Reformed Credit Card Users

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For over twenty years I had no clue had to use credit cards properly.  I was given my first credit card at age eighteen with very little explanation, but knew I would not be paying the bill. You could consider my parents my accountability partners at that time, but at eighteen years old, I just didn’t want to deal with explaining how I was spending their money on the card, so I spent wisely.

As I got older I applied for my own cards and soon began to carry a monthly balance. I liked having the immediate access to spending when cash was not available. I could easily manage the monthly payment over time. Little did I know that this way of thinking would cost me hundreds if not thousands of dollars of interest over the years.

Now introduce a wife and kids to that philosophy of spending and it really multiples quickly. One or two credit cards turn in four or five, and monthly payments ballooned from a few hundred dollars to almost two thousand over the years.

It still felt normal. We justified the spending, and living beyond our means by telling ourselves everyone else did it.  Everyone has credit card debt. Those words made us feel better until the next monthly bill arrived in the mail, but that pit in our stomach was soon forgotten and we moved on.

It was that rock-bottom, aha moment while planning our summer vacation that was our wake up call. Out of cash, and borrowing option we had to make a change.  We had to change our behavior with money, that meant discipline. Discipline like we have never seen before, saying no, sacrificing and cleaning up the mess we had made by overspending with credit cards.

credit card

The Journey

Once we decided that we need to make a change with our money, we began to education ourselves on all things personal finance. We cut up our five credit cards and began working on repaying their balances which total $109,000. We followed these outlined steps:

  • Build a plan (budget)
  • Communicate and agree upon plan (Budget)
  • Stop building new debt
  • Place expenses into “wants” verse “needs” buckets
  • Build an emergency fund (cash savings)
  • Track progress / stay motivated
  • Build wealth

We were able to cut expenses and increase income to help pay down our debt. We learned that it could all be done without credit cards. That by simply saving up cash for a purchase instead of using a credit card to pay for something you couldn’t afford you can avoid debt.  We followed that plan for a little over four years and became debt free in 2014.  Along that debt free journey, we also learned that once you reached that point you could use credit cards different in a way that we ever thought possible. A way if used properly could actually earn and save you money.

How We Use Credit Cards Today

During our debt repayment, we swore we’d never open another credit card account again. It took us a few month post debt pay off to even consider the idea. We wanted to be sure we were ready to handle the responsibility of a card. We felt we were and targeted a Southwest Airlines Rapid Rewards Card.

We chose the Southwest Airlines Rapid Rewards Card because we wanted to try to earn airlines miles to reduce the cost of travel. For a family of five airline travel can be expensive. We started out slowly using the card, but wanted to meet the spending requirements of $2000 in the first three months to collect the bonus of 50,000 Rapid Rewards miles.

We were able to accomplish this, and pay the credit card in full before the end of the month. We use it for everyday purchase like gas and grocery shopping. We did not use it to buy things that were not budgeted for or that we did not already have the cash for. We did not want to fall back into our old habits. With a few months under our belt we felt confidences in our new abilities to handle credit cards now.

This year we added the Chase Sapphire card. It offers a bonus of 50,000 Chase Ultimate Rewards points when you spend $4,000 in the first three months. Again, we followed the same rules of using it for everyday purchases and paying it in full each month. We chose the Chase Sapphire card because you can transfer point to a few different reward programs. Southwest being one of them.

Using these two cards we were able to accumulate enough reward miles to purchase four of five airline tickets for our summer trip this year and save over $2100. If you would have told me five years ago that I could use credit cards and save money I would have could you crazy, but using them in the above manner did just that.

We have added a third card recently the American Express Starwood Preferred Guest Card. We joined when they were offering a 40,000 bonus if you spent $4000 in the first three months. We decided on the American Express SPG Card because we would like to plan a trip to Orlando in the future and these points can be used to book hotels at Disney.

The goal with these three cards is to save money when we travel, but if at any point we are slipping back into old behaviors we would close the accounts. To keep track of all three we only use one of the three in a given month. This helps avoid multiple bills. Then depending on what our travel goals are we will either use one of the airline or hotel cards.

It feels good to know we have conquered our bad behaviors with credit cards and now have turned the corner. We use credit cards today as just another tool to help save money.

What’s your history with credit cards? Do you use them to take advantage of cash back or travel rewards? If so what’s the biggest reward you’ve earned?

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26 thoughts on “Reformed Credit Card Users”

  1. Great rules to live by when using credit cards and it’s impressive the debt repayment you accomplished living by those rules. My wife and I just opened a Chase Sapphire card routinely open two or so cards a year to take advantage of bonus offers. We will have to look into the SPG card one day. Thanks!

  2. It’s awesome that even after a bad credit burn, you’ve still been able to leverage credit to your advantage. I know some people that swear off credit forever and miss out on all the perks of responsible credit use.

    • Thanks Stefanie. We learned our lesson the hard way. If we ever see the bad habits returning these cards will be gone.

  3. Awesome post Brian. It’s these stories that inspire and motivate others who were once in your situation. Keep up the great work!

  4. I went through a similar story. Fortunately, my credit card habits caught up to me in my mid 20s when both my income and debt were not so high and my credit card debt didn’t have the opportunity to get over 5 figures. That didn’t make it any more fun to pay off on a minimum wage job with student and car loans to pay off.

    My habits changed a lot, and I’m pretty strict about not charging what I can’t pay off. I use an Amazon card that pays for a big chunk of Christmas shopping now. There are probably better cards for a lot of people, but our travel is minimal and this one seems to suit our family’s needs.

  5. It’s great that you guys are now able to use the credit cards to your advantage! Though we’ve never carried any credit card debt, we have used them to collect rewards for several years. At first, we just used Discover and banked on their cycle of 5% cash back categories. Now we also use the American Express Blue Cash preferred because they have 6% on groceries and 3% on gas all the time. We just recently started using the same cards as you do for travel rewards and I think the travel rewards stretch further than just cash back; we are hooked after saving $2100 on our recent vacation too!

  6. As with any tool, credit cards have to be used correctly and wisely. The best way to do that, as you have done, is to ensure you a solid financial plan in place and establish a rule set for the use of cards. Good stuff, my friend.

    • Thanks James. We are a prime example of how these can go wrong if not used wisely, its something we will never forget.

  7. Brian,

    Good post and a cautionary reminder on the perils of carrying a balance. We have never ever carried a balance on any card. We are proud of that and fortunate we could do that.
    Travel hacking is a big thing for us now and we have two upcoming trips where we will fly family of four from east coast to Jackson Hole in February for free using chase sapphire points. We also have four free nights at a hotel in Quebec City between Christmas and New Year thanks to points from Fairmont credit card. Gotta love travel hacking. I am actually wondering how long such good times with free points can last!!

  8. I have never had a balance on a credit card either but I can certainly see how easy it happens. We love our Chase Sapphire card and we use the Chase Freedom card too. We also got bot the Southwest Personal and Business cards and earned a Companion Pass on Southwest. We own a number of rental properties so we put a lot of money for repairs and supplies on the cards (as we manage them ourselves). Our biggest rewards were last year during the 100,000 Citi American Airlines card offers. My husband and I each got one. We had a college bill to pay that took care of the $10K on one card and expenses for our rentals took care of the second one. It was a great year to pocket the miles!

    • Wow, paying college on it was something I didn’t even consider. Seems like you have plenty of reward points to go around. 🙂

  9. We use credit cards for rewards although for a while we hardly used them at all. But since we’ve never paid interest or overspent with them, we’ve ramped up our travel rewards efforts recently. However, we don’t spend that much in general so we can only do so much at once. We do not have 20 cards going at a time!

    • I don’t want to end up with 20 cards, just too much to manage and keep organized. Then there’s the temptation to spend, spend, spend. No thank you.

  10. I’ve always been worried about the whole concept of credit cards. It was not very mainstream in France (we have mostly debit cards) and I learned about the concept for the first time around 26 when I lived abroad. I had to take the credit card as part of the contract with my bank at the time. Used it and was confused that they would take my money only at the end of the month. It seemed like a “lose” scenario for them, I didn’t even realize I was “allowed” to spend more than I actually have, until recently.

    The whole concept of spending money I don’t have feels fishy to me (I was even worried when I signed for our mortgage,, the first time ever I spent money I didn’t have), which is why to this day I still never use my credit card, always debit. So I don’t get the benefits, but I also run no risk of ever getting into trouble.

    • I wish I had that fear. We only use them now when we have the cash to pay for things to take advantage of the rewards.

  11. That seems like such a balanced approach, Brian. If one can use credit cards responsibly, they really are some great benfits to them. We get cash back with our Capital One cards, and as soon as it hits the account, I apply it as an account credit. 🙂

    • Thanks Amy. That’s our plan. We have considered the cash back, but the travel rewards seem to be the better deal.

  12. We used credit cards to help us save on our international trip earlier this year, but this is a big change from how we used to use credit too. I think credit cards can be a good tool, but most people have to make some mistakes with them before they realize the right way to use credit cards.

    • I wish that wan’t the case, those mistakes can be pretty stressful and painful. But agree it is a good lesson to learn and one you will not soon forget.

  13. The airline credits are great for families that travel! It’s an awesome way to build credit, too. Nice work. Thanks for sharing your story and thoughts!

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