One of the things that you’ll read in many of the budgeting advice articles is that you should be paying cash for items and not to use credit cards. And that is totally true when you are first adjusting to your budget. I agree, you should use whatever cash system works best for you until you get a rein on your spending and a feel for what your True Budget is.
Once you’ve been practicing with a solid budget for a few months and have a better feel for spending patterns (and you have a savings plan going), it’s time to venture into using credit cards. Responsible credit card use can be good for your credit score as well as reward you in points/dollars back just for spending as you normally do!
Did you catch that part…”spending as you normally do”? More on that in a bit…
8 years ago I was deeply in debt after my first marriage. I went through a credit counseling service program, paid off all debt and slowly built myself back up. I started with a department store credit card, probably one of the easier cards to apply and get approved for. I used the card and paid off the balance each month to avoid interest (because why bother using 30% coupons for shopping only to have it all erased with a monthly interest charge?!).
After a year or so, I applied for a Disney Chase Premier Visa. At first, I only used it sparingly on purchases here and there. Once I remarried and looked more closely at our spending patterns, I decided to try paying our monthly bills with this credit card. I have our monthly bills (cell phones, trash, cable, water) set up on this card automatically, so I know upfront approximately how much will be going on to the card each month. This way I can adjust my budget appropriately and make sure I pay the full balance to avoid interest charges.
We earn Disney Dream Rewards Dollars that we can redeem at the parks or Disney store (read more about the rewards program here). Last year, we’d earned and saved over $225 dollars that paid for all our food and souvenirs for a Disneyland weekend. From this point on we’re saving up towards our future Walt Disney World vacation. Every little bit helps and we aren’t spending more or doing anything special to earn these rewards dollars, just spending as we usually do.
After using the Disney Chase Visa for a few years, we were approved for an American Express TrueEarnings card from Costco. We do probably 90% of our grocery shopping from Costco and only buy our gasoline here as well so it only made sense that we have an Amex to use at Costco (Costco doesn’t accept any other credit card). We earn points here that come back to us once a year in the form of a Costco rebate check.
Advantages to using a credit card for spending:
- I find that using a credit card is easier for me to keep track of our spending. I am able to check (daily, if I want) to see expenses on our online statements. Keeping track of cash payments can be a challenge unless you save and account for every receipt.
- Earning points or rewards back, depending on the card you choose. I absolutely recommend only using a credit card that gives you something in return.
- When used properly (no late payments), using credit cards can improve your credit score.
- Using credit cards for all purchases requires discipline. Just because you can’t see the dollars coming out of your wallet, you still have to be accountable for what you spend on credit cards. Sticking with the budget requires you to be accountable for your spending. Knowing in advance what you can spend for the month and checking your online statements regularly help you stay on track. If you don’t know your “True Budget” yet, start here.
- A late or missed payment could mean you are paying high interest rates if the balance isn’t paid in full each month. I tend to make payments on my credit card every week to keep up with what we are spending.
Daily Budgeting – How Credit Cards can Make Your Household Budget Work Better
Get Rich Slowly – 5 Habits of Highly-Effective Credit Card Users
Budgets are Sexy – Credit Card Budget
Our Freaking Budget – Why We Use Credit Cards