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I put over $1,500 on my credit card every month.
Does that sound like a bad idea? Does that sound expensive? Does that fly in the face of all the personal finance advice your parents gave you?
Any reasonable person would probably say yes to those questions.
But hold up.
Credit cards get a bad rap. Like most tools, credit cards can be used for good or evil.
I personally know how evil credit cards can be. Mr. Picky Pincher and I had over $10,000 in credit card debt when we got married. At the time we could only make the minimum payments, and so the cycle of debt marched on until we discovered the meaning of frugality.
We weren’t alone in our struggle. As of May 2016, the average American household has $16,048 in credit card debt. Couple that with a culture that praises spending over saving, and you’ve got a big, gooey mess of debt on your hands. In many cases, the minimum payment on a credit card barely covers the principal owed on the card. You can lose a ridiculous amount of money by carrying a balance month-to-month on a credit card—especially one with a high interest rate.
So why do I put $1, 500 a month on a credit card? Didn’t I learn my lesson?
It’s hard to use the words “good” and “credit card” in a sentence, but credit cards can be used to improve your financial situation.
A credit card is simply a financial tool. It’s the user who determines whether they’ll go down the road of “Eating Ramen Until You’re 65” or the road of “Retiring Happily at 40 with a Big Sack of Money.”
There is a right way to use credit cards and there is a very wrong way to use credit cards. Let’s look at both.
Wrong ways to use credit cards
1. You carry a balance month to month
If you can’t pay off the balance in cash at the end of the month, you do not need to have a credit card. And if you can only make minimum payments, you do not need a credit card.
This is the Picky Pincher #1 Rule for Credit Cards. Mrs. Picky Pincher will personally come to your door and boop you on the nose for breaking this rule.
You have been warned.
2. You use it for emergencies
Okay, there’s some debate on this. Life happens and it’s unpredictable.
But ideally you should not be putting emergency expenses on a credit card.
I’m guessing that, since the debt was put on a credit card, you don’t have the liquid cash to cover the emergency expense. And that means you’ll carry what’s probably going to be a high balance month-to-month on the credit card. That means you will owe interest. You don’t want that.
Make it a priority to have an emergency fund (even if it’s a small one) to avoid going into debt.
3. You buy things you can’t afford
If you’re using credit to fund a lavish lifestyle, I’ve got news for you. The illusion of wealth will only get you so far.
If you’re wearing Michal Kors purses but can’t sock away money for retirement, you’re only hurting yourself. Sure, I get that a lot of stuff is shiny and cool-looking. But putting these things on a credit card diminishes your true net worth and can land you in debt. Especially if combined with any of these other credit card no-no’s.
The Picky Pinchers Approach to Credit Cards
Some people are going to disagree with the above points. That’s because everyone’s financial situation is different, and that means there are few hard-and-fast rules when it comes to personal finance. Our Picky rules have served us well in our yearlong journey to debt freedom, but you may find that other rules work best for you. But that doesn’t mean that credit cards are here to ruin your life.
Here are the ways the Picky Pinchers use credit cards for good.
1. Use Credit Cards to Build Credit
It’s important to maintain a line of credit to help improve your credit score. Some people live a staunchly credit card-free life to avoid debt and the big banks. There’s not really anything wrong with that, although you do need lines of credit to prove you’re a trustworthy borrower if you ever need to take out a loan.
2. Pay off the balance every month
Heeeeere’s the biggie.
Your credit card must be paid off in full at the end of the month. Again, if you’re unable to pay off the balance every month, sorry, but you have no business owning a credit card.
If you do have the funds and are just forgetful, set up an auto-pay with your bank. This will automatically pay your credit card bill on your due date. Remember to read the fine print and check every month that the charges post!
3. Sweet, Heavenly Rewards Points
This is the biggest reason Mr. Picky Pincher and I put $1, 500 of expenses on our credit card every month.
We use a rewards credit card that offers 1 point in rewards for every dollar spent, with no limits. Your rewards will depend entirely on your financial institution, but with our rewards program we’ll have more than $300 in cash rewards in time for Christmas. After last year’s devastating $800 Christmas, we’re trying to plan ahead for the holidays all year round.
Important Note: Since you’re paying off your credit card balance every month (and you are, right?), you need to be using a card that offers rewards. If there’s no reward or incentive, you’re just lending your money to the credit card company without getting anything in return. Make sure your credit cards are tools that work for you.
4. Better Protection
Again, this will depend on your financial institution, but the Picky Pinchers are all about the increased security of credit cards.
Our bank forgives fraudulent debt up to a certain amount and offers badass fraud monitoring services that I don’t get with my checking account. Our credit card also comes with an agreement that extends store warranties and allows us to dispute charges with ease.
The Bottom Line
Mr. Picky Pincher and I used to be buried under a mountain of credit card debt.
We know exactly how destructive these little pieces of plastic can be. Credit cards are a tool that many of us use unwisely. When used for good, credit cards can improve your financial situation and set you up for future success. Paired with control and common sense, credit cards are a smart financial tool.
We want to know: What was your biggest credit card mistake?