Credit cards are one of the most vilified financial products, but, even so, they are not from the devil. They’re not from God, either. They’re just a tool made by humans, and as such, they can be used for good or bad. As stewards of God’s money, we can use credit cards in a responsible way that allows us to pay our bills, stay out of debt, and even get rewards for it!
I’m not going to recommend specific credit cards, so I encourage you to do some comparison shopping on sites like WalletHub.com, NerdWallet.com and BankRate.com. Just remember that even though these websites compare credit cards, they need to make a living. As such, they usually earn a commission if you sign up for a credit card following their link. With that in mind, I would read around on several different sites to get a better feel for each credit card.
Dave Ramsey’s Decree
I know Dave Ramsey shuns credit cards. But I think he is denying people’s uniqueness when he says no one should have them. Some people handle them better than others. I’m not here advocating for everyone to get a credit card. That discernment is up to you and God, but I think it’s a cop-out to have a blanket belief that credit cards are bad.
I’m guessing you’re here because you either have credit cards or are open to getting one and want to use them wisely. My overall goal is to steer you towards doing God’s will faithfully, to provide for yourself/your family, and, most importantly, to love God, others and yourself. What does that have to do with credit cards? Aligning yourself with God’s mission (I’m still working on it) makes it easier to become detached from the “possessions” of this world and make spending decisions that reflect that.
Your Credit Limit is not a License to Spend
When you’re approved for a new credit card, you’re given a credit limit, which is how much money you can charge to the card each month. That credit limit is often well above what you can actually afford. For example, if you make $50,000, you might get a credit limit of $7,000 per month. That’s more than you make in a month even before taxes! So why do the credit card companies do this? Because they make lots of money when you max out that monthly credit limit and then have to pay interest on it because you can’t afford it. Don’t fall into their trap.
Presumably, you’re working off of a budget. (If not, try a free app) Your credit limit should not change your budget or how much money you allow yourself to spend each month. You tell the credit card what you’re doing it with it, not the other way around. The credit card is merely a medium by which you pay.
Decide What Goes on the Card
Now, with your budget in hand, decide what will be charged to your credit card. For example:
- medical expenses
- household products
- cellphone bill
- rent (only do this if there is no extra fee to charge it to your card. Some places charge a percentage or a flat $25+ to use your credit card. Best to use cash/checking account in this case because it costs more money in the long run to use credit)
There are other parts of your budget you may want to use cash for, like the weekly offering at mass or for tips at restaurants/hotels. It’s up to you (and your spouse, if you’re married).
What if I Don’t Like Budgeting?
You might be someone (like myself) who says, “You know what, I don’t like tracking every little expense. I automatically have money pulled from my paycheck and put into my 401(k) and my savings account each week. I pay all of my fixed expenses and then I’ll do whatever I want with what’s left.” If that’s been working for you, great. Just give yourself your own credit limit. Call it your sweet spot.
- For example (arbitrary numbers), maybe you’ve decided that you will charge your cellphone, gas, groceries, internet and utilities to your credit card. It adds up to around $600 per month.
- The rest of your essential expenses, including rent, you’ll pay with your checking account, which comes out to $900 per month.
- So that’s $1500 total.
- We’re going to assume you already had money plucked from your paycheck for retirement/savings.
- So now that your essentials are covered, you find that you have $500 of discretionary income.
- Now remember, you’re already charging $600 per month to your card. With the $500 of discretionary, you could realistically spend $1100 on your card each month and be able to pay it off in full, while still saving for your goals. That’s your sweet spot.
Your own credit limit/sweet spot = essential expenses charged to card per month + discretionary income (after paying all other essential expenses & saving for retirement/goals)
Just Because You Can Afford it Doesn’t Mean You Should Charge It
Now just because you can afford to pay $1100 in full each month doesn’t mean you should. Maybe you can reevaluate your retirement savings and sock away a higher percentage each month. Or contribute more to your general savings. Or up your donations to church and nonprofits/charities you support.
Keep Credit Utilization Ratio Low
Credit utilization ratio is how much credit you used compared to how much you have available to you. The lower the ratio, the better your credit score. To go back to the example of having a $7000 monthly credit limit. If your “sweet spot” (your personal credit limit) is $1100 and you use all of it, then your credit utilization ratio is 1100:7000=15.7%.
Generally speaking, the people with the very best credit scores use less than 10% of credit available to them. Anything below 30% is a good ratio. The credit reporting agencies use this percentage to partly determine your credit score. If you’re given a $7000 credit limit and use it all up every month, that’ll negatively affect your credit score.
Pay your Balance in Full Every Month
Pay off your monthly bill in full, every time. This is the surest way to stay out of debt. If you’re not able to make the full payment each month, ask yourself why. What are you spending money on? Apps like Clarity and Mint will break down your spending into categories. If you’re not making enough to cover essential expenses, then consider working more hours or getting a side hustle.
Of course, there are always extenuating circumstances that rack up expenses on a credit card quickly: family emergencies, medical bills, loss of a job, etc. If you don’t have emergency savings to cover these, then you could consider asking your parents or another family member for a loan or a gift. Another option is to do a 0% balance transfer onto another credit card, which essentially buys you more time to pay off the debt without it continuing to accumulate interest.
Check Your Account Regularly
Credit card companies in general are good at detecting fraud and contacting you about it right away, but you should still check your credit card regularly (I recommend 2x per month) to make sure the transactions are correct. I hold onto my receipts until I check my account and make sure they posted properly. Then I rip them up. One of the times you should definitely check your account is when you get your statement, either digitally or by snail mall.
Paper vs. Online Statements
The environmentally-friendly side in me recommends getting online statements for your credit card. But if you’re someone who won’t remember or doesn’t want to look online and needs that physical reminder that a bill is due, then opt for the paper statements.
Pick Cards Based on Goals
Credit cards come with a variety of rewards programs that give you cash back, statement credits, and/or flight miles, among other things. If you’re someone that loves to travel, search for credit cards that offer the best travel rewards, like points that you can redeem for flights or hotels. I’m not a fan of cards with yearly fees because I don’t find them to be worth it, but it all depends on your situation. I had an airline card that charged $95 per year, but offered free checked bags and a discount on in-flight food. However, I didn’t fly enough with that airline for it to be worth it. But it might be worthwhile you and/or your family.
There are cards that give up to 6% back at grocery stores. Some have rotating categories where each quarter you get 5% back on a different category (like grocery stores, gas, or restaurants). There are cards that give you a standard 2% back on everything all year.
Regardless of what you decide (and it can be overwhelming), remember to use the card for goals you already had. Don’t spend more at the grocery store just because you know you’re getting cash back. Stick within your safety zone of spending and then enjoy the credit card rewards that come with it.
Review Card Benefits
Educate yourself on the benefits of your credit card. You can do this by checking your online account, calling the number of the back of your card, or by reading the pamphlet you received with the credit card in the mail. Card benefits include:
- car rental insurance
- travel insurance (trip cancellation/delay, lost/delayed luggage, etc)
- discounts on certain restaurants, hotels, airlines, travel packages
- item return protection (where you can get a refund on certain items purchased even if the retailer won’t take them back).
If you’re someone who doesn’t enjoy the hunt for a good credit card or the thrill of tracking points across various cards and categories, then don’t get 5 or 6 or 7 credit cards. Just get one or two. If you’re going to get 2, I recommend two different types (Mastercard vs. Visa vs. American Express vs. Discover). Some places only accept one or two types. American Express and Discover are not as widely accepted as the other two, but, believe it or not, I once ate a restaurant that only accepted Amex.
Use Rewards Wisely
Some people like to let their points accumulate and then redeem them for a big purchase, like an international flight. Others want to redeem them every month as a statement credit. Either way, continue to be a steward with this money by being intentional. Consult God: “I really want to use this money to buy a new pair of shoes/concert tickets/etc. Is that how you want this money spent or is there something else you think I should spend it on?” You might not get a clear “yes” or “no” from God, but the sheer act of inviting Him into the process of how to spend money will help guide you. (PS: I’m not saying I consult God all the time or even most of the time on purchases – it’s sometime I can improve on.)
“Love God and do as you wish.”
It’s important to keep in mind that God also doesn’t want us to over-think or obsess about these things. If you’re someone who’s seeking God’s will everyday (be it through prayer, the Rosary, Adoration, spending time in nature, or daily mass), then trust that your heart is aligning as best it can to His will. That will naturally bend you towards what is good, true, and beautiful – and then those questions of, “How should I spend this money?” will become easier to answer.