up.
1. No interest fees paid to a cc for borrowing their money.
2. Interest EARNED on the balance of your credit available that you are not using.
3. No penalties if you do not pay your balance in full at the end of the month, you have the flexibility (As long as you have the discipline) to pay over time.
4. Credit limit increase. This is up to you, when you want to raise it, you simply add more to the account. Just be sure you can afford the extra money which will cause higher payments to replenish the balance. The plus to this is YOU know best what credit limit you can afford, not some credit card company that looks at your credit report. Just be honest with yourself and this will pay off in the end.
5. You will not go in debt.
1. This will not directly reflect your FICO score. Indirectly it will assist you in living debt free.
2. That’s all I can come up with right now.
If you see any more Pro's or Con's please post them so I can add them to the list.
Here is the original post that I made when I thought this up, maybe it will help you better understand.
You put 300 in the bank. This is your credit limit. DO NOT EXCEED THIS LIMIT. Use this money as you see fit, treat it like any other credit card. At the end of the month ensure you pay the balance (You should end up with the 300 in the bank at the end of the month).
When you want a credit limit raise all you have to do is sit down and go over your budget. When you can afford to put more money in yourself issued credit account, then raise your limit. I suggest 500 dollars. Do not go to high to fast as at the end of the month you will not be able to pay this credit card in full.
I know what you’re thinking, how am I going to get to the money? That is a good question; most banks have what is called a Debt card. This card withdrawals the money ON THE SPOT! So you need to ensure you stay within your credit limit.
I would recommend tracking your account daily (5 minutes a day looking at your budget will ELIMINATE any financial induced stress). If you are a once a week or fortnight type of person then you can sign up for what is called "Over draft protection" for yourself issued credit card. If you go over your credit limit there will be a slight fee but you will not experience the embarrassing moment of a card rejection.
Alright, all joking aside, if you save up some money into an account for no particular reason you will have funds for that spontaneous purchase. This is different from your emergency fund, and different from your "I'm buying a car" fund. I usually set aside 50 dollars per month for this fund. I call it my "slush fund". I keep about 300 dollars in the fund (It just sits in my credit union checking account as my "Overdraft protection"). Each month I allot 50 dollars to this fund. If we use it, the 50 dollars goes into the account to replenish the use (No interest paid out to a credit card company). If we do not use the fund during the month, at the end of the month the 50 dollars that is budgeted is recycled into the budget.
You can do this with any amount. Once you establish your budget, your emergency fund and you are debt free. All you have to do is set up your slush fund (Some people call it a blow fund). Get a debit card on this account and use it like a credit card (ONLY UP TO YOUR LIMIT which is the balance that you put into the account). If you use more than your monthly allotment then pay back into this fund as if it's a bill. For instance:
Credit limit (Account balance): $1,000
Monthly allotment (Let's say 10%): $100 (This is the money that you budget for this account)
Let's say you charge $300 dollars
It would take 3 months to make up the money, but what if you charge again next month? To fix this, treat this account like a credit card that you want to pay off ASAP. Once you charge on it, you need to work out an aggressive plan to pay it off ASAP, remember for every day you remove money from this account you are no longer earning interest (Imagine a credit card that paid interest on the balance that you did not use).
I know what you are thinking, “How does this help my FICO score?”. Good question, it doesn’t, well it doesn’t directly. Indirectly it will keep you from going in debt which will keep your loan to debt ratio pretty high. Imagine a life where you do not need a FICO score. A life where you paid cash for everything, a life where the only interest you experience is interest earned.
Think about it
Archive for December, 2008
Yes you read that title correctly, Self Issued Credit Card, here is how it works.
ING Direct has provided three sources of income:
3a. Interest earned.
3b. Sign up bonus.
3c. Debt card use.
3a. INTEREST EAREND: The first is interest earned. As with any interest bearing account ING Direct provides a competitive return for your stored money. When you decide to go with an on-line bank you will usually earn a better return as there is little to no overhead for the bank because they do not need to keep a brick and mortar branch open.
Initially I was searching for a place to store my emergency fund that offered a good rate of return. I found this in ING, what I also found as a bonus was a way to link my brick and mortar bank accounts. Through ING Direct you are able to link up to three external bank accounts that you can transfer money to and from (All for free).
I have been a member since 2004 and have found only one drawback though for some this drawback might be a blessing. The time it takes to transfer money from one bank to the other is approximately 2-3 days. For those of you that need money on the spot this will be an issue, to negate this issue I opted to store $500 dollars in my regular checking account which also is a secondary overdraft protection for my main checking account. For those of you that are compulsive buyers, this drawback might be a blessing as it will take a few days for you to receive your money which in most cases is enough time for you to decide if you really need the item.
BONUS: Watch for a future post of the use of credit cards and interest bearing savings accounts as a form of passive income.
WORK INVOLVED: Open account, link external accounts and deposit money.
COMMITMENT: 30 Days, Initial set up is $250 dollars for a $25 dollar bonus then a minimum of 1 dollar must be maintained in account to earn interest.
PROJECTED EARNINGS: Interest is compounded daily (You can see the money grow in the website) then deposited on a monthly basis. Currently 2.75% APY.
3b. SIGN UP BONUS: ING Direct offers a $10 dollar bonus for each new person/account (Up to 25) that you assist in setting up. Basically you send the offer to a friend or family member and they use the link that you send to set up the account. They must open the account with $250 dollars. Within 30 days they will receive $25 dollars (An immediate 10% profit on their initial $250 dollars, then currently 2.75% thereafter) and you will receive $10 dollars. If you can get 25 people to sign up, you will receive $250 dollars free (They count it as interest income on taxes).
WORK INVOLVED: Once your account is established, contact friends and family and see if they are interested, if they are, just send a link, they do the rest.
COMMITMENT: Maintain at least $1 in account to keep it active.
PROJECTED EARNINGS: $10 per sign up bonus up to a maximum of $250 dollars. Since I have been a member, at one time they reset the number of sign ups. This provided the opportunity for 25 new sign ups.
NOTE: You can also sign up for an electric orange which is a checking account (See 3c below). This account will allow the same sign up bonus as the savings account. If you can find 25 people to sign up for each of these accounts your potential profit is $500 dollars.
Also, if you would like a link for the free $25 dollars feel free to send me an e-mail or post to this thread and I will send you a link: email@example.com
3c. DEBT CARD USE: This requires the set up of an Electric Orange account. The Electric Orange account is a checking account that ING Direct offers. This account is interest bearing but provides less than the savings account (See website for details). ING Direct often has a $20 dollar bonus program that entails you using your debt card that is linked to this account five times within a month. This program does not happen every month so you need to pay attention to your e-mails and watch for it.
WORK INVOLVED: Establish an Electric Orange account; wait for program to be announced, transfer money on planned purchases (If you do unplanned purchases you will not be making any money because you will be spending any profits) to the account, use debt card for at least five purchases for a minimum of $10 per purchase within the month
COMMITMENT: Maintain at least $1 in account to keep it active
PROJECTED EARNINGS: $20 dollars per event (Currently I am tracking that they have done this event twice)
NOTE: We took advantage of this once (We did not see the first one until after the month was over). The bonus was received within the 30 days.
The largest one time "Free Money" that we have earned is $125 dollars. The requirement was to open two accounts with a minimum of $100 (one checking and one savings, both interest bearing), set up direct deposit to the account and maintain the account for six months.
Simple enough. As you can see, the initial cost is $200 dollars. This is where I came up with the $500 dollar goal in the free money account. My objective with this goal is to start with the $500 and see how much I can make it grow. How it will be spent will be determined later on in life, until then, I intend to just have fun.
We have a new credit card with this bank; this credit card has a zero % interest for 12 months. We decided to take a cash advance (At zero percent interest) of $2000 for each account. Effectively we started earning interest on $4000. That said, the opening amount was easily covered at a profit. The next step was the direct deposit, we use my wife’s income for these venues as we live entirely on my income, if there were any issues with her direct deposit we would not have any issues without budget. Another alternative would be to have a 3-6 month emergency fund set up to cover any issues with your direct deposit (That is if your family has only one income). Once her direct deposit was set up we connected this bank account to our ING Direct account so we would continue to have access to her income. Now we just wait for the six month time limit and we can move her direct deposit to another account for a similar mission.
WORK INVOLVED: Research bank account offers, save initial money for set up, set up direct deposit, attach new account to ING Direct so we can still access the money
COMMITMENT: 6 Months
PROJECTED EARNINGS: $125.00 received as soon as the first direct deposit hit.
The simplest way to earn free money comes in the form of interest earned from our savings account. Currently we have three banks with six accounts that earn interest. On the first of the money I transfer the balances into the free money account in ING.
During the past year I have been in Iraq, being over here has offered me a lot of time to think about finances. I decided to develop a "Free Money" account. My goal to produce passive income has been my fuel for the research, within this blog I will enter how we produced the money, how much and what we plan on doing with it.
Our current goal is to simply build $500 dollars in this account.
In order to stick to a budget, there must be a failsafe. The failsafe is your emergency fund. We like Dave Ramseys Total Money Makeover so these are the steps that we are following.
Step one involves saving $1,000 dollars for emergencies. We store our emergency fund in an on line account. Currently we use www.ingdirect.com; our current emergency fund is $1,000 dollars.
Onto the next step.
Hello, my name is Raymond I am married to a wonderful woman and we have one beautiful daughter.
I have been on active duty since 1992 and fully intend to complete at least 20 years.
Our goal is to retire fully at the age of 50 with a pension and $800,000 to $1.2 million in savings/investments. I am sad to say we have a long way to go so hopefully this site will help us learn enough to meet our goals.
This is a learning experience for all so please ask any questions or offer any comments that you might have so we can all learn.