Common wisdom tells us that credit cards always cause us to overspend, which is why many financial experts caution against using credit to rack up rewards. When you use credit for rewards, they say, you end up spending more money than if you had paid cash. And by the time you're done, those extra dollars you spent will effectively cancel out any rewards you earn.
How to Maximize Credit Card Points without Overspending
However, none of that has to be true. While using credit haphazardly might cause you to overspend, using your cards as part of a careful plan can result in a stellar outcome for both you and your finances.
If you want to earn a bunch of points and miles without going into debt or spending more than you would otherwise, consider these tips:
Tip #1: Create a budget – and stick to it
The best way to use credit without overspending is to create a monthly budget and utilize your credit card as a tool. In your monthly budget, you'll list all of your regular and estimated monthly expenses. Once you have it all down in writing, use your credit card for expenses you can charge without paying a fee for doing so. Then, once the bill comes, you'll pay it all off right away.
Tip #2: Only charge planned expenses you can afford to pay off right away
Using credit frequently for convenience makes sense for sure, but it also makes sense to charge everyday expenses you needed to pay anyway. Use your card for regular monthly expenses like groceries, gas, utility bills, and miscellaneous expenses you know you can pay off right away. In the meantime, you should never use your card for unplanned expenses or "splurges." Anything that isn't in your budget should only be purchased with cash you already have in your bank account.
Tip #3: Pay your balance down weekly to stay on track
If you're using a credit card along with a monthly budget or spending plan, it might make sense to pay down your balance once per week until you get the hang of it. If you set aside a set amount of money for groceries, for example, and want to make sure you don't over spend, paying your credit card bill weekly is one way to stay on track by default. Just log into your online account management and connect a checking account for simple and easy online bank drafts you can make as often as you like. It's as simple as that.
Tip #4: Use your card for "big" planned expenses, but only if you have the cash to pay it off
If you have any big planned expenses coming up, a rewards credit card can help you earn a percentage back for every dollar you spend. To make you don't get into trouble, however, you should only use credit when you have the cash to pay for your big expense already. People who wind up in credit card debt usually do so because they fail to plan or see the convenience of credit as an excuse to get into debt. By using your card only for big and small expenses that are already planned out, you can avoid the debt problems that tend to plague people who use credit without a plan.
It's absolutely possible to use credit for rewards without spending more than you planned or going into debt. The key to making it work is creating a thoughtful spending plan and, most importantly, sticking to it.
While it's true that some people get into trouble or overspend when they use credit, that rule doesn't apply to everyone. To be the exception, you need to use credit carefully and thoughtfully in respect to your budget, and never, ever forget your long-term financial goals.
At the end of the day, you are in control of how you spend your money. Credit itself cannot cause you to overspend; only you can.