During my time on this little blue ball we all call home, I've learned a few things. This blog is about personal finance so I'll limit my comments here to that topic. Today, I'd like to take a look at credit cards. Many people attribute negative associations to these little plastic rectangles. It's easy to understand why. After all, credit cards allow people to dig themselves into very deep debt-holes.

This is truly unfortunate.

There is another perspective worth considering. It's that credit cards are a tool when the cardholder pays off their debt in full, every single month. Paying the bill in full every month allows cardholders to accumulate rewards for their spending without every paying a penny of interest to the credit card companies. Is it any wonder that the credit card companies call these customers "deadbeats"?

When it comes to credit cards, I'm committed to the belief that you should pay off your credit cards every month. There are a myriad of ways to do this, but the following three methods are the best.

Automatic Transfers on a Set Schedule

I learned about this method from a dear friend. Sam pays a fixed amount towards his credit card every two weeks, when he gets paid. He's not a stickler for details and is too busy to check every charge on his bill. (I find this astonishing, but whatever.) Sam never misses a payment, though. He has restricted his credit card limit. His credit card company can't just raise his limit. They need his permission first. Sam keeps his limit around $3,000 per month. Every two weeks, he sends $1500 to his credit card company. This way, he never goes over his limit and his bill is always paid in full by the due date.

Sam charges everything on his credit card, up to $3,000. Every time he gets paid, Sam makes a payment of $1,500 to his credit card company. Easy peasy, lemon squeezy! Sam benefits from accumulating points on his credit card. He's staying out of debt. He never pays interest on his credit card charges. I'm suspecting that he's also building a stellar credit history since he always pays his bill on time.

It's not my way of doing things, but it works for Sam. Who am I to tell him that he's wrong?

Itemize, Pay & Repeat

My personal method of paying off credit cards is the Nerd's Way. It's more intensive but it's also more informative. Since the pandemic, I've been using my credit cards for all purchase both large and small. I record each purchase in a spreadsheet so I know how much it costs to run my life. A couple of days after a purchase, I log into my bank account to see if the charge has been posted. If the answer's yes, then I make a bill payment to my credit card in the amount of that purchase. Did I spend $74.89 at the grocery store? Why, yes I did! And did I subsequently make a $74.89 bill payment to my credit card a few days later? You can bet your bottom dollar that I did that too!

I'm a stickler for details. Keeping track of my expenditures bring me a measure of comfort. It reassures me that I know where my money is going. Even if it feels like it's slipping through my fingers, atleast I know that it's going where I want it to go.

And much like my friend Sam, I'm earning beaucoup points towards free groceries. (Shout out to PC Financial!) As an aside, I do love free groceries. I need to eat and I'm using a credit card to pay for stuff anyway. In my situation, it makes sense to earn points for food.

Just Pay It Off

This is self-explanatory. When the bill comes in, you pay it. No muss, no fuss.

If you have another good way of fully paying off your credit card bill each month, please share with the class.

In my opinion, there's absolutely nothing wrong with using credit cards so long as you pay off your credit cards every month. Any of the methods outlined above will allow you to accumulate points and build or maintain your credit score. All three of these methods will work so long as they're put into practice.