5 Ways Your Credit Card Can Help You Manage Your Finances
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When most people think of credit cards and personal finances, they imagine the former ruining the latter. It's incredibly easy to make purchases with your credit card, which can be both its greatest strength and its most profound weakness.
But rather than seeing credit cards as an enemy of your budgeting efforts, consider all the ways your cards can actually help you to manage your financial life. Try thinking of your credit cards as incredibly powerful financial tools that can be harnessed to achieve your goals.
Here are five ways that your credit card can help you manage your finances.
1. Keeping records
One of the great things about both credit cards and debit cards is that they can offer you a record of every transaction you make. Your statements include the merchant name, the date of the transaction, and the amount. So if you ever wonder where your money is going, this is one way to find out in great detail. (See also: Top 7 Reasons I Use My Credit Cards for Everything)
2. Paying taxes
The record of all your payments can be vital when it comes time to complete your taxes. Your credit card statements can help you to identify and claim charitable contributions and other deductions, as well as business expenses.
3. Tracking category spending
Many credit cards have reporting features built in, so you can see statistics on where your money is being spent. For example, you can find out if you spent more at restaurants this month versus last, or how much you've been spending at gas stations. If you're a small-business owner, your credit card may contain even more robust expense reporting tools. Using these tools, you can see if you need to adjust your budget or tighten up spending in certain areas. (See also: Best Credit Cards for Your Small Business)
4. Smoothing out your cash flow
Our income and our expenses are never as predictable as we would like them to be. Freelancers and small business owners occasionally deal with delayed payments from, and all of us will eventually have an unexpected home repair, car repair, or health care bill. Thankfully, your credit card can be used as a shock absorber of sorts for your personal finances. When a large bill arrives, or your income is delayed, you can rely on your credit card's grace period to hold you over until you can make ends meet.
A credit card's grace period is the time between when your statement period closes and your payment is due. When you pay your statement balance in full before the grace period ends, nearly all credit cards waive your interest charges. By law, a credit card's grace period must be at least 21 days, but many have grace periods of 25 days. This means that you could have as many as 30 days before your statement period ends, plus as many as 25 days to pay your balance in full. That adds up to an interest-free float of up to 55 days on your credit cards, giving you a lot of time to get your finances in order while avoiding interest charges.
5. Earning rewards
When you avoid interest charges by paying your monthly statement balances in full, then you can earn rewards from your credit cards at no cost. For example, some credit cards offer cash back or travel statement credits worth a percentage of all your purchase transactions — sometimes as high as 2 percent on every purchase. Two percent might not sound like a lot, but it can help you to make ends meet.
Instead of earning cash back, some people use travel rewards credit cards to earn frequent flyer miles or hotel points. When you are able to use these travel rewards instead of paying out of pocket for a flight or a hotel stay, it's another way that your credit card can help you save money and manage your budget. (See also: Best Travel Credit Cards for Small Businesses)
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