How Credit Cards Can Make Your Household Budget Work Better

My wife and I budget a little differently than most families. We use a credit card for most of our purchases instead of cash or checks, and use that to monitor our family's monthly spending.

According to a recent Gallup poll, fewer than one-third of Americans follow a detailed written budget every month. Out of those who do, not all of them strictly follow their budgets. This may be a stark indication as to why American families are in financial trouble, with shrinking savings and increasing debt.

So why do we have such a hard time sticking to a budget? Perhaps we feel our spending is often too hard to track. If that's the case, we might need to simplify things.

Budgeting the Traditional Way With Cash and Envelopes

Many financial experts, like Dave Ramsey, recommend that families use a written monthly budget and account for every dollar they spend. Ramsey even goes so far as to suggest that families use a cash envelope system, in which there's an envelope for every category in your budgets, such as housing, entertainment, gas, or groceries. For example, if you and your family budget $100 each month for eating out, you would place $100 cash in an envelope. You spend the cash until it's gone. When an envelope is empty, your family has to stop eating out.
My wife and I found that the envelope system worked -- as long as I remembered to bring her the receipts after making a purchase. But I can't even remember to use a coupon I have in my pocket at the cash register most days, let alone track receipts. So the envelope method of budgeting just didn't work for us. That's why we switched to budgeting with America's favorite financial invention -- the credit card.

The Many Advantages of Budgeting With Credit Cards

You might not realize all the perks that come with credit card budgeting. Using a credit card for all our purchases gives us a real-time accounting of our spending. We can see exactly what we're spending and where it's going. And many credit cards will categorize your purchases on your monthly statement.

Cash, on the other hand, is a nightmare to track. It's far too easy to lose track of your cash. There's a reason people say cash burns a hole in your pocket. It's so very easy to fritter away. There's little documentation to accompany our carefree cash spending. When you use cash, you have to keep receipts and reconcile them with your written budget. But by using a credit card, you have a paper trail of your spending all in one place, either online or in your monthly statement.

Another advantage of using a credit card for budgeting is that it gives you an opportunity to accumulate reward points for your everyday purchases that you wouldn't otherwise earn. My wife and I pay our rent, utilities, cellphone, cable, and other monthly bills with our rewards credit card. We then earn an enormous amount of reward points through these purchases every month -- all while budgeting.

Consider Budgeting With a Charge Card

If you're nervous about budgeting with a credit card, consider using a charge card instead. Many people don't understand the subtle difference between the two. A credit card allows you to roll purchases over from month to month and only make a minimum payment. A charge card, on the other hand, requires you to pay off your total balance every month. Using a charge card allows you to build credit, earn reward points, and budget while not going further into debt.

As with any budgeting system, it takes effort, discipline, and consistency to make it work for you and your family. Budgeting with a credit card isn't for everyone. I understand that. My wife watches our credit card statement like a hawk every month to ensure that we're only spending the amount we've allocated. 

Another hang-up we sometimes run into is when a business doesn't accept credit cards. Believe it or not, there are still a few businesses out there that deal only in cash. For example, my wife loves to shop at our local farmers' market. This is always an interesting expense that we struggle to reconcile in our budget, but that's normal. There will be hiccups.

We budget with our American Express card every month. Some merchants still don't accept it, which makes budgeting a challenge. It's not always smooth sailing, but we do our best to make budgeting with a credit card work for our family.

No matter which system you're using, budgeting is hard work. But using a credit card for budgeting the vast majority of your purchases every month can be a great way to keep your family's finances on track.

So how do you budget? Have you ever thought about using a credit card for your family's monthly expenses? Or are you like so many Americans who are still struggling to write and follow a written budget every month?

Unlearning Credit Card Habits from Mom and Dad

Psychotherapists agree that our parents have a profound impact on the people we become. By and large, your parents probably set a wonderful example for you to follow.

But what if your parents had some less-than-ideal financial behaviors? Specifically, how should you go about unlearning your parents’ bad credit card habits? The key is to recognize where mom and dad went wrong and make a plan to do better on your own. Ready to get started? Take a look at the details below.

If your parents only paid minimums

Why it’s a problem: Your credit card company only requires you to pay a small sum every month to keep your account in good standing. But minimum payments usually only represent 1-3% of your total balance. If your parents only paid minimums each month, they were digging themselves deeper into debt.

This is problematic for two reasons. For one thing, credit card debt carries a high-interest rate. In May 2014, the average credit card interest rate hovered around 15%. If you’re not paying off your balance in full every month, you’ll end up paying way more for your purchases in the long run.

Also, carrying credit card debt is bad for your credit score. Thirty percent of your score comes from your credit utilization ratio; if your parents consistently used more than 30% of their available credit because they only made minimums, it’s likely their scores weren’t in tip-top shape. This probably made it difficult and expensive to obtain other loans.

How to do better: Make it a priority to pay your credit card bill in full each month. If this is tough for you, these tips should help:

• Make a budget – This will help you plan for your credit card spending
• Track your spending – After making a budget, you should keep tabs on how you’re doing. Use your bank’s online tools to help with this.
• Set alerts – Most credit card issuers allow you to set text or email alerts when your spending has hit a certain threshold. This will help keep you accountable.

If your parents paid their credit card bills late

Why it’s a problem: Paying credit card bills late is one of the worst things you can do for your credit score. Thirty-five percent of your score comes from your history with paying your bills on time. If your parents made a habit of paying their credit card bills late, their credit likely suffered.

Plus, paying your credit card bill late by even a day can result in a fee. Most issuers charge $25 for the first offense and $35 for subsequent late payments. This might not seem like much, but it can really add up over time.

How to do better: If you’re properly budgeting and tracking your spending (see above) you should be ready to pay your bill as soon as it comes in, so don’t delay.

Once again, setting up alerts with your credit card issuer is helpful. Arrange to get a text message or email when your bill is issued, and another in advance of your due date. If you prefer the old-fashioned route, mark your calendar. Find a method that works for you and stick to it!

If your parents were constantly shuffling credit card debt around

Why it’s a problem: Doing a balance transfer to pay off high-interest credit card debt is a good idea if you do it carefully. But if your parents were constantly charging up their plastic then shifting the balance onto 0% cards, they weren’t showing ideal credit card behavior.

First, balance transfers come at a cost. Most issuers charge a fee of 3% of the total amount you’re transferring in order to move the debt. Depending on the size of your balance, this could amount to big bucks.

But more importantly, constantly shuffling debts around is a sign that your parents weren’t managing their money well. Everyone overcharges sometimes, but if you’re spending and budgeting carefully, this should be rare.

How to do better: If you make a mistake and end up in credit card debt, finding a good balance transfer deal can help you minimize interest charges.

But be sure to take a step back and figure out why you were forced to take this route. Maybe you need to build an emergency fund to help deal with unexpected expenses, or maybe your budget needs tweaking. Either way, take a balance transfer as a sign that you need to work on your financial habits – then be sure to do so.

The bottom line: Our parents worked hard to teach us good habits, but they may not have been perfect. If you need to unlearn some bad credit card behaviors, check back often with the Nerds – we’re here to help!

6 Credit Card Mistakes Students Make

Top Credit Card Mistakes

College students live in a sometimes-confusing world between childhood and adulthood. On one hand, young adults attending college away from home often live in supervised dormitories as they begin to take on some of the responsibilities of adulthood. On the other hand, those 18-year-olds (and older) are granted nearly all of the same rights and responsibilities of adults.

So when it comes to credit card usage,  students often make mistakes that more experienced cardholders are more likely to avoid (or at least to know better than to make). Here are six of the worst mistakes that students make when they start using credit cards.

1. Carrying a Balance 

If parents could get their college-age children to follow just one piece of financial advice, it should be to pay their credit card statement balances in full. Students may feel like they can cut their immediate expenses by paying the minimum payment, or perhaps a little more, but interest charges will accumulate very quickly on past and future charges. Unfortunately, many parents will be in a poor position to offer this advice, as about two-thirds of all credit card users carry a balance on at least one of their credit cards each month.

And don’t forget that credit card debt can have a major impact on your credit score too. If you want to see how your debt is affecting your credit scores, you can see two of them for free every month on Credit.com, and get some tips on how to build good credit.

2. Missing Payments (or Making Them Late) 

Between attending classes, studying, and all of their other activities, college students can be pulled in many different directions. Add to that their group living environment, frequent address changes, and an irregular academic calendar, and it is easy to see how students can accidentally fail to make a payment on time.

To avoid costly late fees and penalty interest statements, students can create electronic reminders of their payment due dates and log into their accounts online to view their statements. Fortunately, most card issuers now offer both email and text alerts.

3. Paying Your Tuition With a Credit Card 

It used to be that many colleges accepted tuition payments with a credit card, and savvy parents might earn rewards for paying that way. These days, many schools add a substantial processing charge when tuition and fees are paid with a credit card, typically more than the rewards are worth.

Worse, some students attempt to finance their education by charging their tuition and carrying a balance. This is a very risky strategy, as credit cards have much higher interest rates than most student loans. And unlike student loans, interest on a credit card is not tax-deductible.

4. Co-Signing for a Friend 

Before the Credit CARD Act of 2009, banks could offer credit cards to students who had no income, with the assumption that their parents would pay their bills. Now, applicants under 21 must show their own ability to pay their bills in order to be approved. In response, some students are asking their friends aged 21 and older to co-sign credit card applications.

When someone co-signs or makes a friend an authorized user, that person is putting his or her own credit at stake, as the primary account holder will be responsible for paying the bill. Those who make this mistake put not only their finances and their credit scores at risk, but their friendship as well.

5. Not Calling the Card Issuer

Students and other new credit card users can find these products confusing. When they get hit with fees and penalties after the inevitable mistake, the last thing they want to do is call someone at a big company to talk about it. Unfortunately, that would be a mistake as well. Because the credit card industry competes fiercely to attract and retain customers, card issuers can be very generous and understanding when cardholders need help. Students should be encouraged to call to ask for their interest rate to be lowered, their late fees to be forgiven, or just to learn more about their cards and their options.

6. Shirking Credit Cards Entirely

For as much trouble as students can get into when they misuse credit cards, it is almost as big of a mistake to avoid credit cards altogether. Credit cards are not just secure and convenient methods of payment, they are an invaluable way to build one’s credit score. Having a credit card account in good standing allows cardholders to begin to build a credit history. After graduation, having a strong credit history will help students when they need to rent an apartment, get a car or home loan, and purchase insurance.

7 Tips to Use Your Credit Cards

There is a saying,” Credit card is for convenience and not for credit."
So, take the following precautionary measures:


1. Every time you use your card make sure that you have sufficient funds to meet the payment at the end of the month.

2. Do not exceed your credit limit.

3. When you notice any unauthorized transactions in your statement, inform the bank promptly.

4. Pay your monthly statement before the due date.

5. When you make major purchases by monthly installments ensure that the amount is within your monthly budget.

6. When you are unable to make payment in full you must settle the monthly interest fully and also nothing less than the minimum amount.

7. Notify the bank when you change your address. Ask for a copy of the monthly statement when you don't receive it. Otherwise, you will end up paying interest for late payment.


When you take proactive steps to use your cards you also look after your creditworthiness.