Ahh credit cards… the magical little pieces of plastic that can help you “live your best life” but also ruin your life. That’s a little extreme, but it’s true! Credit cards can be helpful tools, but on the other hand they can also really hurt your financial well being. If you have a real emergency and don’t have money to cover said emergency, a credit card can help you temporarily. They also come with pretty great rewards that make it so hard to resist. 5% cash back on restaurant purchases?! Ummm hello yes please.
Oh and don’t forget if it’s a credit card to a store, the coupons and rewards they send are just soooooo tempting! So all those things sound nice, but if you get a little out of hand and suddenly find yourself with a bunch of high interest debt, it can become really overwhelming and stressful. Before you know it you’re making all these minimum payments but the interest rates are so high you barely feel like you’re making any progress.
My relationship with credit cards
Once upon a time I was like many young people with credit cards. I was excited and would use credit cards to buy things that I wouldn’t otherwise buy. Some things were important like college textbooks, but of course there were also the expensive shoes I just had to have.
A lot of the times, I had cash saved that I could use to buy things like the expensive shoes, but there was something about paying it with a credit card and then paying it back over a period of time that felt a lot better. The good news is that when I went through that phase, my credit card limits were relatively low so I didn’t get to the point of no return.
There was a turning point for me though. When I graduated college and officially started my career, I knew that I didn’t want to be in a cycle of constantly paying back credit cards. I wanted to be able to save and invest the money I was about to begin earning after working to get through school. At that point, I made the decision that I would pay off the balances I had and never carry credit card balances again.
I used my first couple paychecks from my new job and paid off the balances I had. They weren’t too crazy, but they were there and I wanted them gone. Since then, I’ve used credit cards but I pay the full balance every single month. Now I know I just said that I made the decision to never have credit card debt again, and I stand by that today. I don’t know what life has in store so I can’t say that I’ll never have to use a credit card for some kind of emergency, but I know that with the steps I’ve taken and the habits I’ve built, it’s a lot less likely that I’ll have to.
So… how do I stay credit card debt free?
I created a plan for my spending. This a sneaky way of me saying budget lol. One of the easiest ways to get into a lot of credit card debt is by swiping the cards without paying attention to how much is adding up. This happens and then you look at your statement and think it must be a mistake and they sent you someone else’s statement. Nope, they’re usually always right. Creating a plan for spending AKA a budget, helps me stay disciplined and not get carried away with the swiping. It also helps when you’re in the paying off stage and you want to know how much you can pay towards the credit cards every month.
I built an emergency fund. I saved money for emergencies and unexpected expenses. This can be anything from a repair for my car, a health bill, or anything else that comes up that I didn’t plan for. Having an emergency fund helps because when these things come up, I no longer have to resort to swiping a card. I have the money there that I’ve designated this purpose for.
I put all my credit cards away except ONE. As I mentioned earlier, I didn’t stop using credit cards I just stopped letting the balances accumulate. I use one credit card regularly to make my everyday purchases because I get pretty sweet cash back rewards for using it. The rest of the credit cards are put away in a safe place. I do NOT carry them with me in my wallet. This makes it less tempting to reach into my purse and swipe and also is more secure than carrying around a bunch of cards.
I pay off the one card I use every month. The one credit card I use is used for regular everyday purchases — gas, groceries, dining out, etc. I don’t allow myself to carry a balance on this card. Whatever I spend every month gets paid off. Sometimes I get a little out of hand and when it comes time to pay it does hurt, but I’d rather do that and be done with it than make myself feel better about it for a little and then pay a crazy amount of interest.
These are the steps I’ve taken and continue to practice to stay credit card debt free. I don’t think using credit cards is a bad thing, and I definitely think there are wise ways to use them for rewards and discounts. With a little bit of discipline, it’s certainly possible to use credit cards to your advantage.
Nothing on this blog should be considered personal actionable advice, research, or an invitation to buy or sell any securities. Consider all risks before investing, including the loss of your hard earned money. Vee is an Investment Advisor for Warren Street Wealth Advisors, this blog reflects her personal views, and not that of Warren Street.