Rich Habits Podcast - Episode 114: Swipe Smart; Using Credit Cards Without the Debt

Release Date: April 21, 2025
Hosts: Austin Hankwitz and Robert Croak
Description: In this episode, Austin Hankwitz and Robert Croak delve into the effective use of credit cards, dispelling common myths and providing a comprehensive guide to leveraging credit cards without falling into debt. They explore essential credit card terms, strategies to optimize credit utilization, and how to maximize card perks responsibly. Additionally, the hosts address real-life financial dilemmas submitted by listeners, offering actionable advice rooted in their extensive business and financial expertise.

1. Demystifying Credit Cards: Beyond the Stigma

Robert Croak kicks off the episode by challenging the long-held belief that credit cards are inherently traps leading to debt. At [01:53], he states:

"We're going to share with you the blueprint of using credit cards wisely and demystifying the stigma that credit cards are the gateway drug to bad debt."

He emphasizes that while misuse of credit cards can lead to financial woes, understanding and strategic use can unlock valuable rewards and perks.

Austin Hankwitz reinforces this perspective, highlighting that credit cards should be tools for managing everyday expenditures rather than avenues for overspending:

"Do not open credit cards to spend money. You don't have to try and accrue reward points in miles because you think it's going to make you rich."

2. Understanding Essential Credit Card Terms

To effectively use credit cards without incurring debt, Austin and Robert break down several critical terms and concepts:

a. Statement Date ([05:22] Austin Hankwitz)

• Definition: The date when your billing cycle ends, and your credit card issuer generates your statement summarizing all transactions, fees, and the total balance accrued.
• Key Insight: Regularly reviewing your statement helps track spending and spot any discrepancies or fraudulent charges early.

"Always look at your statement every month to understand what you spent, where you spent, and to spot any errors."

b. Due Date ([07:38] Robert Croak)

• Definition: The deadline by which you must make at least the minimum payment to avoid late fees and penalties.
• Strategy: Aim to pay off the entire balance by the due date to avoid interest charges. Setting up autopay can help ensure timely payments.

"Always pay by the due date, ideally in full, to avoid the interest and the fees."

c. Balance and Credit Utilization ([11:38] Robert Croak & [12:30] Austin Hankwitz)

• Balance: The total amount owed on your credit card at any given time.
• Credit Utilization Ratio: Calculated as your balance divided by your credit limit. Keeping this ratio below 30% is crucial, as it significantly impacts your FICO credit score.

"Your credit utilization ratio makes up 30% of your FICO credit score. Keep it under 30% to maintain a healthy score."

d. Interest ([14:31] Austin Hankwitz)

• Definition: The cost of borrowing money on your credit card, expressed as an Annual Percentage Rate (APR).
• Important Tip: Avoid accruing interest by paying off your balance in full each month. If you can't, prioritize paying off high-interest debt first.

"Never go out and get a cash advance on your credit card because the interest begins accruing the very moment you take the cash."

e. Credit Limit ([17:39] Robert Croak & [19:39] Austin Hankwitz)

• Definition: The maximum amount you can borrow on your credit card.
• Advice: Just because you have a high credit limit doesn't mean you should utilize it fully. Overutilization can harm your credit score and signal financial instability.

"Don't max out your credit cards ever. High utilization hurts your credit score and is a sign of overspending."

3. Navigating Common Credit Card Fees

Understanding the various fees associated with credit cards is essential to avoid unnecessary costs:

• Annual Fees: Charged yearly for premium cards offering enhanced rewards and perks. Often offset by the benefits if used wisely.

  "Nine times out of ten, you can figure out a way to offset those fees with these perks."

• Late Payment Fees: Penalties for missing payment deadlines, typically around $40.

• Balance Transfer Fees: Charged when transferring balances from one card to another, usually 3-5%. While it provides a 0% interest period, the initial fee must be considered.

  "If you do a balance transfer, you're paying about $250 to transfer a $5,000 balance to another card."

• Foreign Transaction Fees: Applied when making purchases abroad, usually 2-3%. Important to check if your card offers no foreign transaction fees, especially if you travel frequently.

4. Maximizing Credit Card Perks Responsibly

Credit cards offer various rewards and perks that can add significant value when used correctly:

• Rewards Points and Miles: Earn points through everyday spending, which can be redeemed for travel, merchandise, or cashback.

  Austin's Strategy: Utilizes AI tools like Grok (G-R-O-K.com) to plan and maximize the use of his accumulated points for significant rewards, such as all-inclusive vacations.

  "I put my everyday spending on a new credit card to earn points, which I then use to plan a $17,000 all-paid vacation."

• Premium Card Benefits: Higher annual fees often come with exclusive perks like travel credits, lounge access, and insurance benefits.

  "With premium cards like Chase Sapphire Preferred and American Express Gold, the annual fees are often offset by the valuable perks they provide."

Robert's Insight: Emphasizes the importance of reading the fine print to understand and fully utilize the benefits without falling into fee traps.

"Always read the fine print before you sign up for a card. You can avoid these fees by paying on time and choosing cards with no foreign transaction or no annual fees."

5. Real-Life Applications and Listener Q&A

The episode transitions into a Q&A segment where listeners present their financial challenges, and Austin and Robert provide tailored advice.

a. Katie's Dilemma: HELOC and Credit Card Debt ([31:07] Robert Croak & [33:02] Austin Hankwitz)

Situation:
Katie has a rental property and used a Home Equity Line of Credit (HELOC) to invest in a struggling business. She now faces high-interest credit card debt alongside the HELOC and seeks advice on whether to sell the house and address the debts.

Advice:

• Robert Croak: Recommends evaluating if the business has sellable assets to cover debts and suggests considering a thorough financial inventory before making significant moves like a 1031 exchange.

  "Do a complete inventory of where you're at and make drastic changes to stop the bleeding as soon as possible."

• Austin Hankwitz: Agrees with selling the property to pay off the HELOC and credit card debt, stressing the importance of avoiding high-interest debt to invest in uncertain ventures.

  "Use the equity from selling the rental property to pay off the HELOC and the credit card debt."

b. Tina's Retirement Planning ([36:04] Austin Hankwitz & [42:58] Robert Croak)

Situation:
Tina and her husband earn a substantial income and aim to retire by 55. They have significant savings and investments but are unsure whether to focus on backdoor Roth IRAs, maxing out their 401(k)s, or investing in 529 plans for their children's education.

Advice:

• Robert Croak: Emphasizes the importance of maximizing 401(k) contributions, utilizing backdoor Roth IRAs, and contributing to taxable brokerage accounts for additional growth.

  "The match beats Roth, beats taxable. Max out your 401(k), then contribute to Roth IRAs."

• Austin Hankwitz: Advocates for 529 plans to invest in children's education, highlighting potential tax benefits and the option to roll over funds towards children's Roth IRAs if necessary.

  "529 is a great way to invest towards your kids' future. You can roll over up to $35,000 from a 529 account to your children's Roth IRAs."

c. Ali's Real Estate Strategy ([44:33] Robert Croak & [49:11] Austin Hankwitz)

Situation:
Ali and her husband earn a joint income of $280,000 and have been successfully house hacking with a triplex. They seek guidance on their next steps after building their financial base, considering purchasing another multifamily property versus single-family homes.

Advice:

• Robert Croak: Supports continuing with multifamily property investments, leveraging programs that facilitate growth, and emphasizes the substantial cash flow and capital appreciation potential of multiple units.

  "With multifamily properties, you could eventually have $10,000 a month in cash flow and benefit from capital appreciation."

• Austin Hankwitz: Encourages maintaining aggressive investment strategies to build wealth early, stressing the importance of not slowing down despite current successes.

  "Don't hit the brakes now. Use this time before major life events to build wealth for your future."

6. Final Thoughts and Encouragement

Both hosts conclude the episode by highlighting the importance of strategic financial planning and disciplined credit card usage. They encourage listeners to leverage credit cards as tools for financial growth while maintaining vigilance to avoid debt traps. The Q&A segment underscores their commitment to providing practical, experience-based advice to help listeners navigate complex financial landscapes.

Austin Hankwitz reflects on his personal journey:

"I'm so thrilled to hear that people are taking notes and taking action. They're house hacking, doing the Roth IRA, doing the Neos funds, doing side hustles—these small daily actions compound into significant wealth over time."

Robert Croak adds a motivational perspective:

"It's never too late to get started, and it's never too early. Implement these strategies to set yourself up for financial success at any stage of life."

Key Takeaways

1. Use Credit Cards Responsibly: Treat them as tools for managing everyday expenses, not as avenues for overspending.
2. Understand Key Terms: Grasping concepts like statement dates, due dates, balance, interest, credit limit, and credit utilization is crucial for effective credit management.
3. Avoid High-Interest Debt: Pay off balances in full each month to prevent interest accumulation and maintain a healthy credit score.
4. Leverage Rewards Wisely: Maximize credit card perks and rewards through strategic spending and utilizing AI tools for planning redemption.
5. Strategic Financial Decisions: Whether addressing debt, planning for retirement, or expanding real estate investments, informed and disciplined decisions are vital for long-term financial health.

Note: This summary excludes promotional content and advertisements present in the original transcript to focus solely on the valuable financial insights provided during the episode.