The idea of budgeting with credit cards may seem like an oxymoron, but it doesn’t need to be.
For many in the debt-free community, cash is king. It makes sense, especially if you struggle with credit card debt (and a lot of people do. For example, a recent report by TransUnion revealed Canadians racked up $100 billion in credit card debt in 2019. Yikes!).
But what if you don’t struggle with credit card debt? Is it possible to use a credit card as a budgeting tool to earn rewards without adding to your debt?
I think it is. Here’s why.
Budgeting with credit cards on the debt-free journey
It’s no secret: we use credit cards.
I wrote all about why we choose to do this here. But the gist is this: I didn’t like using all cash for a variety of different reasons and credit card debt has never been a problem for me.
I’ve had a credit card for the better part of 10 years and I have never paid a single cent of interest. While I certainly went through phases where I was a little more reckless with my credit card, I always paid off my balance every month and I don’t think I have ever been anywhere close to maxing it out.
That said, I know this doesn’t work for everyone. As such, this is not me suggesting everyone should use credit cards — because that’s just not true.
Rather, I wanted to share a few of my best tips for those who either are using or are thinking about integrating credit cards into their budget.
As is often the case, personal finance is personal. This is what works for us, but it might not work for you.
Tips for budgeting with credit cards without adding to your debt
If you’re thinking of integrating credit cards as a tool in your budget, here are six tips I think are useful for making it happen without adding new debt.
Pay your credit card in full every single month
This one is obvious: if you are going to use a credit card as a budget tool, it is imperative that you pay if off every. single. month.
Falling into a habit of carrying a balance on your credit card is a recipe for disaster, in my opinion. The longer it goes, the more difficult it is to get it back to zero — especially if you start accumulating interest along the way.
My advice here is simple: treat your credit card like your debit card. In other words, if you don’t have the money, don’t spend it.
This is the rule we follow 99.99 per cent of the time with our budget. A notable exception: Christmas spending. We budget for Christmas right to the end of December, which means sometimes, we end up spending money we don’t have yet during the holidays.
But it is very, very rare that we end the month with a balance owing on any of our credit cards.
If you’re budgeting with credit cards, do yourself a favour and make sure you are paying off your balance every month.
Track both your spending and payments
I didn’t understand why this is important until I got my Tangerine Mastercard.
For many years, the only credit card in my wallet was my RBC Visa. I got this card because it made sense: I have been an RBC client for almost 20 years, so when it came time to get a credit card, that was the first place I turned.
Having a credit card with the same institution where you do your daily banking makes tracking easy. Payments from my RBC chequing account showed up right away under pending transactions, which gave me a clear idea of how much I owed.
This changed when I made the switch to using a credit card with a different bank. Now, when I make a payment on my credit card, it takes a couple days to process.
When I fall off the tracking wagon, it gets very confusing, very quickly.
Honestly, this is one area where I still struggle sometimes. Tracking spending has never been my strong suit; it’s something I plan to work on during my six month shopping ban. Hopefully cutting spending down to a minimum will make it easier to fall into a good system.
If you’re budgeting with credit cards, find a way to keep track of your spending and payments.
Choose the right card
One of the reasons we use credit cards — specifically, the Tangerine Mastercard — in our budget is the ability to earn cash back on purchases.
In fact, the cash back program was what motivated me to sign up for the card in the first place. While the RBC Rewards program had resulted in a handful of different gift cards over the years, the idea of being able to earn actual money from my purchases was far more alluring.
This experience taught me an important thing about credit cards — they are not all created equal. Some reward programs are better than others and the only way to rank them is to consider your own individual needs.
So if you’re budgeting with credit cards, take a moment to consider what you’re getting out of the card and make sure you’re getting the most bang for your buck.
Check your account regularly
For the most part, I check our accounts every single day.
It doesn’t take long — it’s typically a quick scan to make sure nothing looks out of place. Making a habit of doing this regularly means I am able to quickly spot irregularities. I haven’t run into any suspect (so far) but in the event I did, this would enable me to act quickly to get it fixed.
If you’re budgeting with credit cards, make a habit to check your account regularly. This is one way you can protect yourself against fraud.
Shopping online? Make it a manual transaction
In other words, turn off the option to have your computer remember your credit card details.
I don’t know about you, but I find it far easier to fall into the trap of buying things I don’t need if I don’t have to do any real work for it. Sometimes, having to get up from where I’m sitting to get my credit card out of my wallet and type all the information into the website is enough to convince me to put off the purchase — or to not buy it at all.
While the browser often does require you to fill in some details when you use the remember me option, more often than not it’s the easy things, like the expiry date or the code on the back. While this would provide some security from someone who isn’t supposed to be using the card, it certainly wouldn’t stop me from stealing from myself.
If you’re budgeting with credit cards and doing any of your shopping online, make it a manual transaction. Sometimes that can be enough to curb impulse purchases.
Know when to cut yourself off
This last tip is the most challenging one on the list, in my opinion.
It can be very difficult to admit when something isn’t working. But while I don’t think credit cards are inherently evil, I do think there are some people who simply should not be using them. They don’t work for everyone.
Different budgeting methods and tools work for different people. Personally, I struggle with all-cash. I wish it worked for me, but the combination of struggling to keep track of it and the anxiety that comes with the idea of losing it doesn’t work for me.
And that’s OK. There’s no shame in that. The same goes if credit cards don’t work for you.
So if you’re budgeting with credit cards and it’s not working for you, don’t be ashamed to opt out and try something that does work.
Personal finance is personal. The idea of using credit cards, especially on the debt-free journey, is frowned on by some but I really do feel like it comes down to your personal preferences. What works for one person might not work for another — and that’s OK.
If you do use credit cards (or if you’re thinking about integrating them into your budget as a tool), hopefully this list of tips is helpful. They have certainly made a difference for us on the debt-free journey!
Do you use credit cards?
I agree credit cards can be very useful if used properly, especially if you can get cash back (and many of them have great cash back percentages!)
I cannot believe it took me SO long to get a cash-back credit card! For some reason it just did not occur to me that there were better options. Live and learn, I suppose haha.