We’ve all heard that credit cards can get you in trouble. When you use them, you have a risk of spending money that you don’t have, and getting yourself into serious debt. Heck, that’s probably how most personal finance bloggers have gotten started. They rack up serious debt, get a swift kick in the rear from reality, pay down their mountain of debt and start a blog. That’s pretty much my story. But I never really racked up much CC debt, mostly it was a personal loan and student loans. I paid interest ONCE on my credit card, and never again. I HATED the feeling of someone siphoning my cash out from under me, I felt like I was being scammed. Though, that’s didn’t stop me from blowing $100,000 before I turned age 21 (UGH! Don’t remind me).
So, Why Do I Have A Credit Card?
Oh, right, my credit card. Honestly, I had drank some of the Dave Ramsey kool-aid at first, and was planning on living my life credit-card free until I could pay for my own island with CASH MONEY and retire early with my mounds of Benjamins keeping me company. After about 7 seconds, though, I realized that I might be missing out on some of the benefits of using a good rewards card. Not to mention I could purchase everything on one card and make one payment a month to take care of my spending. We started by going with a store credit card for the grocery store that we shopped the most at. We would get 3% on all purchases at that store, and 1% for all other purchases. The rewards came in the form of “grocery bucks” that we could use to lower our food budget for that month. We did this for about a year. But the store could not seem to calculate basic math, and kept shorting us on our points. We probably ended up being shorted $50-$100, even after we fought for our coupons every quarter. This was not working.
About this time, we were also looking to plan our first vacation that required an airplane since our honeymoon. We wanted to go to Hawaii for a week, and though, being the frugal man that I am, I would have rather opted to sneak onto a shipping vessel bringing new cars to Hawaii, I thought it best for my marriage to look into booking a flight. The airlines that we normally use (read: the cheapest one) had a credit card offer that seemed pretty awesome. We could sign up, get 25,000 bonus miles (which equals one round-trip ticket) and get a $99 companion ticket voucher right away. Since we were about to book the flight soon, I jumped on this. I was a little worried we wouldn’t qualify, but our credit is decent, so we got the card a few weeks before the vacation. It took about a week to receive the voucher; we booked the flight, and saved about $350 right off the bat. W00t!
We’ve since used the card for almost every purchase, including some bills on auto-pay. We are planning a trip across country for a wedding, and will be able to book the flight using points. This will save us another $700+ this year. Based on our spending, that’s probably a 2% return or so, which is pretty good. We have had this card for 2 years, and have saved over $1,000 using it (minus the $150 in annual fees for those 2 years). We have also NEVER paid a cent of interest, because I never buy something unless I have the money for it. On the surface, it looks like we made a great investment.
Why Maybe We Shouldn’t Use a Credit Card
But it’s not all roses and puppies and rainbows up in this piece. I’ll be honest, I have noticed that we spend more money when we are using our credit card. Mostly, I can see this happening in our “food” category. We will go to the store and drop $80 on “necessities” that we don’t actually need, but since we’re not handing over cash out of our already-slim food budget, we don’t think twice about it. Plus, hey, we’re rackin’ up the miles! I can almost feel the sand between my toes as we scan our $16 bucket of pistachios that we’re going to end up eating in 3 days. Or maybe that’s not sand, but the rubble from all the cash we’re burning….hmmmm….?
We also are less apt to stick to our meal plan if we can just grab food on the way home or pick up some extra groceries because we have a craving. I’ve tracked this and we ended up spending about $600 for our food budget, though our actual budgeted amount was $300. OOPS! Part of why I wrote about our Budget Confessions. We also tend to buy more stuff that’s not in the budget at all. We allocate ourselves some spending cash each month, and when it’s gone, it’s gone. But what if we “need” something and have run out of spending cash? We wouldn’t dare tap the account and spend cash, so we end up throwing it on our credit card. My wife is a sweetheart who is frugal as they come, but when she wants something that’s outside of the budget, she has a magical way of making it look like people are giving us money to buy their product . And thus our budget has an inflated Misc category for the month.
So, What Are We Going To Do?
Well, for one thing, we started using emeals to plan our meals, shop the deals for us, and give us a shopping list to help us save money. That’s the best way for us to meal plan and save money without any of the hassle. We got a sweet Groupon for half-off, but even at “full price” it’s something like $5 a month for a plan that would take you at least an hour a week to come up with. That’s already saved us a few hundred dollars. So, we are still going to use our card there. For our spending cash, we are pulling out actual cash each month, and when it’s gone, it’s totally gone. Basically, our miscellaneous spending comes down to having a little discipline and planning better. If it’s truly something we need (like an autographed copy of Justin Bieber’s latest album) then we should be anticipating it better. If it’s something we don’t need, we can use the word “no” and move on (as hard as that may be sometimes).
So, in conclusion, we are still going to use our credit cards for all the fixed expenses we can, and even for some of our discretionary spending, but when it comes to our spending cash, there too much risk and not enough reward to justify using our card. When we’re swimming in money (Scrooge McDuck, anyone?) we can probably afford to up our spending cash, and using our card won’t be much of a big deal. But with our current budget, it’s not worth it.
Comments: Do you tend to spend more when using a credit card? Have you tried switching your most “out of control” category to cash? Does your “rewards” card really end up hurting you in the long run? How have you used credit cards to your advantage? Also, did you know the world is going to run out of helium soon? I think I should start buying up helium now and sell it at a premium later. You kids’ birthday party budget is now going to have to allocate $300 towards balloons. And I’ll be on an island somewhere reaping the benefits. HAHAHAHAHA! No more Uncle Tom singing Happy Birthday like a chipmunk (thank GOD!!!)