Maybe the title of this post surprised you, as credit cards are often vilified in the personal finance community. However, if you’re out of debt and you can manage credit without overspending, a credit card has more perks than pitfalls. In fact, using your credit card will likely help you budget!
I have two main credit cards: gold American Express card, which costs $150 per year, and the no-fee MBNA cash-back rewards card.
Whenever possible, I charge all purchases to my American Express Gold card. At store that don’t accept American Express, I pay with my MasterCard.
How My Credit Card Helps Me Budget
1. My credit card statement lists my spending, down to every penny.
As much as I like money, even I find it tedious to write down where my every cent goes. My credit card statement is a perfect record of where my money has gone. (note: it’s possible for your credit card to contain mistakes and erroneous charges, which is why it’s important to check it against your receipts. Because I manage my transactions manually in the budgeting software I use — Money 4 by Jumsoft — I look at my credit card statement online 1-2 times per week to make sure it matches my own records)
2. All my regular bills are charged to my credit card,
reducing the number of due dates I have to remember from a half-dozen to just one. I don’t know or care when my credit card, Netflix, or cellphone bills come in — they are all automatically charged to my credit card and I know when my credit card bill comes due!
3. I rack up the rewards points like crazy!
By making an effort to put all my spending on plastic, I spend over $1,000 on my credit cards every month. On the American Express this will translate to 1,000 Amex points, or the equivalent of $10 (a 1% return). Already this year I’ve used Amex points to pay for over $250 of hotel stays when I went out of town to attend weddings. I love how Amex let’s you select how many points you want to apply to recent travel purchases.
The only reason my credit card works for me as a budgeting tool is because I never carry a balance.
I usually make payments against my credit card balance 2-3 times per month. I have to — it gives me anxiety whenever I see it creep over $700! I’ve finally developed that magic personal finance sixth sense where I can just feel when my balance is getting too high and I just pay it down. This is the best practice because I never pay interest on any of my purchases.
If you owe a balance on your credit cards, DO NOT USE THE CARDS JUST TO GET REWARDS.
The rewards don’t negate what you pay in interest, so you’re still operating at a loss. Put the cards away, kill the debt, and when you’re down to zero wait a full month, and then you can start using the cards again.
My credit cards make managing my finances easier, but I know it’s not for everyone. Anyone else have a great rewards card or other credit card that helps them budget?