i just had an idea!

why not pay your credit card in advance for a specified amount, and then treat your credit card like a gift card, only allowing yourself to spend the ‘negative balance’ amount you then have on it?

just chuck the credit card altogether, you say? hold on a sec.  i see many advantages for this:

• never have a (positive) balance to worry about
• retain the security of using a credit card over an atm/debit card online and elsewhere
• easy online and automated transfers possible for crediting your credit card from your checking account
• an automatic ‘budget’ on certain types of purchases (you decide)
• possibly also use the credit card for emergencies
• your credit history will be positive

in the past, when i get a credit back from a store for a refund for instance, or overpay a bill, there is a negative balance on my statements.  i have just let it sit there instead of requesting a check from the credit card company.  then, the next time i purchase something, the amount spent is deducted from that negative balance (and more, as needed), heading towards 0 and/or above.

you can imagine this like so:

|——————————|———————————-|

negative balance 0 positive balance

(you have credit, overpaid, got a refund) => (you have to eventually pay this money back)

so basically, a ‘positive balance’ in this case is ‘bad’, because that means you owe money to the credit card company/bank.  (ie, you spend $250 on a new recliner with the card, you then have a positive balance of $250 on your card you must later pay.)  a ‘negative balance’ here means you overpaid, so you have credit with the credit card.  (ie, you pay your $250, but decide to just send in $300 to cover the payment.  you now have a $50 negative balance on the card.)  i know it’s kind of trippy because one would associate ‘negative’ with ‘bad’ instead, but i’m using the terms to mean the opposite here.

so, why not try treating your credit card as a gift card?

how to set up a credit card as a gift card:

1. choose a credit card that you have no balance on (or acquire a new one)
2. decide what sort of expenses this card will be used for (clothes? christmas presents? books?)
3. decide how much you want to limit yourself to the chosen expense type
4. decide the unit of time you will regularly credit your ‘gift card’ (ie, monthly?)
5. when you receive your card in the mail, send in your first payment for a negative balance
6. calendar a note on your calendar (ie, google calendar) that offers reminders when you will refill the credit next (a month from date of receiving card?)
7. go shopping
8. when you get your bill/statements (or view them online), you will see how much you have spent so far.  the ‘negative balance’ would be viewed by you as a ‘gift card credit balance’ — what you have left to spend until next month

a sample run

so in my case, i have recently opened up a new mastercard through jo-ann’s fabrics.  i don’t want to get too crazy and abuse my card for crocheting supplies purposes.  therefore, why not limit my monthly crocheting expenses to a certain amount, let’s hypothetically say $50.

i then use the credit card to buy yarn online or at the stores.  i check out my card statement regularly or call my credit card phone number to see how much ‘balance’ i have left.  i can not spend any more than that with that card for the rest of the month.  if i would like more crocheting power, i must get the funds from elsewhere, not with the card.

is this realistic?  danger, danger!

i concede that this approach may become quickly or easily abused or neglected.  i can imagine someone trying this (perhaps myself), exceeding my specified amount in a given time frame ($50 in a month for me), and saying “it’s ok, i’ll just add that extra $10 later when i get home”, and end up not doing that.  gradually, the user could start accumulating positive balance until it spirals out of control.  because one can, because it’s not a true gift card.

i wonder what the minimum credit amount available is for a card? one suggestion to minimize problems later is to request the smallest amount of credit to be made available for your account as possible.  i’m imagining offhand that that might not be lower than $500.  but that is way better than $9000, where you could easily have free reign to abuse your credit, one day discovering that you are say, $5000 in debt.

unless you can trust yourself to hold yourself accountable in treating such a card as a gift card, this may not be a good idea for you at all.

the disadvantages:

• user abuses the credit card
• may be a hassle or disconcerting to some to regularly ‘transfer’ money over from account to account
• the credit card company might send you a check back for the negative balance
• while you let that extra say, $50 sit around not accumulating interest as a credit card credit, it could have been building interest elsewhere, say in a savings account
• you can’t use that money for something else unless you use the card
• this system seems way too complicated

i found this older post online, what to do when you overpay your credit cards.  the author encountered the situation of a negative balance on his account of $200 which he eventually decided to let sit for use by future grocery expenses.  under normal circumstances, i would also have attempted to request a check refunding the amount to me.  on the other hand, i could see myself leaving the credit alone to be used by an expected expense like groceries as the author did.  if i get reward points through expenditures with the card — well, i wonder how points are not/earned off of negative balances, actually? i could also think of the $200 credit as a ‘budget’ for how much i can spend on groceries over a certain time frame (aka, like a gift card!).

what do you think of this idea?  if this is a good idea, why?  if bad, why also?
have you experienced to the contrary, where the credit card company pays you by check immediately after overpaying?
can you think of other dis/advantages i haven’t mentioned above?
have you done something like this before?