The following is a guest post from Nathan Richardson of ComplexSearch
Many people believe that credit cards and frugal living are mutually exclusive. After all, one of the tenets of frugal living is to avoid debt by living below your means. However, the frugal living need not ignore credit cards. Remember: You can use credit cards without getting into debt. Just having a credit card doesn’t mean that you will end up buried beneath a mountain of debt. Plenty of financially successfully people live debt free, even though they have credit cards. The key is to have a plan for your money, and use your credit cards within that plan.
Credit Card Rewards: The Essence of Frugal Living
What is more frugal than free? Nothing. This is why credit card rewards can be an integral part of frugal living. With the right credit card rewards program, you can get free cash, you can get gift cards for free, or you can get free travel to help you take frugal vacations. Once you start looking at the credit card rewards, it becomes apparent that you have options to help you with your frugal living goals. But you do have to be careful.
When you have a plan for your money, you can use your credit cards for the rewards, and avoid piling up debt. The first thing to do is remember that a credit card does not get rid of the need for a budget. Stick to your frugal budget. Instead of using your debit card, or cash, for purchases, use your rewards credit cards. Think about how quickly cash back or reward points will add up if you use your credit card every time you go grocery shopping or fill up the gas tank. Some spending categories will even help you get extra rewards, such as 3% or 5% cash back instead of 1% cash back for other purchases.
Make a Plan
Make sure to track your spending, and keep within your budget. Then, when it is time to make your credit card payment, you can pay off the card all at once with the money that has been sitting in your bank account. You can improve the system by using an interest bearing account to keep your money in all month. You may not earn a great deal, but you will earn a little bit more. And when you are serious about frugal living, every little bit helps. Keep your money in a high yield savings account connected to a checking account. When it’s time to make your credit card payment, move the money from your savings into checking, and then pay your bill. Your money will work for you all month – and you’ll earn rewards without paying high credit card interest.
If you thought that a credit card was incompatible with frugal living, perhaps it’s time to think again. When used responsibly, and as part of a plan, credit cards can actually enhance your ability to live frugally by providing you with free stuff, and a chance to earn a little more interest each month.
Editor’s Comments: I use credit cards and am cool with them, as long as A) the balance is paid off in full each month, and B) they don’t cause you to buy any more than you otherwise would. If truly a substitute for what you would otherwise do with cash, they can offer benefit of convenience, rewards, and building credit history. Just be careful!