Question #30 of GOBankingRates’ Top 100 Money Experts [LINK] Series
By now, using your credit card has become a reflex. You’re at the grocery store, handing it over to the cashier. You order a coffee at your favorite local spot and tap to pay. You take your seat again, where your laptop remains open to those airline tickets you’ve got to book — with your credit card, of course.
You’ve got a good groove going. But sometimes, you wonder if your habit of using your credit card to pay for everyday purchases might be doing more harm than good. After all, you’re racking up points and rewards, which is a good thing, right? What’s not so good? Just how easy it can be to overspend when you’re not seeing your actual cash leave your wallet or your checking account take a hit.
Making this common way of using your credit card work for you can be a fine balancing act. Fortunately, Chloe Moore, CFP, founder of Financial Staples, has insights to help you walk that tightrope successfully.
The Perks Can Be Worth It — If You Use Your Card Responsibly
That regular habit of relying on your credit card to get your groceries or fill up your tank may seem simple enough, but it can be a great way to earn some significant rewards like cash back, points or airline miles. Moore calls these benefits “a rebate for purchases you would have made without the card.”
Moore is also keen on turning your everyday credit card purchases into the foundation of good credit. You know you need to have a solid credit rating to get a lot of what you want in life, from lower mortgage rates to better deals on car loans. And you get good credit by showing a history of making your payments on time. Smaller purchases, like a meal at that coffee shop or a tank of gas, make it easier for you to pay everything back quickly — boosting your credit.
But Moore’s advice comes with a catch. This plan only works if you don’t treat your credit card like free money.
“Keep in mind that these cards are only beneficial when used responsibly, which means you don’t spend more than you normally would on everyday expenses, and you have the ability to pay off the balance in full each month,” she said.
It’s Not a Good Approach if You Can’t Control Your Spending
Responsibility is the name of the game when it comes to using a credit card. If following a budget is more of an aspiration than a reality, you could all too easily fall into the spiral of credit card debt.
“Studies show that you’re likely to spend more when using a credit card than with cash, and you’re more likely to buy on impulse,” Moore said.
If you’re already struggling to stick to a budget or show caution in your spending, you can quickly find yourself in real trouble. By giving yourself permission to put groceries on your card, you might be unconsciously giving yourself permission to splurge on other things — things you don’t need and can’t pay for when the bill comes due.
“If you don’t have a solid budget or control over your everyday purchases, you could be one wrong move away from getting into credit card debt,” Moore said. “Any interest you pay for carrying over a balance far exceeds any benefits or rewards you’ll receive from a credit card.”
And it’s not just interest that’s at stake: Moore notes that missing a payment or having a high credit utilization ratio could ding your credit score.
You Can Build Up to Everyday Use
Even if you’re not quite ready to responsibly make small, everyday purchases with your credit card, you can still put good practices in place that will help you build credit wisely.
Moore suggests starting out by using credit cards regularly for fixed bills or regular expenses that you’d normally pay with your checking account. If you really want to get those rewards and perks right away, you could save for a large, planned purchase in advance so that you can immediately pay off the credit card bill.
“Also, remember that you’re not limited to a single monthly payment,” Moore said. “Making a credit card payment weekly or when you receive your paycheck could help ensure that you pay your balance in full and avoid costly interest.”
This article is part of GOBankingRates’ Top 100 Money Experts series, where we spotlight expert answers to the biggest financial questions Americans are asking. Check out more insights from our featured experts here [LINK].
This article originally appeared on GOBankingRates.com: This Everyday Credit Card Habit Could Be Helping — or Hurting — Your Finances, According to a CFP
