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Sometimes we come across a piece of advice that really resonates with us. Here’s one writer’s experience.
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There’s a ton of personal finance advice out there. And I mean a ton. A metric tonne, even.
Sifting through that advice for useful stuff can sometimes be hard. But there are certain pieces of financial wisdom that we stumble across that really stick with us.
For me, the best piece of financial advice I’ve ever received came from, of all places, a blog I read roughly 10 years ago. I can’t remember anything about the website or the writer, but I distinctly remember the advice: Treat your credit card like it’s a debit card.
‘Treat your credit card like it’s a debit card.’
This piece of advice is all about avoiding the dreaded credit card interest. And its heart is that you should always make sure you have the cash in your bank account to cover any expenses you put on your credit card.
If you’re not charging beyond your means, you’ll be able to pay off your balance in full every single month, avoiding interest fees — and the accumulation of debt. To explore this advice further, let’s talk about the difference between credit cards and debit cards.
Credit cards vs. debit cards
Credit cards and debit cards have a lot of similarities. They’re both payment cards you can swipe — or, these days, tap or insert your chip — to make purchases at businesses. You can also use both to make online purchases. (And they both make handy scrapers in a pinch.)
But that’s about where the similarities end. Debit cards are attached to your bank account. When you use your debit card, it essentially pulls money from your bank account to pay for your purchase.
If you don’t have the money in the bank, your debit card will generally deny the purchase. (In some cases, you can set your debit card to allow the purchase, but this means an overdraft — and an overdraft fee. Don’t do this.)
Your credit cards, on the other hand, are a few steps removed from your bank account. Instead, they’re linked to a line of credit extended to you by the issuer. When you make a purchase, the issuer pays the business. Then, you have to pay the issuer when your credit card bill comes due.
If you don’t have the money in the bank to cover the cost of charging something on your credit card, you can still make the purchase. Now you have debt. If you can get the money before your bill comes due and you pay it off during the grace period (i.e., before your due date), then you can still avoid interest.
But if you can’t pay your bill in full, you’ll start accruing interest fees. And as your debt grows, those interest fees can get out of control.
Bringing back the checkbook
One of the easiest ways to ensure you’re treating your credit cards like debit cards is to track your purchases. My favorite method is an old-school one, but it’s very effective: the checkbook.
For those who may not know (or remember), people used to use paper checks to buy things. These checks came in packs with a little ledger booklet. When you wrote a check, you’d make a note in the ledger of the check number, what it was for, and the amount.
Then, later, you could balance your checkbook, meaning you could compare the transactions in your ledger with the transactions on your bank statement. (And yes, before they were online, your bank statements were mailed to you every month on actual paper.)
While few of us use paper checks these days (unless you’re buying a house; prepare to have a few in this case), the little checkbook ledger is still a very useful tool. Instead of tracking paper checks, though, you can track your credit card purchases. Each time you use your card, make note of the where, when, and how much. If you keep a running total, you always know where you stand compared to your bank account balance.
Of course, if you’d rather be one with the digital age, there’s another solution: mobile apps. Between your bank app and your credit card app, you can see your balances pretty much whenever you want.
The downside? Many transactions take time to show up on your accounts. So if you forget that you got gas, for instance, you could be in for an unpleasant surprise when it shows up in your account three days later.
Swipe now, regret later
In case it’s not obvious by my long career talking about their benefits, I love credit cards. I do. BUT — I also accept that they have their issues. And one of the biggest of those issues is that it’s so easy to swipe and forget. Credit cards are so divorced from your actual cash monies that it can sometimes feel like the debt your’e accumulating isn’t even real.
Trust me, it is very real. And it can get you into very real trouble if you aren’t carefully managing your balances. It doesn’t matter if you keep it old school with some paper and a pen, or go digital with an all-in-one budgeting app.
Whatever you do, try to avoid the swipe-and-hope method; you know, the one that relies on your bank account magically having the money you need. Because one day, the magic will fail and you’ll be looking at some very expensive debt.
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