Credit cards are a fickle financial product: high interest and fees for late payments mean that many of us are warned against using them as children, however they can also offer a range of benefits for anyone who understands them properly.
Traditionally used to spread the cost of a large expense, we’ve recently heard about more people using credit cards to manage their day to day budgeting. It is relatively easy to start doing this: simply transfer all of your regular spending (groceries, travel costs, treat purchases etc.) onto your credit card and pay it off a couple of times a month.
Here’s why we think that credit card budgeters could be onto something…
Get rewarded without spending more
If you decide that you’d like to give it a go, the first thing to do is to choose a decent rewards card. Because you’re going to start putting all of your regular spending on the card, you need something that will pay you back. This could mean air miles, rewards points or cold hard cashback – whatever is most valuable to you. As long as you only use your credit card to cover the spending that you previously would have done from your main bank account, this is effectively free money.
It’s also worth noting that people who are unable to get a beneficial rewards card due to bad credit may want to avoid this strategy (for now at least) – if you already have poor credit, piling expenses onto a credit card may not work in your favour.
Manage your cash flow
Life is messy, and payday doesn’t always come exactly when you need it to. Using a credit card levels out your spending, making it easier to deal with expenses that crop up at inconvenient times. Say you need to take your car to the mechanic on the 20th, but don’t get paid until the 26th. Putting the cost on your credit card gives you a little bit of a buffer, without ruining your budget.
Organise household spending
Couples who have combined their incomes can organise the household finances more effectively by using a joint credit card. It means that each of you can stay aware of what the other person is spending, and potentially adjust your own outgoings accordingly.
Get more protection on your purchases
If you pay using a credit card, you should be guaranteed a refund if your purchase doesn’t arrive or isn’t as described. A British rule called ‘Section 75’ means that the credit card provider will have to refund you if the seller doesn’t.
This method of budgeting isn’t necessarily right for everyone. If you already have debt on your credit cards, you may want to consider paying it off before starting to use your credit cards for additional purchases. And if you’re not confident in your ability to pay the balance off in full every month then it’s important to steer clear. But otherwise, this could be an interesting option with a couple of unique benefits.