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Published: May 14, 2019 11 min read
Money; Animation by Ruoxue Wang

Can we get real? I'm so sick of the same old personal finance advice to cut back on lattes.

Spending money on small expenses like coffee has been classified as a "luxury" and compared to peeing money down the drain. But instead of worrying about five dollars here and six dollars there, it's more important to actually focus on the things that matter. I call these the Big Wins in your financial life.

It's about being able to spend more on the things you love by not spending money on all the knucklehead things you don’t care about. Look, it’s easy to want the best of everything: We want to go out all the time, live in a great apartment, buy new clothes, drive a new car, and travel anytime we want.

The truth is, you have to prioritize. My friend Jim once called to tell me that he’d gotten a raise at work. On the same day, he moved into a smaller apartment. Why? Because he doesn’t care very much about where he lives, but he loves spending money on camping and biking. That’s called conscious spending.

So let’s dig into tactics for improving your credit, which is quantifiably worth much more than any advice about frugality. Here are 5 ways to focus on Big Wins, not cutting back on lattes.

Big Win: Optimize and play offense with credit cards

Most people weren’t raised like me, so I understand that you probably hate negotiating. Most Americans do. We’re not sure what to say, we get nervous about looking cheap, and then we look at ourselves and say, “Is this really worth it?” In a pool of sweaty discomfort, most of us conclude “No”—and we pay full price.

I have a fresh perspective: It’s not worth negotiating everything, but there are a few areas of life where negotiation is a Big Win. You can go on offense and squeeze as many rewards and benefits out of your credit cards as possible. You’re going to start winning against them. And for the first time, negotiating is going to be fun.

Big Win: Pay off your credit card regularly

Yeah, we’ve all heard it, but what you may not know is that your debt payment history represents 35 percent of your credit score—the largest chunk. In fact, the single most important thing you can do to improve your credit is to pay your bills on time. Whether you’re paying the full amount of your credit card bill or risking my wrath by paying just part of it, pay it on time. Lenders like prompt payers, so don’t give your credit card company the opportunity to raise your rates and lower your credit score by being a few days late with your payment. This is a great example of focusing on what will get you rich, not on what’s sexy.

Think about your friends who search every single website to get the best deals on travel or clothes. They might be thrilled after saving $10—and they can brag to everyone about all the special deals they get—but you’ll quietly save thousands by understanding the invisible importance of credit, paying your bills on time, and having a better credit score.

Today, most people pay their credit card bills online, but if you haven’t set up automatic payment yet, log on to your credit card’s website to do so now. Note: Don’t worry if you don’t always have enough money in your checking account to pay off the full amount on your credit card. You’ll get a statement from your card company each month before the payment goes through so that you can adjust your payment as needed.

Big Win: Try to get fees on your cards waived

This can be a great way to optimize your credit cards, because your credit card companies will do all the work for you. Call them using the phone number on the back of the card and ask if you’re paying any fees, including annual fees or service charges. It should go a little something like this:

Remember, credit card companies compete ferociously with each other, which can benefit you. Call them a month before your new annual fee kicks in and ask them to waive it. Sometimes it works, sometimes not.

If you decide that your credit card fee isn’t worth it, ask your credit card company what they’ll do for you. If they waive your fees, great! If not, switch to a no-fee card. I suggest you do this at the same credit card company to simplify your life—and so you don’t have to close one account and open another, which will temporarily affect your credit score.

Big Win: Negotiate your credit card APR

Your APR, or annual percentage rate, is the interest rate your credit card company charges you. APRs fluctuate, but in general, they hover around 13 to 16 percent. That is very high! This makes it extremely expensive if you carry a balance on your card.

So, call your credit card company and ask them to lower your APR. It works surprisingly often, and if it doesn’t, so what? Just call your card companies and follow this script:

It doesn’t work every time, but when it does, you can save a significant amount of money with a five-minute conversation.

Big Win: Keep your main cards for a long time, and keep them active—but also keep them simple

Lenders like to see a long history of credit, which means that the longer you hold an account, the more valuable it is for your credit score. Don’t get suckered by introductory offers and low APRs—if you’re happy with your card, keep it.

Some credit card companies will cancel your account after a certain period of inactivity. To avoid having a card you rarely use shut down, set up an automatic payment on it. For example, I set it up so that one of my credit cards pays a $12.95 monthly subscription through my checking account each month, which requires zero intervention on my part. But my credit report reflects that I’ve had the card for more than five years, which improves my credit score. Play it safe: If you have a credit card, keep it active using an automatic payment at least once every three months.

Now the one tricky part: If you decide to get a new card, should you close your old card? I’ve changed my view here over the years. The typical advice is to keep cards open for as long as possible, which is generally smart. But if you have lots of cards that you never use, reconsider this.

Some of my readers have opened over twenty-plus cards to “churn” rewards, and now they can’t keep track of all their cards. This is where you have to make a decision on risk versus reward and simplicity versus complexity. There’s lots of advice warning against closing credit cards, but as long as you’re paying your balances on time and have good credit, closing an old card will not have a major long-term impact on your credit score.

Think balance: For most people, having two or three credit cards is perfect. If you have a special reason to have more cards—for example, if you own a business or are intentionally maximizing temporary sign-up rewards—great.

But if you find yourself swamped with the number of cards you have, close the inactive ones. As long as you have good credit, the long-term impact will be minimal and you’ll sleep easier at night with a simple financial system you can easily keep track of.

Excerpted from I Will Teach You to Be Rich by Ramit Sethi (Workman). Copyright © 2019