I am addicted to credit cards. Yup! I literally cringe when I see people paying for things with cash or debit (especially my mother). I’m a Finance expert by trade, and one of my biggest passions in life is to educate people on credit and healthy credit use. At the end of 2018, the sum of credit card debt in the U.S. totaled approximately $944.0 Billion.
The reason that many Americans are in heavy credit card debt is because people just do not understand how to properly use credit. I say this all the time: Your credit cards are not extra money! Credit should be used as a tool to achieve a goal, whether that is to get a good interest rate on a loan, use an introductory 0% interest rate for a big purchase, or my personal favorite – to stack up on rewards points or miles.
I place all of my purchases on credit cards, with the exception of my rent. Things like utility bills, groceries, gas, clothes, and happy hour are all necessary items that I am going to spend on regardless (Yes, happy hour included! Don’t judge me). By putting these purchases on my credit cards, I am able to maximize my rewards points. When the bill comes, I use the cash (aka my paycheck) that I would have otherwise used, to pay off my cards. In the end, I rack up the rewards points from my card, and my pockets are happy. These points will later afford me a “free” flight, hotel stay, or gift of some sort. I also have some cards that give me significant cash back instead of points.
The key to this strategy is to not overspend! Repeat after me: Credit-cards-are-not-extra-cash! I have approximately $40,000 in available credit, and trust me, it is very tempting to ball out and spend it all. I even have one card that does not even have a spending limit! Whew chillay, the Birkin is calling my name. However, excessive debt is directly linked to stress, depression, and anxiety, and I don’t need that type of negative energy in my life.
Overspending on credit cards will cause you to:
Accumulate Excessive Interest
When it comes to credit cards, there is no such thing as a “good interest rate.” You will almost always see rates that range between 15% to 25%. If you pay your bills on time and in full, you will avoid paying interest.
Lose Out on the Benefits of Points/Miles/Cash Back
If you allow your rewards cards to accumulate interest, the amount of interest will likely cancel out the cash value of the reward points. For example, let’s say that I collect 700 points in a month, worth $7. When my bill comes, I only pay the minimum payment. As a result, I am charged $15 in interest. This $15 is more than the value of the rewards, which negates any benefit the points would have had. (This is just an example, no real numbers here).
This, my friends, is probably the most important part. Credit card interest is no joke. Keeping up with the Jones’ is sooooo 2002. Don’t go broke trying to impress people who don’t even know you in real life. The key to financial wellness is to spend within, and preferably, below your means. Why would you want to spend your hard-earned money by paying interest to a billion-dollar corporation like Chase, Bank of America, or Citi? Keep your money in your pocket folks. Uncle Sam already taxes the hell out of us.
If you are new to credit, get yourself a starter card. Believe it or not, experts say that having no credit is just as bad as having bad credit. A starter card will allow you to begin racking up cash back. Once you feel comfortable and have a budget or strategy in place, then you can move up to more advanced rewards cards like these. If you have no idea where to start or if your credit is in bad shape, I can certainly help you with that! I offer personalized and in-depth credit consultations.
“Financial freedom our only hope. F*ck living rich and dying broke!” – Jay Z