Credit card rewards can be very enticing. From travel rewards to cash back, using a credit card can save us a lot of money. One of the big problems with using credit cards, however, is that studies show we spend more money than when we use cash. About a year ago, we found this to be true when we put most of our daily purchases on a Gold Rewards American Express Card. We earned a lot of travel points, but we spent way too much because we didn't feel the money leaving our checking account. We'd see a fat balance in our checking account because we weren't spending it. Feeling flush with cash, we'd end up charging too much on our American Express, and really feeling the pain the next month when our payment was due.
Recently, we've decided to try using a credit card for our daily expenses again. We want to take advantage of a cash back credit card, specifically the Discover More Card, and use the cash rewards to pay down some debt. Since the More Card pays from 1% to 5% depending on what is purchased with the card, the cash rewards can make a real difference in the budget. But we also want to avoid spending more than we would with cash, and we've come up with a little tip to do just that.
We plan to use the card for daily purchases, instead of cash or our debit card. And then daily or perhaps every other day, log into our Discover account and pay off our account in full. It literally takes less than 60 seconds to make an online payment, and the money comes right out of our checking account. This does take a few extra minutes every day or two. But as a result, we'll get the benefits of up to 5% cash back, and we'll see the money coming out of our checking account at the same time. Not only we'll this help keep us from overspending, it will also avoid any "surprises" the following month when the Discover bill is due.
We've found that some credit cards will not let cardholders make payments electronically every day of the month. That was one of the problems with the American Express Gold Card. Of course, you can always send in a check any time you want, but that gets really tedious. So if you want to try this approach, but your credit card company won't cooperate, use an online savings account. Each day or two, simply transfer the amount you've put on the card to a savings account until your credit card bill is due. Not only do you get the money out of your checking account, but you earn a little interest at the same time.
This post come from DR, the founder and Managing Editor of The Dough Roller, a money management blog.