The greatest way to use credit cards comes down to 2 simple steps.
- Only credit cards when you have cash in the bank to pay the balance.
- Pay your credit card balance off in full every single month.
In the interests of transparency, I will admit that I use my credit card all the time. Gas? Groceries? Travel? Clothing? Repairs? Streaming services? Subscriptions? Theatre tickets? Birthday presents? Electronics?
Yes, yes, yes! I tap my credit card for all of it. I love earning points with my card because points translate into dollars at the grocery store. A few times a year, a big grocery haul can be purchased with points. This is a great thing for my cash flow. Other people I know prefer to swipe for travel rewards. They’ve got large families so travel rewards work to ensure no one family member need be left behind. And I know there are people who simply love getting cash-back. If I weren’t getting “free” groceries, I would definitely be using a cash-back card.
Also in the interest of transparency, I pay off my credit card balance every single month. I have a very simple method for doing so. After I make a purchase on my credit card, I go to my chequing account and send a payment equivalent the purchase amount to my credit card.
I rely on the pay-as-you-go method to keep my credit card balance at $0. Personally, I prefer to pay off the charges right away, instead of waiting to get my statement at the end of the billing period. Making multiple payments throughout the month ensures that I don’t “accidentally” spend the money in my chequing account on something else. By paying the charges as I incur them, I’m not under the gun to come up with a large amount once a month to pay off the full statement balance. Also, paying my credit charges as they arise is a pain the butt. If I don’t want to experience the pain, then I don’t spend.
For those larger-than-normal purchases that crop up in life, I rely on my sinking funds. I don’t swipe my card without having the money set aside already. For example, I replaced my computer this week. I knew a new computer would be a 4-figure hit to my wallet, so I’ve been saving for this purchase for the past 6 months. When I went to buy it, it was no big deal to use my credit card. The money for this expense is already sitting in the appropriate sinking fund. All I have to do now is simply transfer the money over to my chequing account and send a payment to my credit card. Easy-peasy-lemon-squeezy!
By following these two rules, I have discovered the greatest way to use credit cards. I never pay interest. My credit score remains high. I stay out of revolving debt since my credit card balance is always at $0. And I get to collect lots of points that can be used to buy anything I want at my preferred grocery store.
If there’s a better way to use credit cards, please do share with the class.