Credit cards are a double-edged sword. People are addicted to the plastic crack. They buy stuff they don’t need to impress people they don’t like. Plastic money has Americans hooked. Advertisements for cards are everywhere. How bad is it? According to some statistics, the average American household has over $15,000 in credit card debt.
I do not advocate that everyone should have a credit card. If you can not control your cash you definitely can not control your plastic spending. I teach Financial Peace University classes and we strictly preach debt freedom and get rid of your cards. Why? Because most people will spend when they carry a credit card. Furthermore, those same people will not pay off their current charges and carry a balance. Thus putting them back into credit card debt.
There is a myth that you need credit. That is a lie. You don’t need credit to survive. It does make it easier to travel, rent cars, and book hotels. But the truth is you can do that with a debit card. The buy now pay later syndrome is why so many people are in debt. This is how people get trapped and are on the path to financial disaster.
Only The Responsible and Disciplined
I use my cards every day. But I pay off my balance every month. Paying interest is not smart. I still think that most people should not own or use a credit card unless they are responsible and disciplined to pay it off every month. As I mentioned earlier if you can’t control your cash you will do worse with credit cards.
Hear me out again. Paying interest on things you buy is just foolishness. If you can’t pay off the balance do not buy the darn thing. Do you really need it anyway? Is that new big screen necessary now? Or is a happy hour that important? Think before you pull it out. Better yet leave it at home.
Not For Emergencies
They shouldn’t be used for emergencies. This is an excuse that people use because they are not financially ready. What are emergencies? The tire blew out, the air conditioner doesn’t work, kids need new shoes, and you are hungry, and broke. You pull out your plastic to pay for these things and then you start to rack up that balance. You fail to pay the balance and the next month another “emergency” pops up. If you don’t have an emergency fund then you are setting yourself up for failure.
Here are 4.5 Ways to Really Use Your Credit Cards:
1. To Make That $$$
Wealthy people use cards to expand their businesses. They use it to make that $$$. Here is the key! They pay off their balances at the end of the month generate income with their cards and then pay it off. They hate paying interest. I am an affiliate marketer and I use my credit cards for marketing and I pay the balance every month.
There is a daily limit on your debit card usage. But not with credit cards and I don’t need limits on my spending. My credit cards help me make money. If your plastic can help you increase your income then by all means use it.
2. Not for Personal Use
If you can’t pay the balance by the end of the statement do not buy it. If you couldn’t buy it with cash then don’t get it. I know you will pay it off later. If that was true there wouldn’t be all this credit card debt floating around. Don’t even carry it with you. Just having it will give you an urge to buy stuff. Stuff is what kills people financially.
Broke people pay fees and interest rates because they can’t afford to buy with cash. That is the consequence of not having enough money to buy what you want. Fees and interest add up. You are just giving money away when you can’t pay it off before the statement date.
Here is a trick I use. I always have a monthly budget and know where every dollar is going. I take that budget and put it on my credit card. In fact, I create a positive balance on my cards. Then I stick to my budget and I am never owing a balance. Why do I do this? You will see when you read #4.
3. Your Personal Bookkeeper
This is why I use my credit cards for every purchase and get a statement at the end of the month, quarter, and year. I see where my money went and they add graphs too. I download the statements to my QuickBooks software and give the year-end statements to my tax guy. Boom accounting is done.
4. Perks, Privileges, Rewards, and Points
The icing on the cake is all the perks, privileges, rewards, and points you get by using your cards. I am a cash-back guy and I will get a lot of cash back this year (which I save to my investment accounts). My business credit cards give me all the perks. I get points, miles, and discounted VIP event tickets, and I don’t have to pay exchange rate fees when I travel around the world.
I get travel insurance, rental car insurance which saves me $$$ on rental cars, and much more. Plus all this stuff is free when you pay your balance off. When you use your credit cards correctly you can cash in on the benefits
4.5 To Start Your Business
I caution you to not use your credit cards to start your business. Especially if you are a newbie with no experience in the field you are about to enter. The risk is too great. Now I use my credit cards to invest in my business. That was around $20k. That was a huge gamble. But I had 4 years of experience when I took the plunge.
I also kept my day job to help make the monthly payments. I created multiple streams of income to pay off the balances faster. Those balances are at $0 now but I had to rise, grind, and shine. It took some time but my business is successful. If your business fails you still have to pay those credit cards.
Bottomline
Most people should stay away from credit cards because they can’t control their cash and credit cards will make it worse. Only use it if you can afford to pay off the balance every month. Remember paying interest and fees is not smart. Be Smart! It’s a great accounting tool and the perks are worth the discipline and responsibility.
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