Ways to Save Money #10: Don’t Carry a Credit Card Balance
This is part ten of the Ways to Save Money Series.
Some of the referrals I promote on this site are for various credit cards. I battled with the idea of promoting cards when I myself had so many problems with them. However, I was able to triumph over my credit card addiction, and I feel many others of you are also able to resist the urge to spend when you don’t have the money to pay off the card each month. And that’s what this “Way to Save Money” is all about: Saving money by paying off your credit card balance each month.
This is one of those “Save money by not spending it” methods versus the trust “Sticking money in the bank” types. By paying off your charges in full each month, you’ll avoid paying interest on the balance. Granted, the credit card companies have some sneaky ways to trick you into messing up, such as changing the grace period or due date without notifying you (although they’re required by law) or burying the notice in some crazy amount of fine print. There’s only so much you can control, but by monitoring your statements and spending habits, you can seriously help your debt management efforts.
Since paying off our “legacy” credit card debt (i.e. the stuff from college, our wedding, our new house and some mistakes) back in September 2007, we still continue to use our credit cards. However, we have not carried over a balance on an interest-bearing account since then. We charge over $1000 per month for groceries, gas, dining and any other purchases in order to get cashback and rewards points and to track our spending more accurately (versus paying with cash only).
Granted, there come times that some of us truly can’t make ends meet that month, even if we’re maintaining a frugal lifestyle. Perhaps you’re only able to live paycheck-to-paycheck, and too many bills are due at the same time. You might have to charge a few to your card. I strongly advise that you don’t let those charges ride past the due date or you could easily find yourself in a hole. It’s not hard for the interest to become overwhelming, especially on a high interest card. But if you do slip one month, don’t think “all is lost!”, because it isn’t. Just pick back up where you left off and tackle that credit card debt. Don’t let it pile up month after month.
So in summary, by paying off your credit card balance(s) each month, you’ll avoid paying interest, potentially earn rewards and cashback, and utilize the convenience of living in a cashless society. You can then use that additional income to tackle other debt, increase your rainy day fund, or contribute to your retirement account!
I can’t wait to get to this point! I’m still fighting down my legacy debt and until I can get rid of it my transactions will consist of as much cash as possible. Good advice once you’re debt free.
Using credit cards for the rewards or cash back is great, but if you have struggled with them in the past you may want to think twice. It’s not worth the one percent cash back if you have to pay even one month’s interest.
Another good idea is to let your paychecks sit in a money market or some other type of interest-bearing account until you pay off your credit card bill for the month. Even a savings account that pays very little interest is better than a no-interest checking accounts.
An easy way to handle changing due dates is to sign up for automatic payment. Then they deduct your full payment from your bank account on the due date whenever it is. I do it with my main card. One advantage is that they always deduct exactly on the due date, so you get full grace period whereas when you pay yourself, you need to send the check in advance. Occasionally they deduct a couple of days later – but since it is their choice, it isn’t your problem.
Another easy way to avoid a credit card balance is to use retail tools like layaway when making purchases. Paying a fixed amount over a finite period of time gives you a sense of accomplishment once the purchase is paid off. Plus it’s interest free!
Deanna (on behalf of Kmart)
This is a sneaky one! Credit card companies have the ability to make your life terrible if you carry a balance, or accidentally miss one payment. Current things I’m seeing from them are raising interest rates to insane levels (like 30% on your balance), and changing your due date for your payments without letting you know (oops! You missed a payment even though you had it on auto-pay, now pay us a penalty).