Best Way To Use Credit Cards - Accounting Accidentally

Credit card companies profit from the uninformed.

So don’t be uninformed.

Here is some broader personal finance advice first- then the best ways to use a credit card.

First things first: Delay gratification to avoid credit card use

Be willing to delay gratification, and you won’t need a credit card. Some decisions are relatively small:

Dropping a subscription music service and just listening to the free version (Pandora, for example).
Making coffee at home two days a week, which means that you stop by Starbucksless often.
Buying afew more generic products when you go to the grocery store and Target. (I’m not going generic on salad dressing, however).

Since these are smaller decisions, the amount of gratification you’re delaying is small. You don’t mind listening the commercials on Pandora (I certainly don’t- I just turned down the sound), and the coffee at home isn’t bad.

Other decisions are much bigger. StudySoup wrote this great article on the average amount of money a college student saves by having a roommate. The average savings over four years is over $15,000. Now, having a roommate is a big sacrifice, because you lose a fair amount of privacy. If privacy is really important to you, it’s a true delay of gratification (until you graduate, get a job and can afford to live alone).

SoFi provides a number of services, including attractive credit card rates, student loans, home loans, and insurance products. When you become a SoFi member, you get access to financial advice, and invites to member events.

So, what do I get?

OK- so what do I get out of all this delayed gratification?

You build wealth- which can give you peace of mind.

Here’s a practical example: By making changes to your spending and building a savings account, you create a $1,000 emergency fund. If your car brakes down, you can pay for the repair.

Create a budget, and move funds into a savings account

Create a budget, even if that budget is simply on notebook paper.
Separate your expenses between fixed and variable, and take a hard look at your variable spending.
Take steps to cut your variable expenses each month and put the amount you save into a separate savings account.

Monitor your spending and your budget

Consider using a budgeting app to monitor your spending, and
Set up a separate bank account to discipline yourself to save.
Save 5% of your monthly gross income

Use a retirement account to invest- through an employer, or on your own

Carefully review each retirement plan offering from your employer.
Ask about the tax-deferred investing component of your firm’s retirement plan. Do your investments grow tax-deferred?
If you’re self-employed, ask financial advisor about your investment options

If you’re recovering from a financial setback, this article may help.

Critically Important Strategies: Credit Cards

Read the entire, boring agreement: Yes, it’s dull, and you’re probably tempted to throw the agreement in the trash- but read it. Recent changes in federal law have forced credit card issuers to make agreements easier to read, but it’s still a struggle. Read the whole thing, and take some notes- particularly about payment due dates.

Pay a day early- even online: Don’t take the risk of paying late, so pay a day early, and ONLY pay online. Mail is too reliable, and makes difficult to prove that a payment was made on time.

Pay in full, every time- or don’t get a card: Using credit wisely can build your credit rating, but that’s the only reason to use a credit card. If you can’t pay the card in full every month, don’t use it. The interest rates are simply too high to justify carrying a balance.

Only use a card that earns points: There are so many credit card choices, that you should be able to find a card that gives you airline, hotel, or purchase points.

Balance transfers: OK- you can certainly find a card that’s willing take you as a client in exchange for a lower, “teaser” interest rate. But, like I said- don’t carry a balance.

As always, check with a financial advisor and a CPA for more specific advice.

Good luck!

Ken Boyd

Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies

Co-Founder: accountinged.com

(email) ken@stltest.net

(website and blog) https://www.accountingaccidentally.com/

(you tube channel) kenboydstl

This post was originally posted on my Quora page. This post is for educational purposes only.

Image: Bullseye, Jeff Turner CC by 2.0