The following post is from Melissa Batai
There seem to be two camps when it comes to credit card use and budgeting. One group says the best way to get your finances and budget under control is to simply quit using credit cards. Cut them up, and go back to using all cash and the envelope system. The other side says use your credit cards for as many budgeted purchases as possible so you can benefit from the cash back rewards. Just make sure to pay off the credit card each month to avoid paying interest.
However, if you are struggling to get your budget under control, using credit cards for purchases all month long will likely lead to overspending, especially if bad credit card habits have already been established. However, if your money is very tight, you could likely benefit from getting cash back to supplement your budget.
There is a solution that offers the best of both theories—use credit cards to buy gift cards to use for purchases throughout the month.
For instance, let’s say your grocery budget is $500 a month, but because you’re using a credit card, you’re spending $600 to $700 a month, overspending by $100 to $200. With this new strategy, instead of buying your groceries on credit card, you go to the store at the beginning of the month and buy a gift card to the grocery store for $500. Then, when you shop all month long, you just use the gift card. When the gift card balance is gone, you have no more money to shop for the rest of the month.
In this way, you get the discipline of using cash with the convenience of using credit cards.
Another bonus? If you have a grocery store that offers reward points for gas purchases, you may benefit even more. Our grocery store offers a wide range of gift cards, and when you purchase them, you get 2x the reward points for gas. Sometimes they even offer 4x the reward points. Those points add up and can earn me .10 to $1.00 off per gallon per fill up.
A Few More Things You Need to Know
Consider spreading the money over several gift cards to reduce the risk of loss. If you’re going to spend $500 on groceries, consider getting five $100 gift cards. Then if you lose one, you’re not all out all of your money.
Gift cards aren’t guaranteed like a credit card. Just like cash, when you carry a gift card, you run the risk of theft or loss. However, if you keep the gift cards safe in your wallet, you likely won’t have issues. I’ve been using this gift card strategy for a few years, and I’ve never had one lost or stolen.
Gift cards can stop impulse shopping because you have to go get the gift card first. I find this is an excellent way to curb internet impulse buys. Rather than just sitting at home and clicking “buy”, I have to physically go to the store to buy a gift card. Often, this is too much of a hassle so I don’t make the purchase. Or, I have to delay the purchase and then, thanks to the delay, I decide that I really don’t need the item anyway.
If you’d like the benefits and convenience of using your credit card without the temptation to overspend, consider buying gift cards for your regular monthly expenses to control your spending.
Have you tried this strategy? If not, what strategies do you use to make sure you don’t overspend on your credit cards?