226 | Should I Stop Using Credit Cards?

Managing your money well doesn’t mean never using credit cards. There are actually some pretty good reasons to use credit cards over cash. It’s all in HOW you use them.

In this episode, let’s talk about the trap of using your credit cards incorrectly and how to use them more wisely.

• • good reasons to use credit cards

  • how I use my credit cards

  • viewing credit cards as a tool

  • leveraging your credit cards strategically

  • covering emergencies while you’re working to get your finances in order

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You’re listening to Wealthyesq. We are a community of lawyers who believe that true wealth is having control of our time. I’m Rho Thomas, and as a busy wife, mom and former Biglaw associate, I know all too well the tension between the culture of the legal profession and pretty much everything else you want to do in life. That’s why each week, I’m bringing you the information and tools you need to improve your money mindset and manage your money to create true wealth. Because ultimately, it’s not about the money. It’s about the freedom and flexibility the money affords.

Hey friend. Welcome back to the show. I hope you’re doing well and having an amazing day so far. Today, we are talking about credit cards. Credit cards is one of those topics that comes up a lot with regard to money management, and it seems like people think that you can’t use credit cards and be good with money. So you might be surprised to learn that I, as a money coach, actually use credit cards for everything not using credit cards is a popular approach to money management, but it’s not my approach. So I have two credit cards. Technically, I have three, if you include my business card, but for my personal finances, I have two credit cards. So I have one that I use for joint slash family expenses, and then another one that I use for just personal, fun money type expenses. And the way we use our cards is we put every single purchase on the credit card and then pay it off at the end of the month. And I started doing that back in law school. Like part of why I got a credit card in the first place was like I was traveling to visit different law schools to figure out where I wanted to go to school. And you know how, like when you go to a hotel, they put that hold on your card for incidentals or whatever. I didn’t like that they were putting a hold on my actual money, like I needed my money, and so I signed up for a credit card so that I could not have my money actually being held with those incidental purchases. And then I also like using credit cards, because if there is ever some sort of fraud situation, somebody’s making purchases, like, without your knowledge on your card, your card was compromised. It’s not your actual money being spent. Like, yes, the bank is going to refund you for any unauthorized purchases. But if you use a credit card, it’s not affecting your actual money. So I like that aspect. Those are some of the reasons why I use credit cards for everything. We don’t do all the like travel hacking, stuff that people do like, you know, they’ll have these different cards to get points. And this card gets this many points if you use it for these purchases, and that card gets that many points. And like, we don’t do all that. We keep it simple. So, like, we have our one joint card, and then we each have a separate card that we use for our personal expenses. I know that a lot of people do the travel hacking. They’re able to, like, take a trip to Japan for like, $20 or whatever. We don’t do all that. More power to them for doing that. But the point here is that there’s nothing inherently wrong or bad with using credit cards, and there are actually some really good reasons to use them. I know that credit card companies had some questionable practices early on, like they were giving out credit like candy and, you know, all that kind of stuff, but there’s a lot more information available now, and there are more protections in place. And I think that credit cards are more useful than harmful. Credit cards are a tool, and just like any other tool, whether you have a good or bad experience with it depends on how you use it. For example, nobody would say that hammers are just bad. They’re dangerous. Stay away from hammers, right? I can use a hammer to hang a painting, but I can also use a hammer to break somebody’s window. And it’s not that the hammer is bad, it’s the way that I use it. Same thing with credit cards. So it’s not that they are inherently bad. It’s all in the way that you use them. So if you use your credit cards to make purchases, you pay them off, you’re not going to have any issues. But if you use your credit cards as a supplement to your income, and you’re buying things you can’t afford, and you’re having to pay, like, upwards of 30% interest and all that kind of stuff, now you’re going to have some problems, like, that’s how you run up credit card debt. So don’t use your credit cards that way. Your credit cards are not an extension of your income. Like I almost think of my credit cards as an alternative way to access my income, right? It’s not additional money that I have available. It’s another way for me to spend the money that I make. Generally, I’m only buying things on credit cards when I have the money that I could actually pay for the item. Now I have made some exceptions to that. I am willing to use my credit cards to invest in myself, as long as I have a strategy for how I’m going to pay it off. So for example, early on in my business, I joined a program that was all about mastering your coaching skills. So like they taught you how to be a better coach, how to handle your clients, how to handle different kinds of questions that may come up, and how to coach your clients better. The program was $10,000 the problem was I didn’t have $10,000 in my business account. I didn’t want to pull that kind of money out of our like family savings, and so I decided to put that that card on, or that program on a credit card, because I was making like, two or $3,000 a month in my business. And so I put that program on my like, fund money credit card, and I use the money from my business to pay it off over those following months, there have also been times where we have made big purchases for our household. So like, for example, we got a new AC, like a year or two ago, and we put that on credit. We didn’t want to take such a huge chunk out of our personal savings. Like the AC was something like $20,000 and the company offered financing at like, 2% and so we decided to do that so we weren’t taking such a big hit to our savings. And there’s something else, like, you know you have, like, something like, you can think of, it’s like, right there at the edge of your brain, like, I know there was another situation where we did something similar, and I remember whatever it was, we, like, put it on credit that first that month, right? Like, so we bought it that month, we paid half off that same month that we bought it, and then we paid the other half the second month. But I can’t think of what the specific situation was, but either way, the point being you have a strategy for how you’re going to pay off these purchases that you put on your credit card. So for certain things like we are willing to strategically use credit to not take so much out of our liquid cash to be able to pay for things, but then we have a plan for how we’re going to pay it off. Now, while you are in the transition period of getting on top of your finances, you are building up your savings, you’re getting out of debt, like managing your spending better, all that kind of stuff. There might be situations that come up where you don’t have the money available to pay for them, and it might be a situation where you need to put it on credit. I think that’s okay, right? If that’s the situation that you’re in, that’s what you’re working with, it’s okay, I think, for you to put it on a credit card, we just want to make sure that you don’t stay in that situation for long. So we want to make sure that you’re doing the things that we talk about each week on the show, so that you don’t find yourself in that situation often where you don’t have the money for the things that you need and you’re having to incur debt to cover them. I think it’s also important to be clear on what constitutes an emergency, right? Let’s say my car broke down. I got like, $50 in my account. Don’t get paid again until Friday. I think it’s all right to use your credit card in that situation, because, you know that’s that’s the only means that you have to cover that situation again. We want to make sure that you’re working on your finances so that you’re not in that situation often, but if you’re in that situation, I think it’s okay. What’s not an emergency. My favorite designer is having a sale, and I only have $50 and I don’t get paid again until Friday. That’s not a situation that you’re going to use your credit card for. That’s how people get caught up, right? That kind of quote, unquote emergency is how people get caught up. Because you are using your money to buy something that you can’t afford, that you don’t necessarily need, and you’re using credit to do it because you don’t have actual money. We’re not pulling out the credit card for a sale, they’ll have another sale. Hopefully you’ll be prepared next time a sale comes around, but this time, we’re just going to sit it out. Right? People get into trouble with that kind of thing. They tell themselves like, oh, I’ll just do it this time and I’ll make sure I pay it off. But then they don’t pay it off, and they do it again and again, and they end up digging themselves further and further into debt. So use your credit cards wisely, like generally, only put things on your credit card when you have the money to pay it off, or when you have a concrete plan for how you’re going to pay it off in a defined time period, like the situations that I told you about with my personal life, do I also mentioned earlier that we will put everything on our credit card and then pay it off in full at the end of the month. I think if you’re in credit card debt, you’re actively working on paying off your credit card balances. I would not use that strategy. It gets kind of messy, like when you are actively working on paying off car, but you’re putting new charges on it. It gets hard where it’s like, okay, I made this purchase, but then I made an extra payment, but then part of the extra payment went to pay off that purchase, and it didn’t really touch the original balance. It’s messy. It’s not a clean way to do it. So I don’t recommend doing that if you are working on paying off credit cards and you’ve got balances and stuff like that, but if you paid off your credit card, you are on top of your spending. You know how to make a plan for your spending and stick to it. You don’t use your credit card to buy stuff that you can’t afford, and you’re like, you know, using it to supplement your income. If you are not in that situation, I don’t think that there’s any reason that you have to not use your credit card or have to stop using a credit card, as I said before, credit cards are not inherently bad. You can manage your money well and still use credit cards. They are just another tool, and again, the experience that you have with that tool depends on how you use it. So those are my thoughts on credit cards. I hope that they are helpful for you as you navigate how you want to use yours. All right, that is it for this week’s episode. Please take a second, subscribe to the show, leave a review. Both of those things help other lawyers find the show so they can get the help that they need with their finances. And as always, I appreciate your support. As we close out, friend, I pray that you take the information you learn here, apply it in your life, and open up to the realization that wealth is available to you as you do that consistently, week after week, you’ll continue to take steps to regain control of your time, build wealth and live the life of freedom and choice, you deserve. Talk to you later.