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Live Debt-free: 5 Tips for Budgeting With a Credit Card

Growing up, I saw firsthand what it was like to get stuck in the cycle of debt. I’m the child of a single mother who supported our family with her meager income and, of course, credit cards. By the time I graduated high school, my mom had racked up a hefty amount of credit card debt. With interest rates climbing higher and higher and only being able to afford the minimum amount due every month, it became nearly impossible for my mom to escape the debt cycle.

According to WalletHub™, the average American household has over $8,000 in credit card debt. It’s true that taking out a credit card, every consumer’s favorite frenemy, can be necessary and even beneficial. But so often, the most vulnerable groups are the ones that fall victim to the debt cycle — single-parent families, lower-income households, and young people. 

So how do you keep debt from running (and ruining) your life? It all starts with a budget. Here are some reasons why budgeting is important and tips for sticking with a budget or spending plan, even when you’re using a credit card.

Let’s start with the basics. Why is budgeting important?

Budgeting might only cross your mind when you’re planning a vacation or major purchase. But we’re not talking about the yoyo-style budgeting of ramen and water before spending big on luxuries here. In order to live a debt-free life, it’s important to approach budgeting as a full-on lifestyle. Especially if you’re using credit cards to stretch or supplement your monthly income. 

Here are some of the top reasons why budgeting is important:

  1. Helps you reach your goals faster
  2. Ensures you don’t spend money you don’t have
  3. Keeps you from stressing out over money
  4. Puts you in control of your money
  5. Helps you notice (and nix) bad spending habits
  6. Gives you flexibility during hard times (i.e. a job loss or medical emergency)

Humble brag: this very blog is a great resource for valuable budgeting hacks and info. From top budgeting mistakes to the importance of budgeting for different stages of life, you’ll find tons of helpful tips to master money management.

 

Can you really budget with a credit card?

Budgeting is all about avoiding spending money that you don’t have. But when you take out a credit card, spending money you don’t have is the name of the game. So why take out a credit card at all? 

There are benefits to a credit card that cash or debit cards don’t offer, like building credit history, providing flexibility between paychecks, and earning rewards (although some debit cards can help you earn rewards — hello, Kasasa). The trick is to spend smarter with your credit card, so that you don’t end up in a money hole you can’t climb out of.

 

Become a smarter credit card holder with these five budgeting tips.

Tip #1: Build your budget off your income — not your credit limit.

A good budget starts with how much you have to spend in a given month. Even with a credit card, that number should come from your monthly income. Not the multi-thousand dollar credit limit you’ve been given.

Remember: this is not free money. The goal should be to use as little of your credit limit as possible, not as much. That will help you stay on track with your budget and even help raise your credit score.

 

Tip #2: Use your credit card only for fixed costs...

Studies have shown that people spend more when they’re using a credit card versus cash. This subconscious phenomenon is why Dave Ramsey’s cash envelope system is pretty brilliant. If you only have $50 to spend for the week, then that’s all you’re going to spend. Period.

That’s why it’s a good idea to designate your credit card for fixed costs only — and leave it at home when you’re heading to the mall or out to eat. If you know every month that your credit card bill will consist of just your Netflix subscription and phone bill, it will be that much easier to plan for it and pay it off.

 

Tip #3: ...but don’t use it for rent.

Rent might be a consistent, fixed cost you can plan for every month, but if you’re thinking of putting it on your credit card — just don’t. 

For one thing, a lot of apartments will tack on interchange fees for using a credit card. No, thank you. But there’s also the fact that things like rent and other basic life necessities should be built into your normal budget so that you can take care of what matters most while avoiding spending money you don’t have.

Forbes reported that nearly one in five credit card holders are dependent on credit cards to pay for their basic living expenses. That’s a slippery slope. By putting these types of expenses on your credit card, it would be way too easy to throw away a budget altogether. 

 

Tip #4: Create a safety net — so you don’t have to use your credit card during emergencies.

An emergency fund is a vital component of any good budget. And it’s even more important when you add credit cards to the mix. 

Let’s say you lose your job unexpectedly. With or without a severance package, that’s a scary prospect. It takes time to find a new job and without an emergency fund to pull from, it would be far too easy to max out credit cards as you try to pay for your living expenses. Having an emergency fund in a dedicated savings account is the best way to avoid getting into more debt. And the best part is you’ll be earning interest — instead of paying it.

 

Tip #5: Be aware of your credit card’s interest rate and fees.

One final tip to remember: knowledge is power. Educating yourself about credit cards is one of the best ways to avoid letting debt run your life. Get to know the ins and outs of credit cards, from how interest is calculated to what all those fees actually mean, here. And be sure to read the fine print on your own credit card, so you know exactly what kind of deal you’re getting into.

 

“With great power comes great responsibility.”

When it comes to credit cards, let’s never forget Uncle Ben’s sage advice for Peter Parker. A credit card is a great responsibility that should never be taken (or given) lightly. Being smart about your credit card use — and creating and sticking to a seriously solid budget plan — is the best way to avoid getting trapped in a black hole of debt.

 

Tags: Budgeting, Personal Finance, Credit Cards