Credit cards. I used to hate them. Now I love them. A lot of us are using credit cards, but are we using them appropriately? In this post I will discuss with you my experience with this financial product. I will also share what I`ve learned using it. I firmly believe that the best way to learn is by doing. So, let`s start.
My first credit card experience dates back to my early twenties. I was in the beginning of my banking career and I have decided that it will be cool if I have a credit card. Not that I needed it, I just wanted to be cool. Back then my card was very modern looking. It was transparent. Believe it or not, I was happy that I have such a fancy looking financial instrument. I was almost certain that I am impressing the people when I use it. Now I am completely certain that this was just in my imagination.
OK, enough daydreaming about my credit card. Let me tell you about the financial experience itself. At first everything was fine. I didn’t use it that much often. I remember that the first time I used it more seriously was in one of the winter months. At the end of the month, I was a bit short on money. My amazing credit card saved the day. In the beginning of the next month I paid off the balance completely with my salary. It felt good that I don’t need to worry about some short term lack of funds. I was loving the experience even more.
So far, so good. But no one tells you that paying off your credit card leaves you with less money in the current month. If you continue down this path, you will likely face an even larger money shortage by the end of the month. Right now this is a common sense to me. But the foolish young me, didn’t think this way. So, inevitably, the shortage became larger by each month. Back then I believed that this is not an issue and the shortage will sort itself out. Of course it didn’t.
The months passed by and my credit card debt was becoming larger. I have abandoned paying it off in full in the beginning of the month. I was paying just the minimum amount. And then the new iPhone was released. I am a person that loves technology. Back then the new iPhone had a lot of new technology in it. I wanted to have it. Unfortunately, I was a person that didn’t have enough savings. I believe that you are understanding my struggle. To be completely honest, it wasn’t much of a struggle. After a few days of watching reviews about how amazing the phone is, I went to the store. I swiped my credit card. I had it. The feeling was great…until the credit card bill came.
When the bill came in I saw that the minimum payment is significantly larger. It was messing my budget completely. I believe that this was the moment when I realised that my financial behaviour isn’t healthy at all. I understood that soon I will have bigger financial issues. There was a need for action. What I did? I paid it off completely. I have used all of the savings that I had and a significant portion of my salary. I also had to sell some personal stuff that I didn’t use anymore. But I paid off my credit card debt in full. I had my worst financial month, but I was happy. I promised to myself that I will never use a credit card again.
Of course, I lied to myself. Indeed, I didn’t have a credit card for some good 10 years or so. But one day I have decided that it’s time to give the product one more chance. And I did. I ordered my credit card and I am still happily using it. The difference – now I am using it the right way. In my opinion.
Let me give you some details about my current strategy. First, the limit. My current limit is slightly higher than my usual monthly budget. I believe that this is an important step, since it works as some sort of expense stopper. I can’t spend money beyond my limit. The other thing that I have changed is the way I am repaying it. During my first experience I was repaying just the minimum amount. Now, I repay it in full on a weekly basis. This way I am not paying any interest on the loan, since I have 45 days to repay the loan without any interest. Also I am able to track my budget more closely. I am pretty sure that it’s not necessary to do it on a weekly basis, but I like overdoing things. I believe that most of the responsible people do it on a monthly basis. What happened to my love towards technology? I still love it. But, I have decided that if I don’t have the money to buy the thing in cash, I shouldn’t buy it with the credit card either. Changing just these three things had a huge impact.
Why I decided that I need a credit card again? It’s simple – the cashback. My bank pays me a certain cashback percent on all the things that I buy with my credit card. I have projected the expected annual expenses that I will have. Turns out that the cashback I am expecting to receive will fully cover the annual maintenance fees that my bank charges and there will be some small surplus. This sounds like a very good deal to me. So far, I am enjoying the experience.
Every good story has a moral in it. I believe that we can summarise that as most of the financial products, the credit cards are great. If we use them appropriately. If there is one thing that I would like you to take from this post is to spend responsibly. If we stick to our monthly budget everything should be fine. It’s good to repay the credit card in full, so there won’t be an interest on the loan (if the bank offers such period).
After reading this post I would like you to think about how you use your credit card. I am not saying that my way is the correct way to do it. I am just sharing my perspective, hoping that I`ve managed to inspire a more healthier relationship with your credit card.
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Disclaimer:
I am not a financial or investment advisor. The content of this post represents my personal views and is purely informational. It should not be taken as financial or investing advice. Please do your own research and consult with a qualified financial advisor before making any investment decisions.
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