You’ll hear people tell you not to use credit cards. Many view them as the evil form of payment that puts a lot of people into debt. That can certainly be the case, but it’s not the credit card’s fault. It’s the way the cards are being used.
We use credit cards every single month for the majority of our purchases. The only payments that are taken out of our main bank account are our rent, hydro and gas bills, and the savings for the kids’ college funds. That’s it. Everything else, including our groceries, books, and dining out, is put on our credit cards.
But we don’t get into debt. We don’t pay interest on our payments and we end up making money back in a way.
How do we do it? It’s all about using the credit cards right. Their purpose for us is, mostly, to manage our cash flow. Since we can’t always guarantee pay going in at a certain time of the month because I’m self-employed, we can struggle a little with the cash flow in our main bank account. We plan a week ahead for all our big outgoings at the start of the month, but for the rest of the month, that main account usually has no more than $200-$300 in it.
That’s not because we have no money, but because it comes in at various times of the month. Instead of worrying if there’s enough for a particular day, we use the credit card and then clear the entire balance when we’re paid. We also earn points through our purchases, which are converted into money to pay off more on the credit cards. That’s how we end up with a little extra.
Another reason we need a credit card is that our bank doesn’t issue traditional debit cards. We don’t get a card with a three-digit security number on the back, so we can’t purchase anything online with it. We buy a lot through Amazon, Uber Eats, and Indigo, so we need to make sure we have a credit card that we can make our purchases on.
But how do we not go into debt with our credit card use? Here are my top tips to use credit cards without the debt.
1. Budget before you start using
One of the most important things to do is set a budget. You need to know how much money you have available each month and know where that money is going. For example, we know that we’ll spend $X amount on groceries. We’ll spend another $X amount on eating out or takeout. Then we have a budget for the kids, one for clothing, and money in a pot for emergencies. We always have that emergency pot and the money stays there, building up during the months when the emergency doesn’t happen so it’s there for whenever there is one.
With the budget, you know the amount you have available to spend on the credit cards. You know the amount you’ll be able to clear off at the end of the month.
Remember our credit cards are purely to help ease the cash flow. We don’t spend for extra money but just the amount we know we’ll be able to clear off at the end of the month.
2. Clear off the full balance at the end of every month
When you put anything on the credit cards, you know you need to clear it off. At the end of every month, make sure you clear that statement. This can be in one go or throughout the month.
One of our credit cards is cleared immediately, as soon as the statement comes in. The other has amounts taken off each week, up until the statement date, when it’s completely cleared. This is just what works for us, and I track every time money is taken off one of the cards to make sure the full statement balance is removed before the month’s end.
Why clear the full statement? Why not allow the money to roll over? You end up paying interest if you allow the balance to roll into the next month. So, you spend more on your purchases than you would have done, meaning you end up in debt. You’re overspending all because of the few dollars of interest each month. And that interest quickly adds up. The best thing you can do is just avoid the interest completely.
3. Use any points you earn to your advantage
If you have a points credit card, use it to your advantage. With our cards, we can use the points to pay back. Usually, we make enough to pay back about $25 per month. Sometimes we have $50, depending on any special offers for the month. While we could use those points on gift cards, we always choose to pay back with points.
This only works well if you’re going to clear the statement balance each month. If you allow the interest to rack up, you’re going to owe more in interest than you earn through points. You don’t get to save any money.
4. Only pay for the items you’ve budgeted for
It’s important to be strict. We only ever pay for items we’ve budgeted for. Want the new Surface Pro that’s on the market? That has to wait until we’ve saved up for it. I did this in time for Black Friday last year.
When you start spending money on extra items, you end up going over budget. You can’t pay the full balance off and you end up in debt. It’s just not worth it!
Everyone needs to be on the same page when it comes to the family budget to make this work.
5. Watch your spending to avoid becoming complacent
We’re not perfect. There are plenty of times that we’ve bought something we don’t need or something that we can’t necessarily afford. There’s that thought of “we’ll pay it off another time.” This is how the debt starts to build up.
You can’t pay off the full amount, so you end up rolling it onto the next statement. This leads to interest being added to your credit card. The next month, you still can’t pay it all off. Once again, interest is added. You soon end up finding that $5 coffee costs you $50 because of the interest! Okay, that’s an exaggeration, but you get the idea.
We always keep an eye on our credit cards, looking at where we spent the money. Every week, we assess what we needed and what we didn’t to curb it the following week before it gets disastrous.
Could you change the way you use credit cards? How do you currently use them? Share your thoughts in the comments below.