Estimated reading time: 11 minutes
I frequently get asked about credit cards. Are they dangerous? Are they useful for budgeting? If so, what’s the way to go about budgeting with a credit card?
When it comes to paying with plastic, I see why there are a lot of questions out there. After all, if you look at the rewards, airline miles, points, and bonuses offered by credit card companies, budgeting with a credit card seems like a great idea. It’s essentially like getting free money, right?
Of course, the reality is, budgeting with a credit card takes discipline and careful effort—but doing it the right way can definitely help you get control of your finances. Another benefit of using a credit card? Not only is it easy to keep track of your purchases, but most card companies offer fraud protection as well.
The short answer is budgeting with a credit card is actually a smart idea, as long as you stay on top of it. You really need to simply put a few measures in place to keep you on track. Here’s how to wisely use a credit card for your monthly expenses.
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Credit Cards vs. Debit Cards
In the debate of credit card vs. debit card, credit cards often get a bad rap. If you’ve struggled with debt in the past, it’s easy to see why. Many people swipe and forget that when the statement arrives each month, you’ve got to pay up. Or they get trapped in a debt cycle with high-interest cards, where they can’t keep up.
Of course, everyone uses debit cards too. Most of us do it without even thinking. Back when we used to write out checks, we spent time reconciling and balancing our checkbook after each purchase. We kept a running total and always knew what was in the bank.
These days, most people have a general idea of their checking account balance, but not everyone knows the exact number. If you don’t check your account every day, reconcile your bank statements monthly, and keep track of your debit spending, it’s easy to look back at the month and wonder where all your money went.
Credit cards will compound the confusion if you aren’t properly tracking them. I’ve known plenty of people with wallets full of credit cards who simply look for the one that will “go through” when it’s time to pay. If you’re swiping and crossing your fingers, it’s time to get control over your credit cards. You can even use them as a helpful tool. Budgeting with credit cards will help you organize your finances.
I used to have everything coming out of my debit card from my checking account and used various credit cards to supplement my spending. I quickly realized relying on my debit card wasn’t a terrific idea. It wasn’t safe, I put myself at risk of fraud AND it was too easy to lose track.
Think about the damage someone could do if they had your debit number. They could empty your checking account very quickly. While yes, banks offer fraud protection, you’re often left with very little money in your account while they confirm the fraud. If you don’t check your account every day, you may not even realize there’s a problem until your card gets declined.
Credit Cards Help You Organize Your Spending
Once I thought about my financial risks, I decided to really get my personal finances cleaned up and under control. I now have only ONE item that comes off my debit card each month—the auto-fill on my Starbucks app. (Those Chai Tea Lattes are my absolute downfall). For the rest of my spending, I rely on budgeting with credit cards to keep my spending organized and use apps to help me keep track.
There are many benefits to budgeting with a credit card. Not only do credit cards offer fraud protection and easy-to-track statements, but there are many companies that offer great discounts and rewards as well. Best of all, most credit card companies sync with financial apps easily, enabling you to keep a careful, watchful eye on your budget without the stress.
So, if you’re considering moving over to credit cards only, the first step is to assess what cards you already own. How many credit cards do you own? Do you carry a running balance each month? Do you use different credit cards for different purposes?
For example, some people use one card for regular monthly expenses like their gym membership, Netflix, Amazon Prime, and other reoccurring memberships. They may use another one for business expenses only. Another may be used for travel expenses such as flights, Uber or Lyft rides, meals, gas and so on.
I personally use one debit card and then three credit cards, each dedicated to one specific purpose. This makes it so much easier come tax time. I quickly break all my spending down and keep it very organized. A good rule of thumb is to use your credit card for any purchases outside of your regular bills (which are set to automatically come out of your checking).
Another question you should ask as you take on the credit card vs debit card debate is how are your monthly payments drafted now? Are they coming out of your checking account via EFT (automatically) or do you need to remember to go online and pay them? Do you pay by check? Keep in mind if you pay manually, you must remember to log in and pay each month or you’ll face extra late fees and interest added on.
You’ll want to assess your financial activity over the course of a few months. This is a great opportunity to reevaluate your budget. Look at late fees you’ve accrued in the past and if you’ve remembered to stay timely with payments. If not, mitigate the problem by setting up a bill pay service through your bank, using online software to track your bill paying. If you prefer paper, set up a system to track the bills when they come in the mail. Set a calendar with the due dates so you remember to pay each bill online by the due date or mail the payment on time.
Visit my resource library for easy forms to help you set up your budget and assess your current bill paying system. By joining our online community, you’ll gain access to tons of great financial resources to help you plan! Simply enter your email and you’ll gain access to the full Making Cents Count resource library and become part of our great community.
If budgeting with credit cards sounds overwhelming, don’t worry—there are plenty of apps to help you to keep track of your spending, your checking account balance, and the balances you’re carrying on credit cards (as well as payment due dates).
The Best Apps for Financial Tracking and Budgeting with a Credit Card
Mint is a simple app that connects all your bank accounts, credit cards, and monthly bills. I like how it offers an all-in-one solution to help you create a budget and track your spending and expenses. You’ll glance at your phone and know exactly what’s coming up, what’s due, and what’s on the horizon. Mint puts everything on autopilot, so you don’t need to stress about it. This is perfect if you already prefer to stay “hands-off” about your bills. It’s an easy way to track, and best of all, it’s free. I would recommend Mint as a good basic app for budgeting and tracking your expenses.
If you’re looking for a more robust solution, Wally is a nice middle ground app. Wally is great for thoroughly tracking your expenses. It helps you keep track of all those little personal expenses as well as any unexpected spending that comes along (like impulse buys and unplanned purchases). You can store a quick photo of your receipts, which means Wally is a great solution for accessing records later. It will also autofill information if you set up the geolocation feature on your phone. Wally is a great choice if you have a lot to keep track of and you’d like more insight and control over where your money’s going. Wally is also free (with future Premium upgrade options planned).
Tycoon is my personal favorite of all the financial apps out there. It’s perfect for self-employed people, as well as those with side jobs and extra hustles. If you’re dealing with multiple revenue streams and bills to track, Tycoon easily handles all the data. It lets you standardize the details of any project you plan to take on, so you can predict your finances and get a full picture. Tycoon keeps track of payments scheduled to come in and payments past due. It’s like having your own personal built-in balance sheet in a convenient app! I love it!
So, depending on what you want to do, there’s an app to help you organize and move forward. Mint is perfect for budget beginners, Wally’s ideal for tracking your expenses, and Tycoon is a great solution if you’re self-employed or freelancing.
Standardizing Your Bill Payments and Credit Card Use
The biggest piece of advice I give to everyone is standardize, standardize, standardize. Yes, it may detract from spontaneity sometimes, but unfortunately, when it comes to finances, too much spontaneity is rough on your budget.
By separating your expenses onto different cards, automating your bill pay, and tracking with apps, you’ll save a ton of time down the road. I can’t even begin to tell you how much automation and credit card tracking helps when tax season rolls around. Better yet, it helps you stay efficient with your time and aware of your expenses, spending, and due dates.
Most people carry some type of credit card balance. Life happens and some months get more expensive than others. What’s important is setting up strategies to ensure your balance doesn’t get too far out of hand. When you’re not paying attention to your expenses, that’s when finances start to spiral out of control. The best rule is to pay off your balance regularly, if possible. Paying it down monthly or every few months will keep you from wasting money on interest.
If you feel a little overwhelmed or concerned about your credit card debt, the best method of paying it off is what Dave Ramsey calls the Snowball Method. In this method, you pay down your debt with the smallest balance first. When that’s paid off, you roll the amount you were paying toward your next-smallest balance, and so forth. This allows you to pay down debt quickly and see a lot of progress. It feels manageable and it’s a motivating way to tackle debt.
Credit cards are positive and helpful for tracking finances. Of course, it’s important you’re realistic about your limitations. I’ve seen some clients who struggled with the “freedom” of credit cards and got themselves into trouble.
One client I had ended up racking up $40k+ in credit card debt. He wasn’t willing to give up his lifestyle, even though it was devastating him financially. He didn’t file tax returns for over five years—and eventually had to file bankruptcy. Avoid this painful situation by keeping a realistic handle on your finances.
If you do get in trouble, work with creditors. The IRS will always work with you if you contact them. Most medical billing companies will also work with you. Unfortunately, you can’t outrun a bad financial situation. People feel scared and embarrassed when their finances get out of hand, but by not addressing it, your situation will only get worse.
So, if you’re ready to get a handle on your finances, but you simply don’t know where to start, consider organizing your credit cards and using them to HELP you keep track of your finances. Credit cards are a powerful money management tool when they’re properly designated for specific expenses and well-managed. Use these recommended apps to help you get started!
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Once you get your budget rolling, check out my post on 6 Simple Steps to Get Financially Organized. This post also includes a helpful checklist available in my Resource Library (free to access).
Admittedly, this particular checklist has a larger-scale focus on your overall financial picture, but I genuinely feel that getting your finances organized is essential.
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