The Most Annoying Debit Card in the World

Pop Quiz, hot shot:

You’ve got a credit card and it has a $3,000 limit.  That means you’ve got $3,000 at your disposal to spend, right?

Um, no.

Ron Swanson

Credit cards are one of the trickiest pieces of finance that exist, not necessarily because they’re complicated, but because there are so many hidden rules that come with them that you can’t just trust what you see.

In reality, credit cards can be an extreme nuisance, but they are incredibly crucial for you to be able to build credit and put yourself in a better financial situation down the road. 

Of course, I’m not suggesting that you just go out and apply for as many credit cards as possible, but what I am saying is that it could be in your best interest to get 1 credit card and use it responsibly (my least favorite “adult” word).

What do I mean by “responsibly?”  Well…here’s my tip: the best way to use a credit card is by treating it as though it is the most annoying debit card in the world.  What this means is that you pretend that your credit card is attached to your bank account (in the same manner that your debit card is) and that you can only spend the money you have in your bank account, and no more.  The annoying part, of course, is having to take the extra step to make the payment to pay the credit card off--with the advent of online payments, this isn’t as big of a deal anymore, but it is still annoying.  Should you use this method, you never carry a balance for more than a few days, you build credit (of the good variety), and, should you get a rewards credit card, you get a little bit of a reward in the process (just make sure you don’t get one with an annual fee attached).

Now, let’s go back to the original question real quick.  Even if you have $3,000 in your account, I am not suggesting that you use up all of your available credit…that would actually be bad.  Despite the fact the credit card company is giving you the option to borrow (remember, credit cards are loans), you run the risk of hurting your credit score the closer you get to your maximum limit.  The general rule of thumb is to only utilize 25 – 35% of your available credit ($750 - $1,050 in our example) and no more.  If you stay within this guideline and pay off your credit card immediately, you’ll get that great credit score you’ve always wanted.