Paying with Credit
Hey y’all! I’m linking up with my buddy Kait today for this post. She’s got a budgeting link-up, and while this might not be directly budget related, it is money related and touches on how we add a few extra fun dollars, to our budget.
Just about any financial advice that you’ll receive recommends using cash instead of credit. Dave Ramsey may not agree with me, but I am team credit card, all the way, and here’s why!
Keep in mind, this might not work for everyone. I’m relatively cheap and don’t make many impulse buys- probably a result of being a marketing student. We maintain a loose budget, but since a huge chunk of John’s paychecks automatically go into all sorts of savings (IRAs, TSP, general savings accounts, college funds, etc.) I more or less know how much money I have to play with each month.
Rewards
My favorite part of using credit cards, is the most tangible. Rewards! Who doesn’t want to be rewarded?! We have all sorts of credit cards based on the rewards they offer.
Our cruise line offers bonus rewards on cruise related purchases, so when we book a vacation, it goes on that card. Our AMEX had bonus rewards for grocery shopping, so it’s the one that always gets whipped out at the commissary. If you’re military, you can use a Star Card for discounts on gas.
We accrue close to $700 or $800 each year just in rewards, by using these cards. Each is paid off at the end of the month, so we don’t lose anything due to interest charges either.
Established Credit
Would you believe that by 22, I was a homeowner? I’ve always been a stickler for paying my cards on time, which helps too boost your credit ratings. When it came time to buy a home, the two of us had an excellent credit rating, which made it so easy for us to get a loan with a great rate.
Establishing a credit history is important whether you’re buying or renting though, since most landlords also run a credit check. Paying your debts off on time and having a a good credit score makes it so much easier and cheaper to get loans down the road.
Debt to Credit Ratio
Because of our excellent credit, we’re able to regularly increase our spending limit on our credit cards. The credit card companies trust us to pay on time, so they have no issue letting us use more money. For many people, this could be dangerous, but since I’m cheap, I hardly even touch a fraction of our available credit. Having a low debt:credit ratio is a factor that goes into calculating your credit score.
Here’s how it works. Say your available credit across all accounts is $10,000. Currently, you have $2,000 of that tied up waiting to be paid. Because of this, your debt to credit ratio would be 2000:10000, or 20%.
Now let’s say that instead of $10,000 available to you to spend, the credit card companies will entrust you with $50,000. With that same $2,000 tied up and needing to be paid off, your debt to credit ratio is 2000:50000, only 4%, which looks much better on a credit report!
Again, if you don’t have control of your finances, this could be dangerous. Although it’s unlikely that your request for an increase would be approved if you’re not paying on time.
