A couple of weeks ago, I did something that really made me feel uncomfortable.
I applied for a credit card.
My wife and I have been using the same credit card for years. We did a little bit of balance-shifting when we were starving college students to take advantage of temporary zero-interest-transfers. We accumulated a bit of debt back then, which took us years to pay off. Since then, I have pretty much treated credit cards as loaded guns pointed directly at my wallet.
And since I keep my wallet in my front pocket (after an unfortunate pickpocketing incident as a kid), that makes me REALLY nervous.
A few years ago, I went ahead and accepted a credit card offer at Kohls while buying a new Dyson vacuum cleaner. It was on sale from $500 down to about $375, and the woman at the check-out counter told me that if I accepted the application, I’d get 25% that day’s purchase. I double-checked to make sure that she really meant I’d be getting nearly $100 off. She told me I was, so I went ahead and accepted the application.
We paid off the charge the following month, and I never used that card again. I can’t say I feel bad about that.
Based on some suggestions on financial blogs and at the Millionaire Mind seminar, I finally took the plunge to get a card with a reward plan. These come with a much steeper interest rates, but for people who pay off their balance (almost) every month, it’s a pretty good deal - particularly if you make certain to buy everything through the card. Effectively, it cuts about 1% to 2% off of our cost of living. With 1% - 2% cash back on every purchase, if we direct 95% of our costs through the card (not including the mortgage and a few other automatic payments we have made through our account), we should pick up over $20 a month in savings. Not much, but that’s nearly $250 a year extra that - if we are careful - could be put right back into savings.
But there’s a danger. And it’s a doozy.
We normally shop with check and debit card (except for online, where a credit card’s protection is critical). If we can’t afford it, we don’t buy it. It’s a simple way to live within our means. Credit cards add a layer of indirection to this. I’m nervous that it could get very, very easy to overspend the budget each month this way.
To combat this, we’re going to have to be merciless in our budgeting and tracking payments. Fun? Nope. Budgeting is one of my least favorite thing to do, next to fixing the garbage disposal or cleaning bathrooms. Is it worth $20 a month? Maybe not. But since we’re being more aggressive with our investing, money management, and budgeting anyway, we can probably slip this one in as a side benefit.