Does a credit card impact your budget in a negative way?
Are you on a budget and afraid that a credit card might hurt your budget? Well… credit card impact your budget and weather it is hurting it or helping depends on you. But, is it worth getting a credit card when on a budget?
The simple answer is YES. Credit cards impact your budget in a positive way because they have these 3 characteristics. I will explain each one below. Personally, I own multiple credit cards and they have helped me get through college, get married, and manage my life after marriage.
BUT,
Only if AND only if you can avoid this one aspect of having a credit card. So, lets see what these 3 characteristics are and what is it that we need to avoid doing…
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The 3 characteristics of credit cards that make them great for your budget
Flexibility and availability
Everyone has their needs that have to be met. A credit card is able to be flexible and have the funds for your purchases regardless of what happens.
Unlike if you were paying from your bank account and you happened to make less this week than what you made last week. You would have to compromise on what you purchase.
Credit cards are accepted internationally. This makes a credit card very convenient and a reliable source of payment. Whether online or in person a credit card is ready for any purchase.
With a credit card you will always have funds available as long as you are paying off your balance on a timely manner.
You have a $5k credit limit, for example, and you spend 1k on groceries then pay it back. That $5k will not go down to 4k unlike a loan where you only get the amount once. It is always available with credit cards.
An example of this is that I was able to pay off my student debt due to having a credit card
I got a credit card with a 0% introductory APR for the first 18 months (you can understand more about APR on my post about). Basically, 0% APR will allow me to carry over a balance without being penalized in that period.
Using this credit card, I was able to use some of my income every week to pay towards my loan. I would purchase my essentials using the credit card.
I had my loan paid off in a little over a year and I was then able to pay off what I had on my credit card before the 0% APR period ended. This is something I could have not achieved without a credit card.
So, with a credit card you will always have funds available to meet your budget.
Cashbacks
Credit cards come with a lot of rewards and bonuses that can help your budget. Read my post on the different types of credit cards.
The cashbacks are my favorite rewards because you can get a percentage back on your purchases. Let’s say I have 1.5% cashbacks on purchases with my credit card and, for example, I buy dinning room table for $3k.
Calculating what I will get in cashbacks, I put this in the calculator 3,000 * 0.015. For spending $3k on my dining room table I got $45 back. So, if your budget was $3k for a dining room table, now you still have $45!
A example for this is a Costco Citi credit card
I encourage everyone who has a Costco near them to go ahead a sign up! I would explain why, but I will leave it for another post…
So, the Citi credit card is amazing because of the cashbacks it has. If you shop at Costco you get 2% cashbacks.
If you use the credit card to fill up on gas you get 4% cashbacks. For all other purchases besides those made at Costco you get 1% cashbacks. And lastly, you get 3% cashbacks on all restaurants.
Let’s say you fill your gas tank every week for about $50, spend about $1k a month on groceries at Costco, and go out every Friday to a restaurant that cost around $100.
When you get to the end of the year and calculate how much cashbacks you made. It will blow your mind!
For gas it is $2,600 * 0.04 = $104 in cashbacks. For groceries it is $12,000 * 0.02 = $240 in cashbacks. For eating out it is $5,200 * 0.03 = $156 in cashbacks. All these making a total of $500 in cashbacks for the year!
Imagine getting $500 a year for using someone else’s money. Getting paid to spend on myself, and I explain more on this in my post about using a credit card wisely.
Credit score benefits
One of the things that a credit card does for you is build your credit score. This is if you manage your credit card well and pay off your balance on time.
A great credit score can help your budget in many ways. A high credit score shows you are trustworthy and someone who is willing to corporate fairly and appropriately.
The following are some benefits a high credit score will get you that will help your budget:
Better Insurance Rates
Insurance companies may consider your credit score when determining the premiums for auto insurance or homeowner’s insurance.
A high credit score can result in lower insurance premiums, as it is often associated with responsible behavior and reduced risk. With low insurance rates you can save more and maintain your budget.
Access to Better Loan Terms
A high credit score increases your chances of being approved for loans, such as mortgages, auto loans, or personal loans. Lenders consider borrowers with high credit scores as less risky, and they are more likely to offer you more favorable terms, including lower interest rates and fees.
This can save you a significant amount of money over the life of a loan.
Higher Credit Limits
Lenders are more willing to extend higher credit limits to borrowers with high credit scores. A higher credit limit gives you more purchasing power and flexibility, as well as a lower credit utilization ratio (the percentage of available credit you’re using).
Maintaining a low credit utilization ratio is important for maintaining a good credit score. You learn more about utilization ratio in my video 5 myths about credit cards.
With a higher credit limit, you will be able to purchase more without having to pay off your balance first.
Employment Opportunities
Some employers conduct credit checks as part of their hiring process, especially for positions that involve handling finances or sensitive information. A high credit score can create a positive impression and may increase your chances of getting hired.
Also, you will have a better chance at getting a high salary which will be a great benefit for your budget.
Negotiating Power
A high credit score can give you negotiating power in various financial transactions.
Whether you’re negotiating interest rates on loans, seeking better terms on credit cards, or applying for a mortgage, having a strong credit score can help you secure more favorable deals and save money.
Speaking of negotiating…
How do you negotiate credit card terms?
Research and Compare
Before negotiating, research other credit card offers and compare their terms and benefits to your current credit card.
Having knowledge of competitive offers can provide leverage during negotiations and help you make a case for better terms.
Contact the Card Issuer
Reach out to the customer service department of your credit card issuer. Express your concerns or reasons for wanting different terms and see if they are willing to work with you.
Be polite, patient, and persistent while discussing your request.
Highlight Your Creditworthiness
If you have a strong credit history, a good payment record, or a high credit score, emphasize these positive factors to the card issuer.
A good credit profile may make you a more desirable customer, and the issuer may be more willing to consider your request for better terms.
What aspect of using a credit card should you avoid?
Using a credit card will obviously impact your budget in a positive way, but what is the catch? Why would someone want to provide all these benefits like giving cashbacks?
Well if we take a look at statistics we will see that most people get trapped in credit card debt and interest. This is the catch…
The trick is when we get this line of credit we get excited by the freedom and start spending left and right.
Here are a couple tips to avoid this trap
Track Your Expenses
Keep track of every transaction you make with your credit card. Use budgeting apps, spreadsheets, or financial management tools to monitor your spending.
This allows you to identify areas where you may be overspending and make necessary adjustments. Amazon have many choices of notebooks you can use to track your expenses. Check them out…
Think Twice Before Making Purchases
Before making a purchase, particularly larger ones, take a moment to evaluate if it aligns with your budget and financial goals.
Ask yourself if it’s a necessary expense or if it can be delayed or avoided. This habit of mindful spending can help you make more informed decisions and curb impulsive purchases.
Regularly Review Your Statements
Thoroughly review your credit card statements each month to ensure accuracy and detect any fraudulent or unauthorized charges.
This practice also keeps you aware of your spending patterns and allows you to make any necessary adjustments.
Before you go
Head over and read my post on the common mistakes credit card holders fall into. This will boost your knowledge and help your credit card impact your budget positively.
So long…