Playing with Credit Card Fire

Lately I’ve been hearing quite a bit of chatter on blogs, twitter and forums about people choosing to put the majority of their monthly expenses on credit cards with the intention of paying off the card at the end of the month. While this may sound great in theory, you’re playing with financial fire.

Two Most Common Reasons.

1. Mileage/Cash Back Bonus / Rewards Points – The choice to use a credit card more frequently is often fueled by the desire to earn incentives such as airline miles or cash back bonuses.

2. Tracking – The second most common reason given for monthly credit card use is that expenses can be easily tracked and categorized.

Potential Pitfalls.

1. Life – Life happens and you’re not able to pay the card off this month. You may go into the process with the best of intentions knowing that you will only spend what you have the cash to payoff. But oops, your car needs a spendy repair, you paid cash to fix the car. Now the credit card doesn’t get paid in full. Is the interest you’ll pay on the balance really worth the airline miles or the 3% cash back you received?

2. Overspending – Studies have proven that when spending plastic versus cold-hard cash you are more apt to overspend. One study from Dun & Bradstreet estimated this number at 12-18%. Does your card give you that much back in rewards?

Alternatives

I’m not saying that having and using a credit card is bad, I’m simply saying that choosing to use one for the bulk of your monthly spending is risky. There is no need to play with fire and take the risk of getting burned when there are alternative methods in which you can reap the same benefits.

If rewards are your motivation, then turn to a debit card that offers them such as PerkStreet Financial. I don’t have an account there yet but I understand they are wonderful to work with and the rewards can add up just like on a credit card (but without the risk or interest).

Looking for tracking? You can just as easily track your spending if you do it all on a debit card. Most personal finance software or websites now have the function to download transactions directly from your bank and categorize the spending.

Comments

Leave a Reply

Leave a Reply

Loading…

0