When people say they are afraid of credit cards, what most of them are saying is that they think — for themselves, anyway — that credit cards inevitably lead to debt. And it’s true that credit cards can certainly make it easier to go into debt.
For example, if you go into a store, intending to spend no more than $100, and you only have that much cash in your wallet, you can be pretty sure that you will walk out with no more than $100 worth of merchandise. But if you go in with a credit card and intentions to spend $100, you may see something that is much higher quality, but costs more — and decide it’s worth it. The credit card gives you flexibility in what you spend. (That’s not necessarily a bad thing, but the money is going to have to come from someplace else in your budget.)
Charging purchases isn’t always a bad idea. If you use your credit card to pay, you can enjoy benefits like price protection, rewards and the ability to pay later on those purchases, without paying interest (if you pay your balance in full each month). There can be powerful incentives to pull out the plastic.
Likewise, there are some reasonable arguments for having more than one. If you use cards while traveling, for example, it’s smart to have a backup. Different cards can serve different purposes: You may have a low-interest card that you use only for big purchases, a card you use to track business expenses or a rewards card that enhances the value of your everyday purchases. But multiple cards, useful as they are, mean there are more opportunities for something to go wrong or get overlooked.
All those incentives might not be worth it if you open your bills in fear of what what the amounts due might be. It’s easier to forget you made a purchase when the money isn’t missing from your wallet. And if you have several cards, how do you even begin to keep track?
Pick a System That Suits You
The best (and probably the most time consuming) way to make sure you don’t spend more money on credit cards than you have in your bank account is to check all your credit card accounts daily. That will prevent your forgetting all about a purchase or losing track of what the balance is and being shocked by the bill. (It also has the advantage of alerting you to annoying and easy-to-forget automatic renewals you may not want.) It is recommended by identity theft experts as a way to detect identity theft or credit card fraud early. A couple of my colleagues at Credit.com track their accounts daily. Of course, it’s not all-or-nothing. If checking every day seems impossible, how about every week?
If you have trouble remembering due dates, you can try putting them on a calendar (with enough time for payment to be received), whether it’s virtual or on the wall. If your budget can handle it, you might want to ask your issuers for the same due dates for your cards to simplify things. (Late fees can be expensive, and having a past-due account reported to the credit bureaus can hurt your credit.)
If you are worried that easily forgotten expenses (like meals out or co-pays) could sneak up on you and result in a much higher bill than you expected, you can set alerts to let you know when your balance exceeds an amount you choose.
Think of Your Wallet Like a Toolbox
Think back to why you wanted a particular card to decide how and whether to use it. If, for example, you got an American Express Blue Cash Preferred card because of the 6% cash back on grocery store purchases (of up to $6,000 per year), you probably want to use that one at the grocery store. But if you have been accustomed to writing a check for groceries and you start using a credit card, make sure you remember that when budgeting and tracking spending. If you typically spend $150 a week on groceries, and that’s all you use the card for, you can expect a bill of around $600 most months. Here’s another example: If you got a Chase Slate because of its 0% balance transfer offer (reviewed here), you may decide you do not want to add to the balance and instead focus on paying the original amount while it is interest-free. Meanwhile, you make your everyday purchases on another card. You can also use multiple cards as a way to organize your spending, choosing to use a certain card for all your online transactions so that you know easily what card you used. Or, if you just got a rewards credit card with a certain minimum spending requirement, you may want to use that one until you reach the minimum.
If all that sounds too complex and confusing, remember that you don’t have to have multiple cards to have good credit, and if you have multiple cards, you don’t have to use all of them every single month. You can see how your credit cards are impacting your credit scores for free on Credit.com.
Cards you seldom use but don’t want to cancel can be tricky, because you are not accustomed to a monthly payment and wouldn’t notice if a bill was missing. (I experienced that right after the holidays and almost missed a payment.) Still, keeping the card can be smart, because it can help your credit scores. If you don’t use the card at all, you risk having the issuer lower your credit limit or close the credit card, which can hurt your credit. In that case, you may want to make a small purchase every once in a while and pay it off immediately, without waiting for a bill. That way, you can be sure it was paid — and that there’s enough activity to keep the card open.
Some people use spreadsheets or apps to keep track of every card and every charge. Others can track for a few months to a feel for our “normal” habits, and when something out of the ordinary happens, we can make adjustments. Reviewing account statements can help identify spending patterns and allow for course corrections when needed.
Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.