How to Use Credit for Everything You Buy
About five years ago, I had a credit card debt. (At about $ 14,000 when all was said and done – and I’ve paid in full since then). I wasn’t making a lot of money at the time; I used credit, as many people do, to pay for both basic necessities (groceries) and non-absolute essentials, but still the things we need to get promoted (clothes, new laptop).
Once I started making enough money to pay for groceries and the like, I stopped using credit cards. Fully. I was afraid to touch them because I knew how quickly this debt could grow and how hard I worked to pay it off. (I set aside 20 percent of every gross paycheck to pay off debt.)
I really only started using credit again about a year ago. My debt was paid and I knew I was missing out on some rewards and protections on a credit card by using only a debit card.
Now I use credit for as many purchases as possible. The only time I take out my debit card is when I need to get a refund at the grocery store. Otherwise, I use one of my credit cards and earn miles or cash-back rewards. I would use credit for anything if I could.
But I had to figure out how to make sure I can always pay the bill in full every month. That I wo n’t let myself get into credit card debt again.
I know the short answer is “just don’t spend more than you earn,” but if it were that easy, none of us would ever go into credit card debt. So, we need a few additional strategies.
Here’s what worked for me when I went back to using credit for most of my purchases:
Create a savings buffer
I have two built-in buffers so that I always have enough money to pay for my credit cards: a $ 3,000 buffer in my checking account and a savings account. If my checking account falls below $ 3,000, I use several of my next salaries to get my money back, meaning I do not intentionally plan to spend a certain percentage of each salary because it must be sourced from the buffer.
I also put 15% of each salary in a savings account. This money is not for my credit card bill – it is for my contingency fund, money being allocated to my Roth IRA, and future life goals like down payments – but I know I can pay off my credit cards with that money. if I absolutely have to .
At this point, you are probably thinking of one of two things:
- I could never save $ 3,000 plus 15% of every paycheck.
- You only have $ 3000 in your savings account ?! I prefer the steep $ 10K.
I’ll leave this here to remind you what we spend and save based on what we earn, so adjust your savings buffer to match your own income. But if you’re going to put all your purchases on credit, you’ll need some sort of buffer in case you spend more than you earn in one month.
Plan as many of your expenses in advance as possible
If you want to make sure you don’t spend more than you earn, you need to plan your spending.
Notice I didn’t say budget. I’m not a big fan of budgets, as a lot of people use them, meaning they are guessing how much money they will spend on certain categories. They invest $ 300 in “restaurants” and $ 500 in “clothes” because it feels right , or because their budgeting software told them that this is the average amount they spend in that category each month.
I like to look at the entire month and figure out how much I’m likely to spend. Do I have any scheduled meals at the restaurant? How much are these meals likely to cost? What kind of trip am I going to take this month? Are there birthdays or holidays that require gifts? Should my Amazon Prime bill be paid this month?
By planning my expenses in advance, I can determine exactly what I can afford to buy, and which purchases will have to be cut, saved or postponed for the future.
Don’t plan on spending every dollar you earn
Something always happens before the end of the month, so if you can afford not to spend your entire paycheck , don’t waste your money . You can still spend it all because before the end of the month something always pops up, but you are less likely to do so.
Let your apps help you
Check your credit card balance. Every day if you like. If you are using an app like Mint or YNAB, you can receive push notifications when you go over budget in a certain category. Know how much you are spending so you know when you are spending too much.
At this point, you might think that these are not so much advice on “how to use a credit card” as advice on “how to manage your money.” This is because credit cards are there to help you manage your money. I mean, they technically exist, so banks can collect a bunch of interest, but from your perspective, credit cards are meant to help you flatten your cash flow, earn rewards and protection, improve your credit score, and manage your finances.
If you keep this point of view in mind when planning and tracking your expenses, you can use credit cards for every purchase without fear of being billed you can’t pay.