How to use a credit card
It's time to address how to use a credit card to your advantage.
We need to talk about this because it's so important to both sanity and financial well being. Too many people use their cards for quick cash and access to things and experiences they otherwise wouldn't buy. They end up in debt beyond what they can pay that, among other things, causes a lot of stress.
If you're in this situation, you're not alone and you can change the outcome. You can commit to new spending habits and a sound debt repayment strategy. It's going to take some grit but The Money Edit community is here to support you! Read The Ditch Debt Series now.
When you're ready to take advantage of the opportunities that credit cards have to offer, dig in!
The Benefits of Using Your Card Properly
The idea of using a credit card is to build credit for when you need it (buying a house, etc.) AND to take advantage of the cash flow opportunity. If you're using your card properly, you'll
buy things up to a month and a half before you need to pay for them (depending on the purchase date... read more below)
be able to easily track your spending
have an opportunity to accumulate points, access benefits and insurance policies via the card
When NOT to use your card
Never use your card for cash advances. It's a bad habit to get into and most credit cards start charging interest immediately on these withdrawals.
Never use more credit than you intend to pay off in one month. Basically, your goal should be to take advantage of the credit card company's point system, rather than allowing them to take advantage of you via interest payments!
Understanding the Payment Cycle
Statement Date and Billing Cycle
Your card's billing cycle will be a month long, and indicated on the bill. Open the bill and look at the "Statement Date". Your billing cycle is a month long, ending on the statement date. For example, if your statement date is July 9 your billing cycle is June 9 - July 9. Knowing this will help you manage cash flow.
Payment Due Date
Your payment due date is usually 21 days after your statement date. This 21 day grace period is common in Canadian cards but I can't speak for other countries. Make sure you transfer the money a few days in advance so that your credit card company receives it in time.
Managing cash flow is the KEY to credit card success
In order for this to work, you need to know (in advance!) how much money you have to spend by the future payment date.
Mackenzie gets paid $1500 every 2 weeks. Each month, she has $3000 coming in to her bank account. Her fixed cost of living and bills are $750, so she has $2250 in cash flow. Mackenzie's goal is to save $1000/month, leaving her with $1250 for living expenses.
If Mackenzie spends money via her credit card, she will accumulate points for her impending trip to Europe. Mackenzie must keep her spending under $1250/month. She knows she has to have the money before the payment date and pay on time
This is simple math that takes self discipline to execute.
If Mackenzie were to start using both her debit card and her credit card to pay for things, she would have difficulty managing her cash flow. Trying to remember how much you have in your bank account, versus how much you've spent on your card is a quick route to disaster. Choose one or the other based on where you feel most comfortable.
Using a credit card is a commitment that you will have the money to pay it off in full, every month. If you spend your cash, there is a risk you won't have enough to pay your balance in full. Before you know it the tables have turned and the credit card company is now taking advantage of you. Turns out, that's why Visa and Mastercard are rolling in money!
Buck the status quo, reject consumer debt and use the incredible tool to your advantage.
Do you have any questions about credit cards? Let's talk about them in the comments below...