Credit cards frequently get a bad rap. Their use is often associated with out of control spending, lost money on late fees and interest; and with credit score destruction. While I agree all of the above can happen with credit card use, I also believe it is possible to use credit responsibly.
For the most, part I align with a Dave Ramsey philosophy and have read his book “The Total Money Makeover” – and highly recommend it. But, as with most anyone, I take his advice with a grain of salt. One of the main ways I go astray from Ramsey’s debt-free teaching is in the way of the use of credit. Ramsey is fully against using any credit cards – even one card.
Today I want to share some ways to use credit responsibly. In the end, it’s up to you if you if you choose to use a credit card or multiple cards. I know people who use multiple cards and always pay their bills on time. Other people can quickly see their spending get out of control with the use of only one credit card.
Use Credit Responsibly
My Credit Card Use
I have one credit card and I’ve actually had this same card for more than 10 years now. I only recall missing payment once, maybe twice, and that was actually back in college due to pure absence of mind. I use the card for sake of convenience and because I really like the points feature which allows me to save hundreds of dollars on groceries each year!
Prior to this card I had one department store credit card that was on a joint account with a family member. I only used that card for a few years and no longer have it. I’ve received many credit card offers in the mail and online, however, I prefer to keep my life simple so having one card with incentives works best for me.
My only other credit card experience came through a previous employer. I was about to be issued a company credit card for travel but I ended up leaving the company prior to the card being issued. This is another common reason why someone would have a credit card and use credit responsibly. Someone may also have a company credit card, even if they do not have a personal credit card at home.
Why People Use Credit Cards
Credit cards can be used as a crutch. They can be used to pay for items a person does not have the cash for. They can foster over-spending. They can also negatively impact credit scores. However, credit cards can also bring many benefits. The negatives or positives are really not about the card itself. They are about the user and their level of maturity.
Points or cash back incentives are a common reason why even smart spenders (including those who are debt free) like to use credit cards. I realize that the points or incentives will not make me rich but I like to know that my every day purchases (that I would make no matter what) are bringing me some extra benefit.
I do not travel often so I do not have a credit card with airline points or incentives. However, for many people this is a popular credit card to have and frequent use can result in free travel.
Use Credit Responsibly
Outside of this one credit card I currently have, I only use debit cards, check or cash to pay for goods and services. Electronic funds transfer or EFT is another means of payment but I don’t use it often. Paypal and money orders are also commonly used for online purchases such as through eBay or Poshmark. Earn $5 toward your first purchase on Poshmark when you sign up and enter the code HFHAMMERS.
Over the years I have developed some habits to ensure I use credit responsibly. It’s really easy to do this and by using credit cards in a mature way you can reap benefits and rewards, without the headache or any financial strain. Here are my tips on how to use credit responsibly and save money at the same time:
- Pay in Full Every Time: If you are going to use credit responsibly you have to have the right mindset and give yourself rules and boundaries where they often do not exist. This is where I think most credit card users get into trouble. One of those “rules” is to pay your card in full every time, every month no matter what. Some people will set up automatic payments for the minimum amount to make sure they never forget to pay. I usually just mark the due date on the calendar and make a one-time payment each month.
- Treat Credit Like Cash: In order to achieve paying that card balance in full every month you need to treat your credit card and the purchases you make like cash. If you do not have the cash to pay for the item (in your checking account or savings account or via your most recent paycheck) you should not make that swipe to purchase. Living on a budget will help in order to make sure you have the funds allotted for the purchase.
- Save Money with Points, Rewards and More: When selecting which credit card to sign up for, think about what kind of rewards you could use most. Almost every card today offers points, cash back or an airline mileage accumulation feature. The card I use has a points feature which allows me to earn money toward groceries. In an average year I earn anywhere from $300 to $400 in grocery money! Similar to how I use Rakuten, I use my card for large purchases to earn the most points possible. Some of the large purchases have included appliances.
- Don’t Make Purchases for Points: While credit card rewards can be fun and help you save money, in order to use credit responsibly you must not fall into the trap of making purchases with the sole intention of earning rewards sooner. This is never a good idea and can easily leave you riddled with bills and debt.
- Use Your Credit Card as Often as Possible: In order to earn the most rewards you need to use your card as often as possible. This does not mean overspending. What this means is when types of payment are offered I tend to use credit card first and foremost, and then use a check or cash secondary. Credit cards can also be used to pay for recurring expenses such as utility bills, a gym membership or yoga membership, or even for child care expenses. Keep in mind that some companies will charge a credit card processing fee and in that case I prefer to pay with check to avoid the fee.
There’s no need to be afraid of using credit cards. At the end of the day you know yourself and your spending habits best. If you can use credit responsibly, do so in order to also reap rewards and points. However, if you know that credit card use can lead to overspending or erratic behavior – it might be best to stick to debit, check or cash.
Sometimes, over time you can become more responsible with money, finances and budgeting and perhaps someday using a credit card will not be a risky move. Again, keep in mind that you don’t need multiple cards to earn points or cash back. Having one card that you use for all purchases can be very helpful in earning freebies.
Do you use a credit card? Why or why not?
*This post was originally published in 2016 and has been updated and republished for accuracy and comprehensiveness.