Get off the wheel

How’s the expense tracking going 😀?

As these 30 days go by and you’re jotting down items in your little notebook, let’s talk about the number one line item you want to excise from your monthly budget—credit card payments.

Don’t get me wrong. Used appropriately, credit cards offer lots of benefits—built-in record keeping, rewards, and, if you’re an American Express cardholder, the (erroneous) belief that you belong to an exclusive club with Tina Fey, Jerry Seinfeld, and Lin-Manuel Miranda. Used inappropriately, i.e. any time you use them and don’t pay off your balance at the end of the month, they can become a drag on your budget, your Net Worth, and your progress toward your financial goals.

Those of us who pay off our credit card balances each and every month are known to card issuers as “transactors” or “moochers”. Those of you who are charged interest every month for your credit card balance are known as “revolvers” or:

via GIPHY

At least you’re getting some exercise?

Using a credit card to pay for something and not paying off the balance at the end of the month is the equivalent of eating your seed corn (sorry … I live in the Midwest now). The item is not only costing you some amount today, it’s also taking from tomorrow’s income. Of course, not all credit card purchases are created equal. Let’s look at some hypothetical examples:

Scenario 1: Your fridge craps out. You buy a new one for $2,000 (note to self: google “what foods don’t need refrigeration?”) and put the purchase on a credit card. Each month, you pay $100. How much does that fridge actually cost you? If your credit card interest rate is around 15%, you’ll pay about $2,316 in total. And it’ll take you just about two years to pay it off. That doesn’t sound too bad, right? After all, during that time, you are conveniently not contracting salmonella, and hopefully, at the end of the two years, you still have a fridge.

Scenario 2: You desperately need a vacation. It is February in Wisconsin, you have forgotten what the sun looks like, everything as far as the eye can see is gray, and your body is a walking billboard for casseroles. To top things off, your fridge crapped out and you had to buy a new one. Ugh! You book a weekend at a Florida resort and scrawl on the family calendar, “See ya, suckers!” This example is, er …, not drawn at all from real life. You spend $2,000 on your trip and put the purchase on a credit card. The $100 you’re paying off each month for this expense is a little harder to stomach … especially in, say, the following February (only 12 more payments to go!). Paying today for a trip (or dinner or cable TV or gas) that you consumed months ago … seriously, kill me now.

Clearly, Scenario 1 is better than Scenario 2. Even better than both of these, though, is Scenario 0:

Your fridge craps out. You shop around, negotiate, and take $1,800 from your savings to buy a new fridge. You continue to set aside $200 a month for future such expenses, a.k.a. “living insurance” or the “s–t happens” fund. You take the $500 you saved from all your mad money moves and put it towards your girls trip planned for February.

*mic drop*