When we tell you the average American has around $6,000 in credit card debt, is your reaction more:
A) THAT’S IT?!
B) THAT MUCH?!
C) Yep, sounds about right…
D) All of the above. Lots of confusion over here.
Credit cards are a wildly polarizing topic. Some people have made a living breaking down the do’s and don’ts and best practices. Some have chosen to completely ignore that they exist because they’ve seen what credit card debt can do to people. Some have hacked their way to free trips and hotel stays (looking at you, TPG.) Some use them for their not-so-secret online shopping addiction.
If you’re feeling personally targeted, you’re in the right place.
Let’s go back. Back to the beginning . Before we talk about how to use a credit card like a real adult, let’s understand how the process all started in the first place.
Follow the money trail with us.
Credit card companies make money by covering the cost of your charge up-front, and then charging you on a monthly basis to pay-off that charge plus the I-word (interest, keep up) and occasionally the F-word (fees, although we actually like the other F-word.)
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As a matter of fact, in the credit card industry, someone who pays their credit card off on time and in full at the end of every billing cycle is called a “deadbeat.” You read that correctly. You are no good to credit card companies AT. ALL. if they can’t charge you interest or late fees. So step one to use a credit card like a real adult? Pay off your balance in full when your bill is due. And if that statement caused you to give us an eye-roll, maybe you’ve racked up more debt than you can pay off this month… we have something for you, too.
There’s a reason credit card companies are all over college campuses, looking to take advantage of highly educated dummies. Can you point to one class that you took addressing the best uses for credit cards and how to best utilize rewards points? Or did you come to a blog post for that information? (Hi!) They just don’t teach this sh*t in school.
Credit cards are not free money.
Repeat it together with us: credit cards are not free money. They are simply a smarter way to use the money you already have. When we change the way we look at using a credit card, we can take advantage of the credit card companies right back.
One major way to take advantage? Jump on the sign-up bonuses. Oftentimes, these bonuses could exceed $1,000 if you are strategic about it. And don’t fall for the rumor that more accounts means a weaker credit score. You may see a slight dip because of the hard credit report pulled when you apply for a new card, but in the long-run, as long as you are diligent about paying off balances, having more than one account can be incredibly beneficial because your utilization ratio (the second biggest factor in your credit score) keeps getting lower. This is tip #2: If you are staying on top of your payments, don’t be afraid to open more cards. Just because they are open, it does not mean you have to use them. In fact, don’t. One credit card bill per month is plenty to keep track of.
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And rounding out the top ways to use your credit card like an adult: While there are a few things you shouldn’t put on a credit card, a majority of your expenses can be auto-drafted through an online account. Think gym memberships, Spotify, Apple storage, wine clubs, those expenses that are going to be the same every single month. Use these automated expenses to rack up your rewards points or cash back opportunities. Pay these balances with a credit card, and have an automatic draft set up out of your checking account to pay the credit card balance immediately (or at a minimum, when the bill is due).
You made it to the end. We’re proud of you. Quick summary for those skimmers out there:
- Pay your card off in full every month
- Take advantage of sign-up bonuses
- Auto-draft your expenses that stay roughly the same every month
Credit cards, like investing, are not hard. No matter what Wall Street tries to tell you. Stick with us, we’ve got your back.