Credit cards don’t always have to be evil debt traps. In fact, with the right attitude and a good spending plan, credit cards can actually be great financial tools. Your credit card can help you enjoy free stuff, discounted travel, and cash back. But you have to work out a plan to get the most out of your credit cards:
Whether you call it a budget or a spending plan, or something else entirely, you need to have a handle on where your money is going. Just because you are approved for a credit card doesn’t mean that it’s time to start spending freely. Your credit card represents borrowed money. It’s not actually yours.
It’s important to remember that fact. Instead of just spending willy-nilly on things you need or want, you need to have a plan. Put together a spending plan that shows what you have coming in, and what you spend your money on. Include bills, expenses, and other payments. Don’t forget about entertainment, gas and other costs.
A good spending plan or budget should be the foundation of your efforts. Create a plan, and stick with it, tracking your spending, and not using your credit cards as an excuse to spend more than you should.
Use Your Credit Cards for Everything You Can
The next part of getting the most out of your credit cards is using them for everything you can. This does not mean that you use your checking account for your regular monthly expenses, and then run up huge bills buying extras with your credit card. This means that you take your spending plan, and follow it. But, instead of swiping your debit card, you use your credit card.
Put the cable bill on the credit card. Put the groceries on the credit card. Put the gas on the credit card. Put the power bill on the credit. Whenever you can use your credit card. You’ll build up rewards and cash back much faster. We’ve been able to use airline miles to get discount airfare, thanks to rewards. We get cash back every month — just for buying things we would have bought anyway.
If you can use your credit card and get the rewards, go for it. You’re going to pay the heating bill and you’re going to buy food at the grocery store, regardless of whether you use a credit card or not. Your credit card, though, comes with a reward.
Pay Off the Balance Each Month
Using your credit card for everything is pointless if the value of your rewards is destroyed due to high interest payments. This is why having a spending plan or budget is so important. You need to live within your means if you want to get the most out of your credit cards. If you don’t pay off the balance each month, the interest charges will completely overwhelm your rewards, and you run the risk of getting caught in the debt trap.
In order for this to work, you have to let the money sit in your bank account all month while you use your credit card for regular expenses. Then, when the statement comes, you should pay off the entire balance. You’ll get the rewards — with none of the drawbacks.