For those who pay credit cards off each month, how do you do it?

[rnorwo1]

We have always paid our credit cards off each month, I like to use them for convenience and rewards. I've always paid it once a month because I get paid once a month the following month (ie, I'll get paid the first of August for the work I did in July.) We've never thought twice about this, b/c all that mattered was that we weren't charged any interest. Well, recently I started using YNAB, which I LOVE, but it forces me to face reality in that we are not really living within our means b/c I'm floating that credit for about 30 days each month. My DH still does not think it matters b/c it's not costing us any money, but all of those red numbers in YNAB are driving me crazy! Plus, it's really getting old that last month's expenses are the first to come out of this month's paycheck.

So, trying to break this cycle, I stopped using the card for a month to get "caught up." I have bills that go to the credit card, but I've deducted that money from my checking account to make sure that I don't spend it before I transfer it to the card. But as I look ahead at the rest of the month, we will likely run out of money in the checking account (we have a savings but it's assigned for different things, so I don't want to touch it).

So what would you do? Do you stop spending, b/c you don't have the money in the checking account to cover the charges immediately, or do you go with your plans b/c you'll have the money in just a few weeks and it will not cost anything in interest? I'm not talking about frivolous spending, we're very frugal... but, for example, do I pass up the sale on school clothes now b/c I really should wait two more weeks until I have the cash in hand?

Thanks, I'm curious to see how everyone handles this!

 

[dzorn]

If we charge something we pay it off within a few days of posting. We do not wait until the billing cycle ends.

Denise in MI

 

[magik]

When I first got a credit card, I didn't use it very often, so I definitely never spent money I didn't already have in the bank. I built up a considerable savings cushion, and only then did I start charging more to get reward points, and because of the savings cushion, I still never spend more than I already have in the bank.

If you can always pay your card off in full every month, it sounds like you probably aren't spending way outside of your means and it probably wouldn't be hard to stop using the card for a couple months to build up your bank balance and then begin again, being careful only to spend what's already in the bank if it bothers you the way things are now.

 

[AmandaRG]

Everything that goes onto our credit card is in my budget. Now that I understand that I can pretty much pay as I go with our Disney Visa, I am paying it after it posts (and thus comes out of our checking acct almost immediately).

I do utilize sales, but clothes are in our budget every pay period so that we can take advantage of those sales as they come about. If I don't need it, it goes in to savings for when I do.

 

[SleepyatDVC]

Yes, I already have enough money on hand to pay off in full any amount I charge on the credit card but I choose to wait until the end of the month when the bill is due to pay it off.

The danger I see in using the card as a 30 day "float" as you are doing is if a financial emergency happens during the month or worse a job loss occurs, you might not be able to make that monthly in full payment and interest accrues and it just spirals from there.

I would definitely cut back drastically until I have that "cushion" of money and never charge more than that amount during the month.

 

[puffkin]

Here is what I do:

I set myself a "credit limit" for every day charging/monthly bills. Say $2000. I have that amount in savings so if a true emergency would occur (like job loss) and I couldn't pay off the month I am covered. I get paid 2x a month so my first pay goes to mortgage and my second to the CC card.

Basically I set up a "checking account" on my checkbook app for my phone with a hypothetical $2000 balance (or whatever you determine your monthly budget is). Then as I make purchases through the month I just deduct them from the checkbook. Then, when the bill comes, I just pay that and true my self back up to my starting point for the next month. I always know what my budget is, I earn points, and i don't need to do a lot of transfers and stuff through the month. It is actually really easy.

We have a seperate card that we use for big purchases like vacations, car repairs, etc so that we don't mess up our system. Those I just pay off as they come due from what we had saved up for the vacation or whatever it is.

 

[bellarella]

If you are paying off every month, but need the 30 day float, I wouldn't worry about it too much -- I would just adjust your budget over the next 6 mos to get rid of the necessity of the float. Set up your budget so that for each month over the next 6 mos you require less and less float. This will mean cutting back your spending each month, but probably not drastically. Once you are to the point where you are spending money that is already in the bank and not money that hasn't hit the bank yet, you might want to keep on that budget for another 6 mos and build up a cushion so that a bad month doesn't throw you into needing the float again.

 

[Karenj2]

If you're following the YNAB philosophy, isn't that what the "buffer" is for? You're only spending what you have in the bank. We pay our CC in full every month. (We also have an Emergency Fund as part of our savings that we don't count in our everyday expenses, so it's available if we ever have a ture emergency.)

We have always paid our credit cards off each month, I like to use them for convenience and rewards. I've always paid it once a month because I get paid once a month the following month (ie, I'll get paid the first of August for the work I did in July.) We've never thought twice about this, b/c all that mattered was that we weren't charged any interest. Well, recently I started using YNAB, which I LOVE, but it forces me to face reality in that we are not really living within our means b/c I'm floating that credit for about 30 days each month. My DH still does not think it matters b/c it's not costing us any money, but all of those red numbers in YNAB are driving me crazy! Plus, it's really getting old that last month's expenses are the first to come out of this month's paycheck.

So, using the YNAB philosopy, you're paid in August, and that money goes towards SEPTEMBER'S expenses. (The 1 month "buffer"). For the second bolded area - if you're seeing lots of red numbers, you might be doing something wrong... Have you gone on their forum and asked for help? That forum is really nice! (They're my second home..)

 

[QVCshopper]

I don't follow Dave Ramsey, but in my opinion, I'm getting an extra 30 days to pay it off, plus I get 2% rewards into a 529 plan for my kids.

We work like this: we save a lot into our 401k accounts (my DH caps his and I'm at 50%). All other money goes into a checking account, from which we pay bills. When it reaches over X amount, we move some over to the money market. From there, we fund our Roths and ESAs fully. Also, the money market is our emergency fund, trip fund, etc.

We charge everything we can. Food, bills, insurance. The only thing we do not charge is our gas/electric bill and life insurance because we can't. My DH and I have a lot of control over our money, credit cards or not. With live somewhat thriftily; I could be more if I wanted to, but we have found our happy medium. But, since we are debt free, could buy our next car in cash, etc., I think we are doing just fine.

 

[MinnieForMe]

Okay. I'm completely confused! Why would you not wait to pay your credit card until the day before it's due (assuming you pay your bills online)? I don't understand paying it multiple times per month unless you are not disciplined enough to not spend the money that is in your checking account? I want to keep my money in an interest bearing account (even if it's a pitiful interest rate) as long as possible. I pay my credit card bills in full every month and never incur any fees or interest but I do it as close to my payment due date as possible!

 

[AmandaRG]

Okay. I'm completely confused! Why would you not wait to pay your credit card until the day before it's due (assuming you pay your bills online)? I don't understand paying it multiple times per month unless you are not disciplined enough to not spend the money that is in your checking account? I want to keep my money in an interest bearing account (even if it's a pitiful interest rate) as long as possible. I pay my credit card bills in full every month and never incur any fees or interest but I do it as close to my payment due date as possible!

For us it is partially because of a pitiful credit limit. It appears that gone are the days of larger credit limits for new accounts. We are earning towards Disney Dollars, and in order to charge everything we would like to, it helps to pay it down. We had cards that had outrageous (in our opinion) limits, but I'm good with this one as we have figured out a way to make it work.

 

[hopemax]

We don't charge anything that we don't already have the funds for. We also mostly use the credit card for things that we aren't paying from the savings account, so transferring money from there doesn't bother us. Usually, what we charge is airline tickets and other travel expenses which comes from travel savings, dental/medical which we are reimbursed from our FSA, online purchases which are usually gifts and we save for gifts. When we do charge an "everyday" item that should be paid out of checking, then while we don't write it in the check registry, we keep a mental note that it is money already spent.

I guess the key is that we maintain savings in addition to "untouchable savings." Our next big CC purchase is our furnace is being replaced next week. But we already have the money to pay for it in home repair savings, so when the bill comes, we transfer money and then get back to building that part of the savings account.

Also, don't try to erase the float all at once. You are mindful of it, which is better than a lot of people. So work on it in steps, just like if you were paying off debt. Get it down to floating 75% of it, then 50% then 25% and then get out of the float.

 

[MinnieForMe]

For us it is partially because of a pitiful credit limit. It appears that gone are the days of larger credit limits for new accounts. We are earning towards Disney Dollars, and in order to charge everything we would like to, it helps to pay it down. We had cards that had outrageous (in our opinion) limits, but I'm good with this one as we have figured out a way to make it work.

Thanks. Now, I understand why you do it that way. We are fortunate to have a crazy, high limit on our cc so that never crossed my mind.

 

[sydneysmom]

If we charge something we pay it off within a few days of posting. We do not wait until the billing cycle ends.

Denise in MI

We do the same thing. If we don't have the cash, we don't put it on the card. Once it hits the cad, it gets paid immediately. If we don't have the cash, we'll budget for whatever it is we want, then once we have it, we'll put it on the card and pay it off.

 

[rnorwo1]

If you're following the YNAB philosophy, isn't that what the "buffer" is for? You're only spending what you have in the bank. We pay our CC in full every month. (We also have an Emergency Fund as part of our savings that we don't count in our everyday expenses, so it's available if we ever have a ture emergency.)

So, using the YNAB philosopy, you're paid in August, and that money goes towards SEPTEMBER'S expenses. (The 1 month "buffer"). For the second bolded area - if you're seeing lots of red numbers, you might be doing something wrong... Have you gone on their forum and asked for help? That forum is really nice! (They're my second home..)

The red numbers are b/c we are floating that money on the credit card... we have a negative buffer b/c technically I've spent more money than I'm showing in our on-budget accounts. We have savings, but those accounts are off budget and I don't use them for credit card purchases/payments since we can still pay it off without interest charges from the on- budget accounts, although that's usually a couple of weeks later. But, because this is a month after month cycle, we're perpetually in the negative buffer which drives me crazy.

I was sort of resisting the buffer b/c I couldn't see one month's of expenses sitting in our checking account and being un-useable, but I think what I'll try to do is put a buffer category in the budget that will cover the credit card payments. So not a full buffer, but enough to cover the "little" overages, like the back to school shopping I want to do next week.

My DH agrees with all of you who want the money earning interest until the last minute, but it bothers me. I guess if I have a buffer category on my budget, I can deduct it from the budget but not actually move the money until right before it's due, that may be the best of both worlds

BTW, I love the YNAB forum too!

 

[dzorn]

Okay. I'm completely confused! Why would you not wait to pay your credit card until the day before it's due (assuming you pay your bills online)? I don't understand paying it multiple times per month unless you are not disciplined enough to not spend the money that is in your checking account? I want to keep my money in an interest bearing account (even if it's a pitiful interest rate) as long as possible. I pay my credit card bills in full every month and never incur any fees or interest but I do it as close to my payment due date as possible!

If for any reason you did not have enough to pay it off or you just plain forgot or had another emergency that ended up on the card your average daily balance would be quite low and you would be paying the minimum amount of interest.

Denise in MI

 

[Tiger926]

We don't charge anything that we don't have funds for. Plus, all of our credit cards are automatically deducted from our household account each month, so if that money wasn't there, we'd be overdrawn.

We do not use cash at all, as we have all rewards cards, so we are paid in cash and points to use their cards, so lots of our bills go on our credit cards, as well as groceries and gas, for example. We do have very large credit limits too, so we have no issues with limits and such, so we never even come close to our credit limits.

Good luck to OP in working this out, Tiger

 

[bumbershoot]

If you are paying off every month, but need the 30 day float, I wouldn't worry about it too much -- I would just adjust your budget over the next 6 mos to get rid of the necessity of the float. Set up your budget so that for each month over the next 6 mos you require less and less float. This will mean cutting back your spending each month, but probably not drastically. Once you are to the point where you are spending money that is already in the bank and not money that hasn't hit the bank yet, you might want to keep on that budget for another 6 mos and build up a cushion so that a bad month doesn't throw you into needing the float again.

I agree with this.

It's kind of like when I switched us from paying monthly insurance premiums to 6 month car and 1 year renter's premiums. For awhile it was painful, as I paid the monthly fee AND saved up, but now it's just like before, only without the monthly fees Allstate was taking.

For awhile you'll see the current month's balance go down AND you'll still have to pay some from next month (by the way, we get paid in the same way and it can be a big mental game to stay happy with finances IMO), but eventually it'll work out.

 

[MomToOne]

I put most of my expenses to my credit card for the rewards too, but my trick is to pretend in my budget tracking that I don't.

For example, if I have $50 budgetted for groceries for the month, and spend $20 at the store today, regardless of whether I paid cash or with credit card, I track that amount under groceries in my tracking spreadsheet and know that I have $30 left in the budget.

I don't even have a line item in my budget for credit card payments because of the above - when the bill comes in, it just gets paid without any need to update anything in my budget, because the spending part of it was already accounted for (and so the money should be hanging out in my checking account). I guess the other part of this is I never look at my checking account balance to see "how much I have to spend". I always look to my budget to determine that. My budget will add in pulling from savings for months where income is less than expenses - most months money goes into savings, not out, but there are those months where you are hit with a big payment of some kind that requires you spend more than you take in.

 

[ilovemk76]

We have always paid our credit cards off each month, I like to use them for convenience and rewards. I've always paid it once a month because I get paid once a month the following month (ie, I'll get paid the first of August for the work I did in July.) We've never thought twice about this, b/c all that mattered was that we weren't charged any interest. Well, recently I started using YNAB, which I LOVE, but it forces me to face reality in that we are not really living within our means b/c I'm floating that credit for about 30 days each month. My DH still does not think it matters b/c it's not costing us any money, but all of those red numbers in YNAB are driving me crazy! Plus, it's really getting old that last month's expenses are the first to come out of this month's paycheck.

So, trying to break this cycle, I stopped using the card for a month to get "caught up." I have bills that go to the credit card, but I've deducted that money from my checking account to make sure that I don't spend it before I transfer it to the card. But as I look ahead at the rest of the month, we will likely run out of money in the checking account (we have a savings but it's assigned for different things, so I don't want to touch it).

So what would you do? Do you stop spending, b/c you don't have the money in the checking account to cover the charges immediately, or do you go with your plans b/c you'll have the money in just a few weeks and it will not cost anything in interest? I'm not talking about frivolous spending, we're very frugal... but, for example, do I pass up the sale on school clothes now b/c I really should wait two more weeks until I have the cash in hand?

Thanks, I'm curious to see how everyone handles this!

I only charge what I have the money in the bank to pay for. I use already earned money to pay my CC off with. I wait for the billing date to pay it off.

The way you do it you are buying things today that you have not yet earned the money to pay for.