Whipping out a credit card is very easy. Plus, you get rewards – cash back or airline miles – for every purchase. Using a credit card for everyday purposes seems like a win-win situation. But is it? We’ll look at the pros and cons of credit cards and everyday use and answer should I use my credit card for everything?
Why Use a Credit Card for Every Purchase?
There are appropriate reasons to use a credit card for everyday purchases. As we’ve mentioned before, you can maximize your rewards points, in effect making your purchases work for you.
Responsible credit card use and repayment history can help your credit score. Most people don’t like to carry large amounts of cash, and a credit card is a great way around that. Another great reason to use a credit card is that you can accurately track every single expenditure. You’ll also have purchase protections when you use your card.
Pacific Debt has helped thousands of people reduce their credit card debt.
Why You Should Not Use a Credit Card for Every Purchase
There are some very good reasons not to use credit cards for everyday purchases. It is very easy to overspend. After all, your credit card doesn’t feel like it has a limit and it takes almost no effort, unlike writing a check. Another concern is fraud. Every time you use that card, your run the risk of someone getting the number.
Some retailers don’t allow you to use a card for small purchases since their fees are more than your purchase. There are some merchants who don’t take plastic. And finally, the more you use your card the higher your balance. If you don’t pay it off, it becomes very expensive as it becomes a revolving balance.
Using a Credit Card for Everything
If you choose to use your card for everything, there are a few rules that will keep you from overspending.
First, use one credit card. The more credit cards you use the more you will owe. Keeping it to one also keeps all your purchases on one card where you can track them more easily. Plus, you only have one to pay off.
Second, your credit limit needs to be large enough so you can cover your monthly spending. If yours isn’t, keep your credit clean and build up to a higher limit. The other option is to pay off your card several times a month.
Third, put up your debit card so you don’t deplete your account and can’t pay off your credit card.
Fourth, always pay off your balance every month. Otherwise, that $2.95 daily latte is going to get really expensive as your charges will end up revolving.
Since 2002, we’ve settled over $200 million in debt for our clients. Contact us today to see how we can help.
When you are deciding whether or not to use a credit card every day, think about what happens if you don’t pay off your balance every month. Take our latte example. We’re going to make a few assumptions based on average credit card rates.
- Our APR is 17.55%
- Minimum payments of 2% of the balance
If you buy 30 lattes at $2.95 a cup, in one month you’ll owe $88.50. If you don’t use the card for anything else, it takes six months to pay off those coffees if you’re only making the minimum payments. After you factor in interest, each cup actually costs you $3.11. Doesn’t seem too bad, does it?
But this example assumes that you make no additional charges on your card for 6 months and you only make the minimum payment each month. If you do make additional charges, it takes longer than 6 months to pay off the lattes and the amount you effectively pay creeps up.
Let’s say you buy 30 lattes a month but only make minimum payments. At the end of the second month you’ll owe $162.00. If you stop using the credit card at that point, it will take you almost a year to pay it off and you’ll pay $3.15 apiece for the lattes. As you can see, it takes a long time to pay off a card making minimum payments and while 20 cents a drink doesn’t seem like much, it adds up!
If you are using your card for everything, let’s say you charge $2000 a month on your card. You make a 2% minimum payment. The next month, you charge another $2000. You now owe $3960.
Repeat for one more month and you owe $5880, roughly the average amount of credit card debt for Americans.
If you stop using this credit card immediately, it will take you 31.5 years to pay it off at minimum payments and you will pay $13,610. You can see that using your credit card and not paying it off gets very expensive very quickly.
Credit Card Grace Periods
People who are very organized may be able to take advantage of grace periods, the 21 to 27 days that you are not changed interest by your credit card company. However, this only works if you are very organized and track those dates. Otherwise, you will get into trouble very quickly.
Should You or Shouldn’t You?
Covering all your monthly spending with a credit card can be a good thing, if you have self-discipline and (we can’t repeat this enough) PAY OFF YOUR BALANCE EVERY MONTH. Don’t become one of the millions of Americans with credit card debt.
If you really want to try this, start with a secured card and see if your self-control, income, and expenditures are all on the same page!
Pacific Debt has helped thousands of people reduce their debt. Since 2002, we’ve settled over $200 million in debt for our clients. Contact us today to see how we can help.