Sometimes, I can get stuck in a pattern of overthinking. Especially if I’m convinced that there’s only going to be one right way to do something.
I can get stuck in a loop where I’m just constantly looking for new information to make the perfect decision.
It’s not enough to just make a good decision, I have to make the “right” one.
Even if you don’t have an obsessive, research it to death personality like mine, you may have been stuck at the decision on whether or not to include credit cards as part of your financial picture.
If you’re a fan of Dave Ramsey, you’ll already know that the only good credit card is one that’s been cut up.
But then you’ll have authors like Ramit Sethi say that having a credit card is the only way to go, assuming you pay it off each month.
So, what are you supposed to do with this information?
Let’s take a look at what a credit card is actually going to do for you.
Are the points worth it?
If you’ve been reading my blog for a while, you’ll know that I’m actually a fan of using credit cards. But I think there’s only one real way to use them.
The best way to use a credit card is to have every dollar you spend be backed by a real dollar you’ve already earned sitting in your checking account.
I don’t recommend using this month’s paycheck to pay for last month’s credit card statement. But I do recommend using a credit card to spend a dollar that you have right now.
So if we’re so bent on not using a credit card to spend using the credit we have, what’s the point?
Wouldn’t it be simpler just to spend using your debit card?
The answer is yes. It’d be way simpler. The goal is to only spend the money you have now. The easiest way to do that is to only spend out of your debit card.
The only reason people spend using a credit card is for points and rewards that come with their card.
In the end, you’ll have to ask yourself- is it even worth it?
If you funnel as much spending as you can through a credit card and spend $4,000 on your card a month, how many points could you earn?
If you’re using just a flat rate 2% rewards card like I recommend, you’d earn yourself $80 back that month.
Hey, that’s not bad for doing nothing more than funneling the spending you were already going to do through your credit card.
After a whole year, you’d earn $960, almost 1k! That’s why people love their credit cards.
Several years ago, we took a trip to Disney where we had saved up thousands of dollars worth of points.
But let’s also think of the hundreds of thousands of dollars that my wife and I had made from our jobs during that same time.
And we aren’t rich. We’re just teachers. But when you compare the 3k that we had collected in points over the course of several years to our actual income, it’s a super small percentage of the picture.
In other words, that card didn’t significantly change our financial picture. When compared to our total salary, the points earned aren’t changing the world.
Things could head south.
It’s true that it’s really nice to look up and see a big pile of points waiting for your upcoming vacation.
Especially when you’re just funneling your current spending through your card.
But credit cards can be dangerous. Rewards credit cards have notoriously high interest rates, and if things head south in your finances, and they start charging you interest on your purchases, you’ll quickly lose the advantage of earning those points from your card.
Your card is not your emergency fund, and it’s a terrible idea for making purchases on when you don’t have the money available right now.
So you’ll have to weigh your options.
Is the small reward, when compared to your total salary, worth the risk of overspending and going into debt?
People who have decided that spending using credit cards have made a smart, sophisticated decision for their financial health. The loss in points, perks, and rewards that they’ll miss out on are never going to be that big when compared to their bigger financial picture.
Just remember that if you do use a credit card, spend using only the money you have now.
Don’t have the money now? Don’t spend it on credit. If you treat your credit card just like a debit card, then you’ll never be faced with the decision of whether or not to make a purchase.
The decision was made when you put your stake in the ground that you’d never spend money that you don’t have.
And then as a perk, you may have a good bump in cash to put towards your trip.
So what have you decided to do? What are your views on credit card usage? Let me know by posting in the comments.
Leave a Reply