What’s Your Credit Card Usage Policy?

In my financial independence checklist, I mentioned as the first point:

I should not have any credit card debt.

While this is true today, such was not always the case. A long time ago, I had an outstanding debt in six-figures on an American Express credit card and no bank balance to pay it off. The youthful exuberance of having a well paying job straight out of college was the root cause. I bought stuff that I really did not need and worse, on credit.

To further worsen the situation, I took a supposedly “interest free” six-figure loan from my employer to pay the credit card debt. No one told me that the “free interest” component of the loan would appear as perquisite while computing my income tax. It was a BIG mess and one that took a lot of time to get out of. That was when I put in place my credit card usage policy.

My Credit Card Usage Policy

  • Have one credit card with no joining and annual fees and a low credit limit. I call this my Main Card.

  • Have one credit card with no joining and annual fees and a sufficient credit limit. I call this my Backup Card. Sufficient is a value that you will need to decide looking at your personal situation. In my case, it’s in the five-figures.

  • Do not carry either of the credit cards during your daily routine (includes to work, while shopping, going out with friends, and such). It’s true, I don’t carry a credit card in my wallet! I therefore “don’t have to worry” about future bills.

  • Look at every other option before opting to purchase with a credit card. I faced this situation recently when I had to purchase a Dell monitor and finally used my Main Card for the purchase.

  • If you really need to use a credit card to make a purchase, ensure that you already have adequate balance in your savings account and immediately pay off the card. When I bought the Dell, I paid the balance on the Main Card the very next day although the due date was a full billing cycle away. I don’t care for any “opportunity cost.”

That more or less has been my credit card policy since the meltdown. My first option is to pay with cash for any good or service. I’ve had a stress free experience on this front.

What’s your credit card usage policy? I’d love to know.

8 thoughts on “What’s Your Credit Card Usage Policy?

  1. I belive with bit of decipline, we can make an efficient use of a credit card. I always carry my card with me and I try to use it where ever possible. I don’t think there will be a situation where I would say ‘I want to buy this, but as I don’t carry that much money now, so I will not buy it…’. If I need it,I buy it so there is no point in hiding the credit card in my home back. Now the advantage of using credit card- I get a list of all purchases I made…which helps me in keeping my expense account proper in GNUCash. You get reward points which will keep accumulating and yield some decent gifts some day. In Canada, I would rather use Debit card, as it is accepted in almost every shop, but credit card also helps a lot in online purcahses.
    Some times I see my credit card bill and feel, I spent too much, but never the less, if not credit card, I would have spent that much with the cash drawn from ATM or debit card, which makes no difference.

  2. Pavan, you got it spot on in saying that “with a bit of discipline, a credit card can be used efficiently.” But that discipline is the whole problem to begin with. With so many things to worry about and distract us, it’s quite easy to miss a payment deadline every now and then.

    What do you think?

  3. Hey Vinaya..

    Nice one here…Infact in UK the trend support your observation..The last 4 year statistic suggest that Debit Card usage has grown by almost 15% , credit card numbers are almost constant…Infact this has started worrying the card issuers, as they are busy devising new schemes to attract customers for debit card business.


  4. Hi Vinaya,
    Well, I do agree about the Discipline and the policy, but Today the so called plastic money really matters. Especially in situations where in your cash balance is low ?? , emergencies ?? and may be sometimes when you have forgotten to draw your cash, but have refueled your CAR / BIKE.

    I do agree that you need reminders about your DUE DATES and these CARD Co’s are very smart at charging the INT and the DELAYED payment fees.
    However, it still is very handy in needy situations. Carry one always.

    BUT .. What you really need to be careful is about
    1. Not loosing it, if lost PLEASE PLEASE PLEASE inform the ISSUER about the loss and block the card … else …. Its a lottery ticket for the finder . How to inform the ISSUER … store the nos in your cell phone. ..
    2. Make sure that everytime you swipe your card, the person who is swiping is not noting down your detials … coz then he can go on a ONLINE shopping spree ..
    3. And LAST, make sure that you keep checking your statements regularly, take immediate action if you see a misuse,… dont pay until ,,.. actually never pay,

    I have more to write,.. but am i guess its too late,..

    Will catch up with you soon,…
    You have developed a wonderful site,..

    Thank you

  5. HI,

    Request you to please explain me the complete procedure of Credit Card Final Settlement if someone wants to make and what could be the impact and consequences.
    1)Whether his/her name would be in the defaulters list in Satyam?
    2)If Yes ! Then till howmany months will the name be there?
    3)When can that person after getting his Final Settlement done can apply for any loans or overdrafts from a bank. Or he/she can ever avail any of these in future?

    Please revert/respond back ASAP. Ormail across to me ASAP. Thanks…



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