Editor’s Note: The following is the opinion of Jason Price, not necessarily the opinion of PerkStreet Financial. PerkStreet maintains that a responsible budgeter can live an outstanding financial life without the need for credit cards. Indeed, our debit cards help thousands of people fight credit card debt and find financial peace every single day.
Do you own a credit card? The chances are pretty good you do. If so, do you manage your credit card wisely each month, or does your credit card manage you?
If you’re paying off your balance each month and have established some spending control, then you’re managing your credit card wisely. You use your credit card as a convenience and you might even be earning rewards such as airline miles? Awesome.
On the other hand, if your credit card is managing you, you’re probably carrying around credit card debt. You spend without a plan because your desire to have something now wins out over waiting patiently. Or, you don’t have a plan for your money and therefore, never seem to have enough to get by without accumulating a little credit card debt each month. Credit cards are never as safe as debit cards when it comes to debt risk, but if you’re using a credit card regularly, here’s how to get the most from it without risking your livelihood:
I’d like to have ill feelings towards credit cards, but I really don’t. It’s not the credit cards that create debt. Although, credit card companies offer a convenience that can be dangerous for some people and they certainly don’t go out of their way in most cases to help people manage to spend wisely. (They love for you to spend!) But truthfully, it’s people and our unwise decisions that lead to credit card debt. After all, one must make the decision to use the credit card before one can ever go into debt.
Credit cards are simply a financial tool, in my opinion. If you use them wisely, they can provide convenience and other benefits. But, if you use them unwisely, they can result in all sorts of problems. Let’s look at some ways to own a credit card and manage it wisely.
No Spending Plan, No Credit Card
If you’re the type of person who doesn’t manage your money proactively each month by creating a spending plan, or managing your spending transactions with perhaps envelope budgeting software, owning a credit card is a bad idea. To own a credit card, you must be willing to decide how you’re going to spend every dollar each month and stick to your plan.
Own Only One Credit Card
Even if you’re good at managing your money, owning more than one credit card can be overly convenient and downright dangerous. Even the best household money managers can be overcome with the temptation to spend ahead if, for example, multiple department store cards exist. Doing so a little bit may not hurt you, but the problem is spending ahead. Inevitably, life happens and your little debt turns into a big debt quickly. You really don’t want to be tied up with high-interest credit card payments each month when that money could be used to safeguard you from emergencies.
Use a Credit Card for the Right Budget Categories
Most people don’t consider using a credit card for select budget categories. However, it’s a good idea to plan ahead and choose categories like groceries and gas for credit card use. Don’t use your credit card for pocket money or entertainment. These areas often lead to spending too much because of the emotions involved.
Know the Terms and Rates of Your Card
It’s important to know the terms and rates of your card. When you use a credit card you’re taking out a short-term loan that must be repaid immediately. In addition, make sure you always know the balance of your card. This is easy to do if you’re using a product like Mint.com which automatically displays all of your credit card transactions.
Pay Off Your Balance Each Month
Certainly, I have to finish up by telling you to pay off your balance each month. It’s obvious, but even spending ahead a couple of months results in a little more stress than you need. Simply plan to make one payment on your card at the end of each month, or before the due date, to ensure it’s zeroed out before you start the next month. Doing so will help you your credit score too!
Do you think it’s okay to own a credit card? If so, do you have any other tips you could share with readers to help them manage their credit card spending wisely?
Interested in becoming a regular guest contributor to the PerkStreet Blog like Jason is? Email the editor at kyle.psaty[at]perkstreet[dot]com