Last year we switched to paying for almost all of our purchases with a credit card.
We had mostly used debit cards for everything in the past. I was a bit worried about being able to track our spending and know where we were at with our budget throughout the month, but we gave it a try and it went really well.
Quick Note: Personal finance is personal. What works for me might not work for you. If you don’t spend responsibly with credit cards, then definitely don’t use them. I’ve failed miserably when I’ve tried to only spend cash like a lot of financial advisors suggest.
What prompted the change was hearing a few stories about people we knew who had their debit card numbers stolen and charges that needed to be disputed.
While most banks have policies that will handle these problems, everyone we talked to said that it was a huge mess that took weeks to resolve. There were holds placed on their money and fees that had to get reversed.
After a few months, we got used to using credit cards for all of our purchases. There are two simple things we do to use credit cards more effectively:
2 Simple Tips for Using Credit Cards Effectively
1. Pay It Off Monthly
Our credit card is not “extra income”.
We only purchase things that are within our monthly budget. Since we spend within our budget, I have the money set aside to pay off the card completely at the end of every month.
Interest rates on credit cards are absolutely ridiculous (the average is around 15%). You’re paying way too much for everything you buy if you’re paying interest by carrying a balance on your cards.
It’s crazy to think of paying interest on your latte, on gas for your car, or on that dinner with friends. You might have gotten a great deal on new clothes, but it’s no longer a great deal if you’re paying interest on it by not paying your credit card off.
You get the idea.
Just because your credit card has a $5,000 limit, that doesn’t mean that you now have $5,000.
To use a credit card effectively, you need to stick to your budget and pay it off completely every month.
O, and I think it’s worth mentioning that it’s a big myth that you need to carry a balance and make payments to build your credit. You will build credit by paying off your card in full every month. (source)
2. Use One Card
We only use one credit card for everything we buy. Austin and I each have a card that goes to the same account.
One big reason that we do this is so that we build rewards in one place.
Most credit cards offer some kind of reward and they’re all different. If we used multiple different cards, we’d build up tiny little rewards in multiple places that are hardly worth anything. By building rewards up in one place, it ends up being a decent amount.
Our credit card gives us credit to Amazon, which is perfect for us because we buy a lot on Amazon 🙂 We build up enough rewards throughout the year to pay for a chunk of Christmas presents.
Another reason to use one card is to simplify your payments. I have one credit card bill to pay off each month. Just one. On occasion, we’ve used other cards and it stressed me out having to pay multiple bills and track what we’ve spent on each card.
Simple is good and keeps me from accidentally missing a payment.
Why We Keep Things Simple
I know a lot of people successfully use credit cards very differently than we do. I try to keep things as simple as possible for a few reasons:
- I don’t want to make multiple payments each month. The more payments we have to make, the more I need to keep track of and the higher chance there is that I’ll miss something. This is a big reason to only use one card.
- We build up quite a bit of rewards by using one credit card for everything all year long.
- I don’t like the complication of opening multiple accounts. I know people can make some money by opening new cards and getting bonuses from them. Again, it’s more than I want to keep track of and I don’t want to deal with balance transfers.
- By having one credit card we use, we almost never have dings on our credit from opening or closing accounts.