Last updated: Tue Jan 02 2024

Credit card debt has surpassed $1.07 trillion and in 2022, over $133 billion has been paid in interest and fees. Credit cards are certainly a scary asset to have, and many of today’s young adults are wary of credit cards — for a good reason. But, at the end of the day, having a credit card is one of the main ways to build credit at a young age, and it has its perks.

Perks of using a Credit Card

When using a debit card, you are spending just the money you have, without any perks, protections, or rewards. When using a credit card, you get so much more; reward points, fraud protection, and cash back are just a few benefits. Additionally, many credit card companies offer great onboarding rewards just to sign up for their cards. When used correctly, they can do wonders for your finances. However, some individuals find it challenging to manage their credit card spending and often end up accumulating debt. To avoid this, it is possible to treat a credit card like a debit card, which can help you maintain control over your finances, while still benefiting from the perks of a credit card.

Why to Treat a Credit Card like a Debit Card

There could be many reasons why you would want to do this. Here are just a few reasons this is a good idea:

1. Real-time checking account balance: By paying off your credit card balance at the end of each day, you can keep track of your spending and maintain a real-time view of your checking account balance. This allows you to stay within your budget and prevents any surprises when it comes to your available funds.
2. No overspending: Treating your credit card like a debit card means using it only when you have sufficient funds in your bank account to cover the purchase. This ensures that you will not spend beyond your means and helps you develop responsible spending habits.
3. No fees or interest: When you use a credit card like a debit card and pay off your balance in full each day, you eliminate the risk of paying high interest charges or late fees. This saves you money and enables you to use your credit card without incurring unnecessary costs.
4. Same points and benefits: By treating your credit card like a debit card, you can still enjoy the rewards points, cash back, or other benefits that come with your credit card. These perks can add value to your purchases, giving you an extra incentive while maintaining control over your spending.

The transition from discussing the benefits and risks of credit card usage to introducing practical strategies for managing them is crucial. Credit cards, indeed, come with a myriad of perks and are a powerful tool for building credit, especially for young adults. However, the alarming statistics of credit card debt and the associated costs highlight the need for responsible usage. The concept of treating a credit card like a debit card offers a middle ground. It allows users to reap the benefits of credit cards, like reward points and fraud protection, while minimizing the risks of debt accumulation and financial mismanagement.

How to do it

So, how can you treat a credit card like a debit card? Here are a few simple approaches:

1. Pay off your balances daily: At the end of each day, make it a habit to pay off the full balance on your credit card. This practice ensures that you are only spending what you have available in your bank account and prevents any debt accumulation.
2. Use a budgeting app: Utilize a budgeting app, such as YNAB or other financial management tools, to keep track of your spending, set limits, and monitor your transactions. This way, you can easily reconcile your credit card purchases with your bank account and avoid overspending. But you must stick to your budget, which is the hard part.
3. Automate your payments with ClearCred: Consider using ClearCred, our app that automates the process of treating your credit card like a debit card. After connecting your cards and a bank account, it automatically stores away funds to pay off your credit card balances at the end of each month. Additionally, this ingenious system allows you to earn interest on the money you store away, so you are having the money you already owe do work for you!

Final Thoughts

In conclusion, treating a credit card like a debit card is an effective strategy for managing personal finances and avoiding the pitfalls of credit card debt. By adopting this approach, you can enjoy the perks of credit cards, such as rewards and cash back, while maintaining a healthy financial balance. Paying off your balances daily ensures that your spending aligns with your actual bank account balance, preventing debt accumulation. With these practices, you can turn your credit card into a powerful tool for financial stability and growth, rather than a source of financial anxiety. Remember, with the right approach and tools, managing credit card spending can be both rewarding and empowering, setting the foundation for a secure financial future.

Disclaimer: The content provided in this article is for informational purposes only and does not constitute formal financial advice. While efforts have been made to ensure accuracy, readers are advised to conduct their own research and consult with a professional financial advisor before making any financial decisions. ClearCred is not responsible for any actions taken based on the information provided in this article.