How to Use Credit Cards While Staying Out of Debt
October 21 by Clint Cora in Money | 105 Shares
Use your card wisely.
Many people will suggest that the best thing to do with your credit cards during these tough economic times is to cut them up with a pair of scissors. Indeed, if you are already in huge debt, you probably should stop using them and begin a payback strategy immediately. However, if you are not currently in trouble with your credit cards, there are wise ways to use them.
I happen to really love my credit cards so I will share with you my approach to how I use mine without getting into deep financial trouble.
Ever since about 1983 when I got my first Visa card, I continue to charge as many of my purchases as possible on credit. Everything from gas, groceries and monthly payments for services like my cable and home security monitoring are charged on credit. Despite my heavy usage, I have maintained the joy of never paying any interest fees at all on any of my credit cards.
Here are some tips on how best to use your credit cards without falling into the trap of paying those nasty double-digit interest fees.
Do Not Treat Credit Cards as Your Funding Sources
Too many people treat their credit cards as funding sources for major purchases. Do not do this if you want to stay out of trouble. I use my credit cards as convenient financial instruments so I do not have to carry around much cash. In fact, I hate carrying cash, especially coins. When you buy things on credit, the purchases are clean and you will not get annoying coins back as change.
I do not rely on my Visa, MasterCard or American Express to fund any of my purchases, large or small. This brings me to my golden rule when it comes to whether I will pull out any of my credit cards either at a retail or online store.
I never purchase anything with my credit cards if I do not have the actual cash on hand in my bank account.
If I really cannot pay for the item or service with cash that I already have at the bank, then I simply will not make the purchase. Remember, my credit cards are not used as funding sources. They are just convenient alternatives to actual cash in my pocket.
Make Sure to Always Pay Off Balances in Full Each Month
The next very important part of my overall strategy is to make absolutely sure that I pay the balances in full each and every month no matter how large they are. This should never be a problem if the cash has been budgeted for my purchases and secured in the bank. I have always paid my full balances each month ever since my very first credit card and this is why I never pay interest charges.
Using Credit Cards with Rewards
Most of my credit cards are of the “no annual fees” type, including one MasterCard on a separate account I keep at home as a spare in case I lose my wallet or incur any fraudulent charges. However, I do use a main Visa card which does have an annual fee because all purchases on that card reward me with airline frequent flyer points. For me, the annual fee is worth it since I do travel and I get enough points to redeem many free flights.
You have to decide for yourself if you will charge enough purchases on credit each year without paying interest charges to warrant a credit card that rewards you with airline points (or other rewards). In my case, the answer is “yes” but that might not be the case for you.
I occasionally use a MasterCard or American Express card on small purchases just to keep those accounts active. Also, I have been to the odd retailer that accepted only a certain type of credit card, so I find that having one from each major company is quite handy. Aside from my main Visa card which earns the airline points, the rest of my cards are of the “no annual fees” variety.
So this is how I use my credit cards without getting into any financial trouble with them. This strategy is recommended only if you are not in debt, of course. In fact, it is worth keeping in mind once you’re out of debt so that you can keep your credit cards active and treat them responsibly.
What are your credit card usage strategies? Let me know in the comments — I’d love to hear what methods you use.
I always pay my credit cards weekly. Whatever I owe, I always pay it off. I don’t see the need to have to wait a month for it. This way, you never have to worry about how big your bill is and it won’t come as a surprise. You’ll also be able to track your expenses better this way.
That is another possible way of doing things. I personally like to pay only what is incurred during each billing month as it’s cleaner for me. I don’t want to overpay them if I don’t have to :)
I use a 55 day interest free credit card on all large purposes so that money stays in my account offsetting my mortgage for as long as possible.
That’s a good way of looking at it – a credit card can be considered a 30 or 55 day in your case, interest free loan – as long as you pay the full balance.
I find it helpful to treat all credit card charges as though I have written a check. I enter them in my check register and subtract them from my account balance. Then, when it’s time to pay, it’s easy to pay in full.
I find it helpful to treat all credit card charges as though I have written a check. I enter them in my check register and subtract them from my account balance. Then, when it’s time to pay, it’s easy to pay in full.
That’s a good way too.
You don’t need to pay an annual fee to get rewards on your credit card. I use USAA’s Master Card which gives me the best reward – CASH! I can use that cash for anything, including flights, and there’s no annual fee.
I track all my finances in Quicken, and each day when I click on “download” it automatically gets all my transactions, puts them into the appropriate accounts, and categorizes them. Since (like you) I charge every possible purchase, I have a record of EVERY purchase. This method is also useful in preventing credit card fraud and catching errors since I see my charges again each day. I can see my running balance, and can pay it off without any interest charges.
We have some credit cards up here in Canada that have a cash-back feature as well. The annual fee for the cards that are linked directly to airline points up here is about $120 which many people who do travel a lot, consider the fee justifiable. Different folks prefer different types of rewards.
Thanks for reading it and hope it was useful to you (and might help save some money)
Good advice but kinda common sense – must have been a slow blog day ;)
As long as I can remember, the credit cards at least here in nordic European countries have had option to either use debit or credit. When paying using debit, the amount is billed at the moment of purchase.
Credit has become pretty much a necessity of modern life. I use my credit card wisely and pay the balance
full in each payment cycle.
One that I would add is understanding how your credit card works. I think many people don’t understand how you can be negatively affected by credit cards and so they use them improperly, resulting in bad credit card debt.You can still use your card but just pay it off every few days or once a week. Keeping the balance paid off keeps you out of debt. Often times letting the bills grow till the end of the month gets the balance growing out of control.
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