3 Steps to Stay Debt Free while Using a Credit Card

Uncategorized Jul 09, 2019

Credit Cards are amazing - as long as you know how to use them!

And no, I don't mean how to swipe them, or how to pretend like they are real money, but how to use them responsibly and make them work for you. 

Things I love about my credit card: 

  • Earning Points on everything
  • Discounts on things I'm already going to buy
  • The way it helps me build my credit 
  • Earning 2x Points occasionally
  • An easy way to keep all of my expenses in one place
  • Auto bill pay
  • Earning 3x Points on Travel & Food
  • Only having to keep 1 card on me at all times
  • Did I mention Earning Points?

I have a card that gives 3x points on Travel, because that is one of my top priorities. Some people are obsessed with Disney, so a Disney card makes sense for them. I want to see the entire world, so getting more points on airline tickets, AirBnB rentals, Uber/Lift, etc. is what fits my lifestyle. 

I love reading recommendations from The Points Guy - if you're new to credit card points, I'd check out this site. Lots of great info! But before you jump in and apply for one, keep reading to make sure your mindset is ready to handle a credit card, too. 

Things you have to be careful about with a Credit Card

1. Never spend beyond your means

Credit Cards are not free money.

Say it again now, with feeling.

Credit Cards are NOT Free Money!

A "credit card limit" is not a real thing. It's an imaginary number made up by someone who has no idea what your financial situation is.

My "credit card limit" is WAY more than I make in 1 month. You have to set your own limit based on what you could pay off, in full, at the end of every month. This is SO important.

For instance - there is no way I could ever pay off a credit card that was maxed out at $50,000 with 1 month's worth of income, which means I would then end up paying Interest. The #1 goal of having a credit card is to never pay interest.

2. Never Pay Interest

One of my favorite things about having a credit card is the Points that you get. They reward you for spending money! It's one time that the old adage Spend Money to Make Money really makes sense. Our airline tickets for our honeymoon (USA to the Caribbean) cost us $0 - I paid completely in points. 

The reason credit card companies allow this to happen is because most people end up giving the money from points right back when they pay interest.

Interest is money that the bank made up. Yep! They pulled it right out of thin air. You didn't borrow that money, you didn't use that money, but you still have to pay it back.

Interest is evil. Kill it with fire. 

The only way you will ever need to pay interest is if you can't pay off your balance in full at the end of every month. 

How do we ensure that this never happens? Easy. Proceed to Step 3. 

3. Never Max out your Credit Card

Remember that imaginary number of your "credit card limit"? That is what the bank or credit card company wants you to spend. They know that most people can't pay this amount off every month. They are literally counting on it to make themselves money. 

But you are smarter than the average bear, right? Right! 

If you only use your credit card for less than the amount of money that you have in your bank account,  you will be able to pay off your credit card every single month, and never ever give the credit card company an extra cent of your hard earned money!

This is exactly like the Cash Only method of budgeting. I have nothing against the Cash Only method - it works 100% of the time because you can't spend cash that you don't have, but it doesn't give you any extra money. And I'm one of those people who loves free money. 

If you take the ideaology of the cash method and apply it to your credit cards, you will be earning free money and still not going into debt. Win-win! 

Just make sure that you are budgeting and tracking your expenses, so that there aren't any big surprises at the end of the month. As my daughter says, easy peasy lemon squeezy!

xoxo
Angie

 

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