Using my credit card daily, instead of debit.

[ForeverStrong]

Hello all,

My first post, and I'm so glad I've ran into this web site with tons of wonderful information and experienced people. So, on with the good stuff; I'm 25-years old, live at home, bills consist of car insurance and car maintenance. I work as an electrical apprentice currently, making roughly +/-$2,000 a month ($14.61/hour). My credit limit is $1,000 and I only have that one credit card along with one debit card under the same banking institution ever since I was 18. I've never missed a payment, and just started the method of paying the credit bill off in one shot, monthly, before the due date. So, onto my two questions:

1) Should I be asking for a credit limit increase, just for the sake of it? My friend advised me (he is a credit/mortgage specialist) that I should seek $5,000 and no more.

2) What should I realistically be aiming to be spending on my card vs. saving in my bank account? (monthly)

If you need any additional information, please ask! Thank you in advance.

[Fishindude77]

The thought process is, if you are very financially disciplined use your credit card for all of your day in / day out expenses, therefore earning cash back or points on the card. If you pay it in full every month, you will pay no interest and come out ahead of someone using cash, because you got the cash back or points.

The danger of frequent credit card use if you can tend to spend, spend, spend, as it is so simple to swipe a card, and you never actually see the cash leave your hands. It's also pretty easy to just make a partial payment one month rather than paying it off in full. These kinds of behaviors can quickly get you into trouble. Interest on credit cards accumulates fast.

There is no magic right amount of credit to have on a card, and no magic formula for what all should or shouldn't be purchased using a credit card.

At 25 years old my advice is use a credit card sparingly.

[ua_guy]

Fishindude nailed it.

Using a credit card instead of cash also carries some other protections (fraud, merchant chargebacks, purchase protection, etc) depending on the card.

Banks will raise your credit limit during periodic reviews. Doesn't really hurt to see if they'll up it to $5k versus $1k. Just know that's not really money you have to spend.

There isn't a set amount that you should spend on the card, either. It can be convenient for paying certain bills, groceries, gas, but what you spend on it and how much (within the limit) is your choice.

The goal is to be cash positive every month, i.e. you are spending less than you are saving. You should aim to save 10% of everything you make as the most basic rule of thumb.

You need a budget. Every purchase needs to be made against the budget, no matter if you're using a card or cash. Cash is better for undisiplined spenders because when cash runs out, it's out. You can over-spend with credit and dig yourself into a hole.

[ForeverStrong]

I opted to move towards using the credit spending route to financially discipline myself. This is the first month I am doing it, and paying the whole tab at the end of the month. I'm under the impression that this method opts for a very healthy credit score, which is what I'm after although I'm pretty sure my credit score is not in bad shape at all, I have not applied for any loans, additional credit cards or even a single credit rating check in all the years I've had my credit card. Prior to this, I've been purchasing everything in cash which allowed me to save comfortably and I'm a little nervous switching over to this strategy due to not knowing how to budget accordingly.

That is where I'm looking to find a balance, and how to maintain that balance. Out of a $1,000 dollar limit, what should I aim to not exceed monthly?

[parafly]

That is where I'm looking to find a balance, and how to maintain that balance. Out of a $1,000 dollar limit, what should I aim to not exceed monthly?

Your credit score is negatively impacted if you go beyond 30% of the credit limit. In your case, you don't want your credit card balance to go above $300.

If you request a limit increase with your credit card company, you'll be able to charge more before you reach the 30% threshold. For example, a credit limit of $5000 would allow you to have a balance of $1500 before your credit score is negatively impacted.

[ForeverStrong]

Even if you are paying the full tab before the bill due date?

[parafly]

Even if you are paying the full tab before the bill due date?

It's the account balance on the date that your credit card statement is issued. This is the amount that is reported to the credit agencies.

[Petunia 100]

What are you doing with the bulk of your money? Have you opened an IRA? Are you saving cash for your future? Will you want to buy a home of your own?

Your parents are giving you an awesome gift. Use it wisely.

[bjl584]

If you are disciplined enough you can buy almost everything with a credit card then pay the bill off in full each cycle. Earning some cash back or rewards in the process. Plus, credit cards offer added security being that you can dispute fraudulent charges, and swiping a credit card won't give a hacker access to your checking account.

If you don't track your finances and tend to overspend, then I'd stick to the debit card. Check your balance frequently and know exactly what funds you have available.

[rutgers07]

I use credit cards for virtually all purchases but pay it off within the week or 2. I can't even count how much I've made on cashback bonuses and other incentives. Takes a lot of discipline.

[Nutria]

2) What should I realistically be aiming to be spending on my card vs. saving in my bank account? (monthly)

The obvious answer is to spend as little as possible commensurate with your happiness, and save as much as possible.

By that I mean that you'll always have some non-essential expenses: a new item of clothing, dinner/date with girl, etc.

The standard recommendations are to:

1. Ask yourself what your goals are.
2. Take a long, hard look at a few months of expenses (download your credit card expenses and checking account register into a spreadsheet to make it much easier). Be honest with yourself. Eliminate the waste and use that money for stuff you really enjoy and also put some in the bank.

For example, what's your wireless phone bill? How much of it is for useless sh*t that you forgot about 10 minutes after you downloaded it? Would you be happier if you spent less on that stuff and thus could afford to go out more with your girl, save for a better car, etc?

[emilyliving]

Hello Guys

I also use credit card but pay it off within a week.I never delay my payments.As according to me its necessary to check your credit scores simultaneously you need to manage them as well. If your credit report and score is managed well then it will help you to save money for future and reduce the cost of your future loans.
So @foreverstrong you should also not delay your payments.

[Nutria]

I also use credit card but pay it off within a week.I never delay my payments.As according to me its necessary to check your credit scores simultaneously you need to manage them as well. If your credit report and score is managed well then it will help you to save money for future and reduce the cost of your future loans.

I would say that this (especially the constant score checking) is only required if you're digging your way out from a mountain of accumulated debt.

(And if you're in that debt mountain, then you should be using a debit card anyway, so as to live within your means.)

Once those CCs and SLs are paid off, and your score is high, there's just no need to check it weekly unless you're about to pull the trigger on a big purchase.

[snafu]

emilyliving, I totally disagree with your post today. It may be based on inexperience or merely incorrect interpretation of what you've read. Anyone who anticipates a major loan in their future like car loan, mortgage, other CC, needs to use CC wisely. It's easy to avoid interest, fees or penalty by paying the balance at least two business days before it's 'due date.' Consumers that pay the CC bill before it posts, may not be acknowledged by the reporting agency since there is no credit experience to report.

At this point when even employers are accessing credit reports for hiring and staff promotion these are important factors. What is your credit score? Are you touching on 850?

[FLA]

emilyliving, I totally disagree with your post today. It may be based on inexperience or merely incorrect interpretation of what you've read. Anyone who anticipates a major loan in their future like car loan, mortgage, other CC, needs to use CC wisely. It's easy to avoid interest, fees or penalty by paying the balance at least two business days before it's 'due date.' Consumers that pay the CC bill before it posts, may not be acknowledged by the reporting agency since there is no credit experience to report.

this is how I understand it as well.

I use my cc for everything and it puts charges into categories for me so I just look online once a week or so to make sure I am not over in any one area. I use it as a budgeting tool and to get those cc rewards. I've never not paid it off in full each month.

And at 25, IMHO, you should start saving for retirement. Personally, I aimed for 15%, which seems like a lot but much better to start it young, you will ultimately need to save less than if you wait. Do you have any sort of retirement vehicles at your job? If not, you could start with a Roth IRA. Not having to pay rent, I would definitely get a start on this if it were me.