Welcome to Day 4 of the $10k Mini-Series! I’m so happy you’re still with me on this journey to paying down debt.
For those of you just joining me, here are the other sections:
- Part 1 – Why I’m Anti-Snowballs
- Part 2 – Maximizing Your Tax Refund
- Part 3 – Developing Additional Income Streams
- Part 4 – Making Credit Work for You
- Part 5 – Identify Why You Buy
- Part 6 – (Re)Define Your Budget
Now onto Step 4 of how I’ve paid off over $10,000 of my debt since January…
Put Credit to Work For You!
If you knew me in college, you would have never thought I’d be someone you’d want to take financial advice from. When I turned 18 and was able to sign up for credit cards – WATCH OUT!
I remember sitting in my dorm room one night with a friend of mine and we were talking about money; she asked how I could sleep at night, knowing I had SO much credit card debt hanging over my head. I shrugged it off at the time, figuring I’d be in debt forever, have terrible credit, and who cares, right? At least I got that sweet PS2 so we could play DDR! (#collegelife amiright?)
In the years since then, I have paid for that silly gaming system many, many
times over. Fortunately I’m happy to say I’m in a good place now with my credit and let me tell you – having good credit makes a world of difference in so many ways, especially when it comes to making credit work FOR you instead of AGAINST you.
Provided you’re like me now and not like 18 year old me, having a credit card can be a great thing. Personally, I have a Discover IT card because I’ll get DOUBLE all the cash back I earn in the first year but I definitely encourage you to shop around and find a card that best suits your needs. If you’re a hardcore Amazon shopper like I am, the Amazon.com Rewards Visa Card might be a better option for you (both offer a $50 sign-up bonus if you sign up via my referral link!)
Once you’ve got a great card that provides cash back, charge every bill that you can and then pay the card off IMMEDIATELY.
Do NOT adjust your budget. Do NOT pass go. DO NOT CHARGE ANYTHING YOU CANNOT PAY OFF THAT SAME MONTH!
Provided you use your card wisely, you’ll see a great amount of money back in your pocket.
Most cards are 1-2% back on everything, and then somewhere between 3% and 5% back on random specific things, like gas or groceries. Make sure it’s unlimited to some respect, even if it’s just the 1% back that’s unlimited.
Let’s say you have an Amazon.com Rewards Visa Card and you use it each month to pay for the following bills and purchases:
- Pet food/supplies, diapers, toilet paper, dry groceries – all Amazon purchases: $200
- Gas/Transportation: $100
- Trash Collection: $20
- Electric: $100
- Groceries in-store: $400
- Car insurance: $70
- TV (hopefully just Netflix/Hulu and not cable!): $15
Provided these are all in your budget as they should be, you will earn nearly $20 on expenses you had to pay anyway! So in this example, you’re basically getting trash service for FREE this month!
Depending on how you use it, you could be looking at hundreds of dollars back in your pocket for the year!
All told, you might end up with as much as 10% or more back on expenses you would have had to pay anyway.
Between cycling balances on my card and cashback from purchases made through Ebates/TopCashBack, I have earned about $400 so far this year, which then went directly to paying down debt.
Insiders Tip with a rebate site like Ebates: Use it whenever you can! Many stores now offer in-store pick-up. Save yourself time and money by shopping through Ebates for your purchases as often as possible. This will also help eliminate impulse spending if you go nowhere in the store but the service counter.
Go through your budget and highlight in yellow everything you can pay for using a cashback rewards card. Calculate what you would earn back in a month if you used a card to pay for said expenses.
Then have an honest conversation with yourself about whether or not you can limit yourself to ONLY using your credit card for things already in your budget. If you can, then I highly encourage you to apply for one (as I mentioned, I like Discover or Amazon, but again – find one that works for YOU!)
If you have any doubt about using your card wisely, please don’t do it. Don’t put yourself in a situation that might lead to more debt instead of less.
And if you’re already using a cashback card, I do hope you’re using what you earn to pay down other debts and not to pay down your card’s balance.
What is your credit card situation like?
Do you use them to your advantage or avoid them all together?
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If at any time you’re confused, feeling overwhelmed, or just need clarification on one of my tips, please do not hesitate to e-mail me. I love to hear from my readers almost as much as I love to help them!
Disclosure: The links in this post contain referral links and I may receive a small bonus at no cost to you if you sign up through my link. My affiliations in no way affect my suggestions or recommendations.