How Frugal People Use Credit Cards: 6 Tips for Thrifty Credit Management
Credit cards are a great way to rack up rewards such as cash back on purchases and travel benefits. They also offer a lot of convenience. But because of credit cards’ high interest rates, these “rewards” can get expensive fast if you carry a balance for any length of time. Frugal people know this and employ a number of strategies to avoid letting the convenience of credit cards get them into a debt hole they can’t get out of.
Check Out: Mark Cuban Reveals Why He Keeps a Strict Budget Everyday
Read Next: How To Get $340 Per Year in Cash Back on Gas and Other Things You Already Buy
Here are six tips to keep your balances manageable and the rewards rewarding.
1. Create a Budget
According to a 2023 Credit.com survey, 27% of Americans don’t think they need a budget. Frugal people would argue that these respondents are very wrong, especially when it comes to the tenets of proper credit card usage. After all, studies have shown (including one from MIT) that people tend to spend more when using credit cards. The reasons are varied, but the result can be devastating.
So the first step to keeping this in check is to know exactly how much you can spend each month. It’s best to break it down by category.
Learn More: 7 Best New Ikea Products That Are Worth Every Penny
2. Track Your Spending
After creating a budget, the next important step is to track your spending. If you go over your budgeted amount in certain categories the first month or two, don’t worry, just make sure you learn from it. It’s only in this way that you can fine-tune your budget per category — especially in hard-to-estimate areas such as monthly food, gas and miscellaneous purchases.
3. Add the Annual Cost of Big Purchases
Credit cards are great for big purchases, such as flat screens, computers and furniture. Essentially, they are a loan. But frugal spenders remember that they are a very high-interest loan.
So, one trick to help remind yourself of this is to do the math. If, for instance, you are considering a $1,000 purchase with your 22% APR credit card (an average, per the Federal Reserve), add the approximate interest you would pay if an emergency forced you to take a year to pay it off.
Suddenly that $1,000 couch has a price tag of $1,220. Still worth it?
4. Use, But Don’t Abuse, 0% APR Offers
Offers of 0% APR on balance transfers and purchases are true money-savers — as long as you pay off the balance before the promotional period ends. For this reason, frugal people don’t see 0% APR offers as a way to break their budget or buy things they want but don’t need. They see these offers as a way to minimize the risk of being charged interest in the case of an emergency purchase, or to save money by using the offer to pay off another credit card balance that is charging them interest.
5. Use Alerts
Most major credit card issuers allow you to set up alerts via email, text or mobile app push notifications. These include alerts for major purchases, balance limits, payment due dates and more. Frugal card users know that these are great ways to monitor your card usage. They also ensure that you always pay off your balance on time and avoid late fees or interest.
6. Use Your Credit Card As If It’s Cash
You’ve heard it a million times: Avoid interest and pay off your credit card every month. That’s way easier said than done, but the truly frugal pull it off.
To do so means combining all the above methods whenever you pull out your credit card for a purchase: Consider need over want, know your running balance, live within your budget.
Do these and you will be able to pay off your credit card each cycle. This not only means that you stay out of runaway high-interest debt, but also reap rewards that are actually free.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: How Frugal People Use Credit Cards: 6 Tips for Thrifty Credit Management
