Oh the glorious perks that come with credit cards.
Those companies have us right where they want us. In the big scheme, they dole out small rewards and perks that never end up amounting to much and people go crazy over them.
People love their credit cards. It can even turn into a status thing. I know I’ve had conversations out to eat when everyone whips out their card. We compare points, perks, and all the great things that come with our cards.
And we use our points. We’re happy to let them build up and then unleash a whole lot of miles on a trip that saves a good chunk of money.
Americans love their credit cards. We’re now convinced that we’re throwing money away if we don’t use them for the points and we can’t imagine what we’d do if we didn’t have our cards around for emergencies.
But they get people into serious trouble. They amass a ton of debt that feels impossible to pay back. If you’re having trouble getting ahead anyway, then it can feel like there’s no way you’re going to be able to get all of that credit card debt paid off.
But many of us, myself included, have felt very sophisticated and smart for the way we use our credit cards in ways that amplify the benefits while eliminating the downside.
If you pay off your card every month, aren’t you gaming the system?
Hey, make no mistake, I think paying with a credit card is like playing with a snake. And guys, we’ve been bitten. Don’t think that just because I’m writing about money that we’re perfect and have it all figured out. Using a credit card is like being a snake charmer.
There’s a reason that credit card companies spend billions of dollars to figure out how you think. They’ve spent a lot of money and energy figuring out how to make you feel like you can’t give up your credit card. If you’re a staunch credit card user, you probably feel a lot of loyalty to your card.
Are you sure that it’s a game you want to play?
However, is there a way you can use a credit card in a certain way to gain the benefit while lowering the risk?
It all comes down to one rule. Make sure that every dollar spent on your credit card is backed by a real life dollar that you’ve already earned.
If every dollar you spend on your credit card has already been earned and set aside for that purchase, then you’ve just turned your credit card into a debit card. You could pay off your balance every single day if you wanted to.
Don’t just pay off last months balance with this months paycheck, that’s called riding the float. That’s debt. You spent money that you didn’t have. Literally the definition of debt.
I know you always pay it off, but if you’re spending money that you haven’t actually earned yet, what happens when something doesn’t quit line up right? Now you have debt.
And it’s not just the obscene interest rate that you’re now paying(which is going to destroy any ground you make with points by the way), now you’re having to take money that you make today to pay for purchases that you’ve made last month.
So don’t become over confident that you can’t be bitten, and create some hard and fast rules for your money that you aren’t willing to break.
Never spend a dollar on your credit card that you don’t have budgeted with a dollar you’ve already earned sitting in your checking account. If it’s backed by a real dollar, your chances of being bitten go way down.
Do you have any other rules for credit card usage? Let me know what they are.
Jared
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