The goal of retail merchant’s and credit card processors is to allow you to spend your money as easily and quickly as possible. Why even take your credit cards with you or take them out of your wallet? Just use one click checkout, Face ID, or tap your card or phone on the register!
I think that the convenience of using a credit card is great. I rarely carry more that $100 cash, and tracking my spending is much easier with a credit card. Plus, I earn points to get free airfare and hotel rooms for my vacations.
Stop Using Credit Cards If You Carry A Balance
If you carry a balance on any credit card, lock all your credit cards up in a safe place. This demonstrates that you do not have the financial discipline to use a credit card effectively. Go back to Step #1 of my spending system and learn how to become financially disciplined. Once you have zero credit card debt, then carefully start using credit cards again.
Use Credit Cards For Pre-Funded Recurring Expenses
For those that do not have a credit card balance, I recommend that the first place you use a credit card is for items that have already been funded in your recurring expenses account. (See Step#2 of my budgeting plan.) So if you have your car insurance due and you have funded the amount in your recurring expenses account, swipe away. This is a great way to earn credit card points because they are typically large amounts, and you know you have the credit card transaction covered with allocated funding in the recurring expenses.
Use Credit Cards for Discretionary Items With Caution
Most individuals get in trouble using a credit card for discretionary items. They find they are tight on cash and cannot pay the balance in full, and the process repeats month after month. Now they are paying 19% interest on a meal or latte that they had several months or years ago. So to repeat, if you have any credit card debt, please lock away your cards now.
If you do not have credit card debt and wish to use your credit card for discretionary expenses, then you must make sure that your cash in your checking account at month end can cover the balance due on the card less any charges for recurring items. Let’s assume your credit card statement cuts off on the 1st of the month and has a balance of $2,000. If $1,200 of the charges is for your recurring items and $800 is for discretionary items, then you must have $800 left in your checking account to cover the $800. Remember, you cannot dip into the recurring items account to cover discretionary expenses!
Demonstrate Financial Discipline
By following my system and becoming financially disciplined, you will be able to use credit cards prudently, and hopefully earn some points for a well-deserved vacation!
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