How do you Manage Finances Using credit cards?
Using a credit card to manage your personal finances can seem like a bad idea. However, if you see credit cards as helpful tools and you’re careful, the rewards can be high. Use it irresponsibly, and you’ll dig yourself into a financial hole that is difficult to get out of. With this in mind, we’ll go over several ways to manage finances using credit cards.
7 Ways People Manage Finances Using credit cards
When it comes to you trying to manage finances using credit cards, there are several things you can do. As we said before, your credit card is a powerful tool, and you should use it wisely.
1. Built-In Record Keeping
Keeping good records can be an essential piece to managing your finances. It’s easy for traditional paper receipts to get lost or misplaced. When you manage finances using credit cards, you get a built-in record system. Your monthly statements will have everything you need to tell exactly where your money is going. It’ll list the transaction date, merchant name, and the amount you spent.
2. Rewards Points Potential
Paying bills using credit cards earn rewards. If you pay off your card each month, you’ll avoid interest charges, and you can start earning rewards. Some cards offer cash back options or travel rewards. These rewards can be as high as 2% of all your purchase transactions per billing cycle. If you use your card repeatedly throughout the month, these add up. It’s especially beneficial if you can redeem them for cash back.
3. Build Your Credit Score
Being responsible and learning to manage finances using credit cards can build your credit score. It’ll also leave a trail for lenders to look at, and show a history of responsible use. This can lead to lower interest rates, better reward offers, and being accepted for loans easier. A higher credit score can potentially save you thousands in interest charges.
4. Help With Filing Taxes
When it comes time to file your taxes, having itemized statements from your credit card can help. They’ll help you accurately and quickly see charitable donations, business expenses, and other deductions. These can work to lower the amount of taxes you owe each year, which saves you money.
5. Save Money Through Special Financing
Many credit cards offer interest-free financing for a set period. You can purchase items and take more time to pay them off without interest. As long as you pay them off inside the allotted time, you’ll save money. You won’t be worrying about paying interest charges each month. This simple personal finance tip can save you hundreds on interest. However, make sure you pay the balance off before the promotional period ends. If you don’t, the lender may add interest for every month of the promotional period.
6. Added Security
Life doesn’t always go the way we want it too. If you do freelance work or don’t have a steady income, a credit card adds security. For large unexpected bills, you can use a credit card to hold you over until your income kicks in. As long as it’s within the allotted grace period, you shouldn’t have a problem. Traditionally, a grace period is 25 days, and the law mandates at least 21 days. Most credit cards have a 30 day grace period. This gives up potentially 55 days to pay your balance in full without added interest charges.
7. Consumer Protections
One you spend your cash, it’s gone with no added protection. A prepaid card does have small protections, but it still gives direct access to your money. Credit cards are a different story. The levels of fraud protection make them popular for people to manage finances using credit cards. This stops you from being liable for any fraudulent purchases, and it won’t disrupt your cash flow.
Budgeting Using a Credit Card
Now that we’ve discussed reasons why people manages finances using credit cards, we’ll talk about budgeting. Credit cards can be a powerful tool to ease the budgeting process, especially if you’re new. There are three popular budgeting systems many people use to manage finances using credit cards.
- Online. Online software allows you to track your expenses and savings easily. Additionally, there are several that’ll track your credit card use for free.
- Spreadsheet. Start by making a spreadsheet with two separate columns. One column is for expected expenses, and one is for your actual expenses. Totaling them at the end of the month will allow you to see where you need to trim your spending.
- Zero-Sum. You use your last month’s income for your needs this month. This forces you to pay yourself first and optimize your monthly spending.
Steps to Making Your Budget When You Manage Finances Using Credit Cards
Once you’ve chosen a budget style to suit you, you can move on to the next steps. Start by listing all of your monthly expenses and compare them to your income. Start by listing essentials like:
- Rent or Mortgage Payments
- Utilities
- Vehicle Payments
- Insurance
- Loans or Credit Card Payments
- Food
Spend Wisely When Budgeting Using a Credit Card
This is where manage finances using credit cards comes in handy. You’ll have a list of off the small things you purchase each month. When everything is added, compare it to your monthly income. There are multiple ways to use credit card alerts to help budgeting using a credit card and curb your spending.
If you spend more than you bring in, you’re most likely in debt or headed that way. Looking at your credit card statements will allow you to see where you’re spending. It makes it easier to cut out later.
Once you’ve compared the expenses and income, look for places to reduce your spending. This is the time you allow certain amounts for ‘extras.’ For example, you budget for $150 eating out each month. You’ll be able to see in real time how close you are to maxing out your budget and cut accordingly.
Next, create a realistic budget and slowly start decreasing your spending. If you spent $1,000 on groceries, try for $800 next month. When you have your budget set, using a credit card to manage your finances comes in. Purchase everything on your credit card. This will give you exact totals to your spending habits, and you can monitor it.
Important Points to Learn When You Manage Finances Using Credit Cards
Don’t Overspend
While it may be tempting to overspend when you’re trying to manage finances using credit cards, don’t do it. This is one of the fastest ways to get yourself into trouble. You want to decrease your debt, not add to it. This also means you pay your balance off each month and don’t live above your means.
Be Leery of Interest
If you carry a balance on your credit card, you’ll get interest charges. These have the potential to add up quickly, especially if you’re not paying attention. Paying your card off each month will allow you to avoid interest charges altogether.
Avoid Debt
You’ll only be able to manage finances using credit cards with responsible use. So be aware of the warning signs of credit card debt. You want to avoid going into debt. This is an easy way to hurt your credit score. Additionally, it’ll cause more problems, and you’ll lose more money by going into debt.
When it comes to managing your finances with credit cards, they can be a wonderful tool. If you don’t think you can use them responsibly, don’t do it. They’re meant to ease your finances and not make them worse. However, if you’re careful, you can boost your credit score and manage your finances.
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