Earning More Doesn’t Make You Immune to Credit Card Debt
“For most of us, as our income increases, so do our expenses: nicer apartments, upgraded wardrobes, more travel, more dinners out,” said Priya Malani, founder and CEO of Stash Wealth, a registered investment advisory in New York, in an email. “None of these are ‘bad’ in and of themselves, but without a plan in place, it’s easy to wake up one day and realize you’ve got nothing to show for your raises.”
A big part of using credit cards to your advantage is understanding how they work. “Earning a solid income doesn’t guarantee financial literacy,” Malani said. “Most of us weren’t taught how to use credit cards responsibly, so the stigma around them takes over.”
Malani recommends treating your credit card like a debit card and only charging purchases you have the cash to pay off. “With this method, you’ll rack up rewards points and the credit card companies get nothing,” she said. “You win, they lose.”
A different spin on the idea of budgeting can give you permission to splurge while still knowing you’re saving enough. Malani refers to it as finding the “magic number” you can spend guilt-free. To calculate it, take your monthly income and subtract any savings goals (such as retirement contributions, a down payment, money for travel and holiday gifts). You can spend what’s left however you’d like.
“If your ‘magic number’ says you’ve got $20 left for the month, it’s a Netflix and pizza night,” Malani said. “If you’ve got $200, treat yourself or pick up the tab for friends.”
She also suggests creating “sub-savings” accounts earmarked toward specific upcoming large purchases. Contribute monthly to these accounts so when you’re ready to spend, you have the savings available to pay your credit card bill in full. “That’s how you use credit as a tool, not a trap.”
