Money Talk Series | Part 03
Those of you who have been rocking with me for awhile know I am a big fan of using credit card rewards points to travel. It’s how my husband and I were able to fly to Bali and Hong Kong for our honeymoon without spending a dime and I still use rewards points to travel to this day.
I once posted a video about how we used credit card points for our honeymoon and I got a couple comments in particular that made me clutch my pearls. These commenters went IN on me with all these ASSumptions about my finances. They ASSumed that I was broke, financially irresponsible, and in massive debt. As someone whose credit score has never dipped below 800 in my adult life (not that I can recall anyway), I can safely say my responses to their comments left them silenced. Don’t come for me and my finances—you will not only get checked, but maybe even learn something new in the process. I can say that with confidence because money management is something I have been grossly fascinated with probably since I was in my mother’s womb. Plus I’m mad cheap as you might know from reading my last two money talk blog posts.
I’m not an expert by any means, but I do like sharing whatever it is I do know. With that being said—I actually completely understand where they were coming from. Even though they came for the wrong person, it is true that there are many who don’t know how to properly use credit cards. So I want to make it crystal clear to anyone reading this—you must use credit cards responsibly. And here are my tips on how you can do that!
1. UNDERSTAND HOW CREDIT CARDS WORK
A credit card is a revolving line of credit that allows you to charge as much as your allotted credit limit allows. Each time you swipe it, the bank loans you the money for that purchase and you are given a grace period before getting billed for the loan. The thing to remember is—this isn’t like a regular loan that has a fixed end date and regular monthly payments. With a credit card, YOU decide how much to repay each month. They give you the option to pay a minimum amount, pay your bill partially, or pay it off in full.
The mistake that often spirals people into debt is people use their credit card like it’s free money. It totally isn’t. You have to pay that back boo—and quickly, otherwise you’ll end up paying interest.
What’s interest? It’s the oldest trick in the book for keeping you forever owing money. Interest = finance charges. They accumulate if you don’t pay your credit card balance each month. Understanding how this works is vital to mastering credit card responsibility.
2. PAY THE BALANCE EVERY MONTH
So you know what interest is—and you will want to avoid it like an ex. I know it’s tempting to pick the option of just paying the minimum requirement when your bill is due, but you should refrain from approaching credit cards in that way. Issa trap!
Each time you don’t pay your bill in full for the month, interest gets slapped onto your next payment and that $1,000 bill turns into $1,180. Who has $180 to just be giving out for no reason? What’s worse is many people continue that cycle and that $180 just grows and grows and grows until you owe the kind of money that you COULD have used to buy the ultimate dream vacation! Or a Tesla. Or a smart house. Yep—you really can rack up that much in interest. It happens! It may have happened to you, and that’s okay—never too late to make changes to rectify it.
3. DO THIS TRICK TO KEEP YOU FROM BUYING IT IF YOU AIN’T GOT IT
So how do you pay your balance off in full each month if you don’t have the money? Simple. Don’t buy ish you can’t afford.
TIP: Do this. I promise it helps if you think about it like this. Pretend your credit card is a debit card to help keep you from spending money you don’t have. If it’s not in your bank account, don’t stunt like it is. If you look at your credit card like a debit card, you’ll feel like the money is coming out of your bank account with each swipe.
I say this often–one of the best tricks to spending less money is tricking your brain into making you feel the pain of physically parting with money. That pain is typically felt when you use cash, but not credit cards.
4. GET THOSE BONUS POINTS WITHOUT EVEN TRYING
When you find a credit card with rewards points, it will often give you a certain number of bonus points when you sign up and spend a certain amount on purchases within the first few months. For example, maybe you find a card that offers 30,000 points for spending $3,000 in the first 3 months. You know how easy that is to do? Think about how much you buy over the course of 3 months. Groceries, restaurants, bottomless mimosas on Sunday, clothes, hair styling, nails, smart tech gadgets, spa days for your dog (or is that just me?), and for all my fellow travel addicts—I know you’re spending those coins on vacation.
My point is—you don’t need to do anything special at all to earn those bonus points. It’s pretty much free points when you really think about it, because you’re just using your credit card on things you would normal spend your money on.
So don’t—and I repeat—DON’T do anything extra to get those 30,000 or so bonus points. You will get them without even having to try. Just use your card on those everyday purchases you’d make normally and the points will kick in.
5. USE YOUR CARD TO BUILD CREDIT
My mom is a G. When I was a teenager she taught me about credit scores and made sure I started building credit an early age. She added me as an authorized user to her credit card and encouraged me to make a few small purchases and pay off my balance each month. It’s a smart and safe way to build credit.
For example, maybe you get a credit card and use it to just buy lunch one day and do your grocery shopping another day, spending less than $100. Each month when that small bill comes in, pay it off in full immediately.
Since you’ll be paying the balance within the given grace period, you won’t have to pay any interest—yessss go you! The on-time payments you make are then reported to the three credit bureaus, which means: Ta-da! You are officially building credit with the credit gods.
You may have heard that you gotta pay interest or carry a balance to build credit. Whoever told you this didn’t know what they were talking about. Issa myth! So don’t do it thinking that’s what you need to do. With each on-time payment you make, credit is being built in the process.
So if you’re worried that you can’t responsibly handle a credit card for all your purchases—then just don’t. Instead, use it for a few monthly purchases as a credit building tactic and slowly accumulate rewards in the process. Thank me later when your cred score is poppin!