Some financial advisors are quick to blame credit cards as the root of all financial evil. As a result, there are crowds of people shredding their credit cards saying they are liberated from the financial burdens credit cards carry. And I can see where they’re coming from…
Financial issues are one of the biggest causes of marital stressors. (Check out our blog post on How to Talk about Money with Your Partner)! However, instead of chopping up my credit card, one way I have found financial freedom is by evaluating my financial situation and goals by using this free financial worksheet! This financial worksheet helps me understand the big picture and helps me get my finances on track.
After evaluating my current finances and goals, I realized that using credit cards responsibly saves money. (Yes, you heard me right. It SAVES me money)! The beauty with credit cards is that they will offer you financial rewards in return for using their cards. There’s tons of different reward offers, such as gaining travel rewards, store credit, or even money back. However, in order to save money by using a credit card, you have to be responsible with how you use it.
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How To Use A Credit Card Responsibly
The key with credit cards is responsibility. Check out the three tips we follow that helps us be responsible with credit cards:
1. Pay in full
Credit cards have a sneaky way of “helping you out” by suggesting a minimum payment each month. While that’s thoughtful, don’t fall into this trap. By paying the minimum amount required, they will charge you high interest rates on the remaining balance. This can add up quickly and could be catastrophic to your finances. Credit card companies want you to fall for this because accruing interest is one of the primary ways they get money. Bottom line, pay off the entire amount due of your credit card each billing cycle!
2. Pay on time
To remind myself to pay my bill, I set an alarm on my calendar one week before my bill is due. This gives me the time to review my credit card spending history and make sure it is accurate (be mindful of credit card fraud)! I then transfer my funds from my checking account to my credit card bill. Some people choose to use automatic payments, which is also a great option that I would consider in the future! But for now, i choose not to use automatic payments at this time just so that I am forced to review and keep tighter tabs my credit card spending history.
3. Do not borrow!
DO NOT borrow or go into debt with a credit card. The interest rate you accrue on many credit cards are outrageous. Again, the high accruing interest rate is one of the primary ways credit card companies make money. They assume that many consumers will go into credit card debt and they will profit from the interest accrued. Don’t be tempted to use credit cards as an emergency fund. Instead, be prepared for the worst and make a financial plan for those uncertain moments in life. Don’t rely on a credit card to save you from financial problems because using it irresponsibly will only add to your financial stress.
For me, I use these guidelines and treat my credit card as a debit card. In other words, I make sure that I have the funds to support whatever I spend on my credit card. I pay my bill IN FULL and ON TIME every month. I NEVER borrow money from my credit card (that’s what savings and an emergency fund are for)! Essentially, this is like a glorified debit card but with the added perks of benefits! For me, the benefits in of itself make using a credit card worth it and ends up saving me lots of money.
How I Save Money on Credit Cards
One of the great things about responsible credit card use is that it can save you money. Every credit card company will be different in what they offer you in return for signing up. Currently, I have a credit card that offers 1-3% cash back on purchases. Plus, I get a 10% bonus on top of my rewards since my credit card is with my bank!
Here’s another way I maximize my rewards: My husband and I have credit cards with different benefits. His offers 1.5% cash back on all purchases and mine offers 3% on gas, 2% on groceries and 1% on all other purchases. So to maximize our credit card rewards, I buy gas and groceries and he buys all other items. We end up saving $20-40/month from credit card rewards. When I redeem my rewards, I transfer the money into a savings account. That’s $240-480 a year that I tuck away into my savings account!
When You Shouldn’t Use a Credit Card
Now before you convince yourself of getting a credit card, you need to be honest and realistic with yourself. Can you use a credit card responsibly by paying your credit card bill in full and on time? Are you able to monitor your finances so you don’t accidentally overspend? Can you avoid the temptation of borrowing money on credit cards? The only way you can make money on credit cards is by using them responsibly. If you’re uncertain with any of these, using a credit card might not be the best option for you. The risk of accruing credit card debt might put your finances in jeopardy… and credit card debt isn’t something you play with.
Oops, I messed up. Now what?
So you messed up with your credit card and now you have credit card debt. It’s not the end of the world, but you need to reevaluate your finances and make a plan. So how do you do that?
Put Yourself in “Financial Time Out”
You need to honestly re-evaluate your current financial situation. Go through the tips of responsible credit card use and ask yourself where you went wrong: What caused you to overspend? Was there an emergency fund in place? Did you forget to make your payment?
If you forgot to pay your bill on time, set a reminder on your phone to avoid late payments. (Or you could use the option of automatic payments). If you borrowed money because of a big emergency, evaluate your emergency fund to avoid using credit cards in an emergency. Maybe you spent money you didn’t have! Can you return those items you purchased? If you’re too tempted to spend money you don’t have, credit cards might not be a good option for you.
Put your credit card use on hold until you have a better understanding of what happened, how to fix it, and how to prevent it from happening again. Use the “financial timeout” as a way to reassess your finances and your current credit card habits.
Make a Plan
How are you going to pay it off? Can you return an item you purchased? Maybe this is where you pull a little overtime at your nursing job to make up for what you spent. Make a game plan on how you are going to get the money for the payments. Make a timeline of when you can realistically pay it off in full.
Pay it off ASAP.
When making your plan to pay it off, keep in mind that interest on credit cards accrue fast! Credit card payments have a way of sneaking up on you. And before you know it, you’ve already accumulated interest on the current balance on your card! To avoid racking up more interest, make a plan. Set up a realistic plan to get rid of your credit card debt as soon as possible.
Take Home: Evaluate Your Financial Situation
Personally, I find credit cards as a great tool to help me save money! Again, if you do choose this route, you have to be honest with yourself and use credit cards responsibly. If not used responsibly, the possibilities of earning rewards from the credit cards could turn into a financial nightmare. Before you go out and get a credit card, honestly evaluate yourself and make a plan of how you will manage your credit cards.
For additional guidelines for evaluating your financial situation, check out our free financial worksheet! This financial worksheet is a great resource that we have personally developed and used to help evaluate our financial goals. I love it because it helps keep me accountable and gives me a visual on my financial situation.
Bottom line: Do what is best for you. Regardless of whether you get a credit card or not, take this as an opportunity to evaluate yourself and make a financial plan. (Check out our free financial worksheet)! For me, using a credit card is worth it and has helped me save money.
What’s your opinion on credit cards? Do you use a credit card? How do you best use it to gain rewards? Leave us a comment below!
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