Avoid the dangers of credit cards by listening closely….
If you are reading this post you more then likely have 1 of these 2 totally different responses to the use of credit cards for ALL expenses:
- “Credit Cards are more hassle then their worth! All they do is get me in trouble. Their designed to make the credit card companies wealthy.”
- “I love credit cards! Not only do they provide protection against fraud, but they reward me for their use! I can get either money back for using them, or awesome travel perks! “
When I was younger I fell in the 1st category until I realized all the ridiculously amazing perks and benefits of using credit cards. Now we virtually use our credit cards for EVERY possible expense.
Even so, and knowing ALL the advantages of using credit cards there is still dangers of using them. And my wife and I do our very best to avoid and stay clear of those dangers.
So what are these dangers?
The absolute biggest danger and expense is the overuse of credit cards. Experience and studies have shown that individuals that use credit cards regularly spend more money then if they were strictly using their checking account or cash.
Well speaking simply for my wife and I, even as meticulous and careful as we are, this definitely holds true for us. We definitely have the tendency to put things on our credit cards thinking that ‘we will figure out how to pay it when the time comes.’ This is certainly dangerous rationale. And reasoning like that can get the average person in BIG trouble!
The second biggest danger besides the overuse of credit cards is not paying them off each month. I have talked about this in other posts as well, but not paying our credit cards in full each month can be an extremely dangerous.
Very simple, interest! Some of the very best credit cards have the highest interest rates. Sometimes over 20% interest! Doing that consistently can make it very, very difficult to ever get ahead financially again. Hence the reason why so many people in the United States are in debt!
So remember, PAY OFF YOUR CREDIT CARDS EACH MONTH! Do not put anything on them that you would not normally put on.
With all this being said, you might be wondering “why the heck would I even want to have a credit card then?”
Ways to get all the perks of using a credit card without the dangers
The tricky part is finding these ways. So what are some of them?
- Use your rewards credit cards to pay off your necessary bills! These bills should be bills you would already be paying for whether or not you have a credit card.
- Use services like Charge Smart to pay for bills that you might not normally be able to use a credit card for. These also must be bills that you would already be paying for.
Doing things like this will allow you get all the rewards points, and all the protection of using a credit card without worrying about overspending.
But what about discretionary expenses? And what are discretionary expenses?
Discretionary expenses could be either things that fluctuate each month, or purchases that are made on a one-time basis. So things such as going out for dinner, buying groceries, going to the movies, buying a new gadget are all discretionary expenses. They fluctuate and could vary each month.
These purchases are the ones that tend to SKYROCKET when using credit cards. Your necessary expenses won’t change, but the discretionary ones GO UP. You might begin to reason “well I really need this new piece of furniture that we can just put on our card for now” or “this vacation will not cost us too much and we can just put it on our card or now.”
Minimizing this will go a long a way. How can you minimize your discretionary expenses even when using a credit card?
- Record keeping. Log your expenses each month, and make a budget for your discretionary expenses. What can you realistically spend each month on different categories? I simply use Microsoft Excel, and track all our spending. Even the $2 coffees. This will work two-fold. It will help keep you organized, but also make you more accountable and naturally keep your expenses lower. You can also use programs like Mint to track everything. This is more of an automatic approach.
- Use services such as Google Wallet or Amazon Payments for all your discretionary expenses. I will explain below how to use each one.
Google Wallet is basically a checking account that can be used and operated for all smart phones. You simply sign up on the website, and request a Debit card. Once you get your card in the mail you load the account with funds.
One of the awesome features is that you can use a credit card to load the account! That means you can load your account with a credit card, and then take out cash. There is a 2.9% fee on using a credit card, but that is minimal.
If you use your Google Wallet account to fund ‘JUST ENOUGH’ for your discretionary expenses it can act as a checking account without allowing you to take out more then have. This will make sticking to a budget easier even though you are technically using a credit card.
But if you have a large budget, you need to decide if the 2.9% fee is too costly to merit the benefits of going this route. The other alternative is perfect for the first $1,000 a month. It is:
Amazon Payments allows you to send money from one person to another using a credit card up to $1,000 a month. The awesome part about this is there are no fees!
This allows you to take out $1,000 a month from your credit card and load it directly into your checking account. All you do is simply send money from your account to a spouse’s account, a family member’s account, or a friend’s account. Then you deposit it directly into your checking account! It is that easy, and all online!
I recommend using Amazon Payments for the first $1,000 a month, and then using Google Wallet to supplement it for additional expenses that are necessary.
Doing these things can really help keep you organized. But I would first recommend that you keep track of all your expenses for a month, and figure out a reasonable amount set assign for discretionary expenses that is manageable each month.
After doing that, then you know what you will need for discretionary expenses each month and you can adjust accordingly. This way you can use your credit cards for ALL purchases, but not have to worry about overspending or allowing your expenses to fluctuate.
In the comments section below, post your favorite tips to avoid the dangers of using credit cards!