Credit Cards

How To Use Credit Cards to Manage Your Budget

Kat Tretina
Written by Kat Tretina

When I had dug myself into a financial pickle, I read advice articles from financial experts on breaking the cycle of credit card debt and the importance of relying solely on cash. Dutifully, I created a detailed budget and followed the envelope method. I labeled each envelope with its budget category and put in just enough cash to cover what I allotted for the week. I felt very mature and virtuous and convinced I was on the path to financial success.

Except I found out pretty quickly that the envelope method was pretty much the worst technique possible for me. Keeping that much cash on hand made me nervous, and because it was so strict, I couldn’t take advantage of great bargains at the grocery store. If they had a sale on a family-size pasta sauce that would last for several meals, but would take me over my food budget for that week, I would have to pass and buy the much more expensive-per-ounce, smaller can instead.

And I missed my plastic; no matter how many experts compare credit cards to the devil, credit cards can be pretty darn useful — and profitable. No fee cards used on routine expenses like gas, grocery trips and pharmacy runs used to give me nice cash-back rewards and by switching to real money, I was losing out on those bonuses.

There had to be a better way. And I ended up finding out that using credit cards is the best way for me to manage my finances.

Why Credit Cards Are Awesome

Using credit cards to budget your money is a great idea for a lot of reasons. Using credit cards responsibly helps you build a good credit score and a strong credit history. You can get significant cash bonuses and, most importantly, credit cards can be an incredibly powerful budgeting tool.

When I switched to using credit cards 100 percent of the time, I found they helped me keep tabs on my spending, set limits and establish goals. I completely eliminated carrying cash, and my finances have improved by leaps and bounds. I paid my balance off in full every month and ended up profiting about $50 a month in rewards.

Track What You Spend and Establish Your Budget

Before you can create a budget, you need to know what you’re really spending, which credit cards make easy with detailed tracking of every transaction. You can organize your transactions by categories like groceries, eating out, entertainment or car repairs.

If you want to freak yourself out, most credit card companies offer a year-end snapshot, complete with a color-coded graph showing where all your hard-earned money went—I apparently spend an appalling amount of money at the corner ice cream shop.

From your transaction history, you can see what you spend on average and identify areas where you can cut down, such as eliminating eating out every week.

Online Tools To Manage Your Budget and Credit Cards

There are many free or low-cost tools and apps available to help you manage your money, track your spending and keep on top of your financial goals:

Mint.com: Mint is a completely free service. You link up all of your accounts, including your savings, checking, retirement funds, credit cards, student loans and other debt. You can even enter your assets, such as your car or home. After you’ve linked all of your accounts, you can set budgets for each category, like car insurance, entertainment and clothing. Mint automatically picks up whenever you use your credit card or transfer money, categorizes your purchases and will update you on how close you are to going over budget.

You Need a Budget: You Need a Budget (YNAB) has a cult following, and for good reason. Its motto is that every dollar has a job, from paying down debt to adding to savings. YNAB syncs to your mobile device and your computer but requires you to take an active role in creating budget categories and keeping up-to-date on how you’re doing in each area. YNAB is $50 a year or $5 a month.

Level: Level is budgeting-light for newbies. Level takes your incoming paychecks and subtracts your fixed expenses, like your rent, car payment or student loan payment. Then it tells you what you have left over to spend on your variable expenses, like groceries, entertainment and more. It helps you manage your spending with credit cards and shows you the areas where you’ve spent more than planned and where you can cut back.

Review, Review and Review Some More

While the sites mentioned can be a great help in managing your budget, that doesn’t mean you can sit back and forget about budgeting (sorry). You need to check your budget each week and do a monthly review because life happens, your spending habits change and your budget will need to be adjusted.

Perhaps you come down with some illness and need ongoing expensive prescriptions, which means cutting back on your entertainment budget. Or you find out that you are spending way too much money going to the movies and decide to switch to Netflix so you can put more money towards your retirement fund. Actively monitoring your spending using credit card statements and budgeting tools can help you stay on target, adjust and meet your goals.

While credit cards get a bad rap, they can be a valuable tool in building a real-life budget that works. You can track and categorize spending, adjust categories and even earn money in rewards, but it requires real dedication and time commitments from you to work. It was a huge help to me, and many people can benefit from switching to a credit card-based budget to help you use your credit responsibly.

About the author

Kat Tretina

Kat Tretina

Kat Tretina is a freelance writer in the Orlando area. With a passion for personal finance, she aims to help people achieve financial freedom.

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