Finunciate’s Rules for Revolving Debt (Credit Cards)

Finunciate’s Rules for Revolving Debt (Credit Cards)

Alright. I haven’t exactly been shy about how my younger self got into a pretty sizable amount of debt, and how much of that debt was due to improper use of credit cards. So, it may come as a bit of a surprise that I haven’t sworn off of those credit cards altogether. In fact, I use credit cards extensively as part of my spending plan.

The inclusion of credit card spending doesn’t come without some ground rules, though. So, without further ado, here are Finunciate’s rules for including revolving debt in your financial life.

(Note that the following does not constitute financial advice or an endorsement of any linked product. Financial decisions should be tailored to your unique situation.)

You’re Already Spending Less Than You Earn

If there is one money-related life hack that applies to everyone, this is it. It seems like a simple concept, but sometimes spending less than you earn can prove to be somewhat complicated for us. As Dr. Daniel Crosby points out in his book, The Laws of Wealth, just as obesity in The United States can be attributed to the fact that donuts taste better than broccoli, our problems with getting into debt can be traced to the fact that spending money right now is a lot more fun than saving to buy something later.

IF you’re spending more than you earn on a regular basis, a credit card is just going to be an anchor around your financial neck, slowly (or quickly) dragging you down. Before you consider applying for a credit card, you should have established a habit of spending less than you earn and stuck with it for at least 3 to 6 months.

The Credit Card Should Offer Rewards

If you’re going to risk spending money and being charged interest, you should get SOMETHING in return. I know that non-rewards credit cards usually come with lower interest rates if we run into a tough time where we cannot pay the balance in full for a month or two. But, I think the rewards trump that difference in interest for me.

Credit card rewards are not a path to significant wealth, but they are something. If you have a bad credit history, and don’t qualify for a credit card with rewards, maybe try a reloadable debit card (if you can find one with no fees)*, or stick with cash.

(*I am recommending reloadable debit cards instead of a debit card attached to your bank account in order to help you with your spending plan and keep that money separate from your checking and savings accounts. I think it’s better to be safe than sorry on the hacking end of things.)

If There is a Bonus Reward Offered, Make Sure it’s Attainable

Most credit card offers come with bonus rewards in return for spending a certain amount of money within a specified time period…usually 90 days. This rule is simple, you should be able to get the bonus reward without violating our first rule to not spend more than you earn.

You Must Have a Plan for How You are Going to Spend on the Card

This rule goes along with the first rule in the list. While credit cards can help with budgeting and offer rewards for purchases, you can also lose track of your spending, if you’re not careful. For this reason, we need to know WHAT we are going to use the card for.

Write down what spending categories (groceries, dining out, monthly bills, pet care, etc.) that the card is going to be used for. Plan for your spending on those items, and set amounts that you think you will need for each of those categories. Add those amounts up, and you have a spending plan for that credit card account. Stay within your limit, and that means that part of your spending plan is on autopilot. Additionally, a lot of card issuers will have a feature to set alerts if you go over certain spending limits each month; use those account features.

For example, I am currently carrying 3 credit cards. For each of those cards, I have a plan that allows for around $500 in monthly spending. As long as my monthly statement balances don’t go over $500 on those cards consistently, I know I have my spending under control. If I regularly spend more than $500 per month on any of those cards, I’ve already narrowed down where my spending (or planning) is going wrong.

You Must ALSO Have a Plan for How You Will Use The Rewards

Just like you need to plan your credit card spending ahead of time, you should also know what you want to do with the rewards from that card.

In the case of airline-branded travel cards (Delta, Southwest, American Airlines, etc.), how you use your rewards is set up for you, already; you’re going to use it for travel expenses.

But, if there is an option for cash back, it could be an opportunity to pay off a little extra debt, or to start or increase your savings. I like to use cash back rewards to either build up a lagging emergency fund or add to a travel fund. You can use these rewards to save for whatever you like. But, I would recommend against just using it to spend a little extra whenever a reward is available. Give these credit card rewards a purpose.

Decide if the Annual Fee is Worth it.

There are a lot of rewards credit cards that have multiple versions, with and without annual fees. You should decide whether it’s worth it to pay the annual fee.

For airline credit cards, will you use the perks enough to justify the annual fee (or additional annual fee) on the card you are choosing. How much does priority boarding mean to you? Do you get a free checked bag? Are there any travel credits?

For cash back cards, there are a few things you can try:

  • First, get the free version (or lowest annual fee) and try it out for a year. If you’re earning enough rewards, you can always upgrade to the annual fee version of the card. Most rewards cards with annual fees have double rewards when compared to their free counterparts. (CapitalOne’s Venture and VentureOne being an exception.) Typically, if you earn rewards greater than the annual fee on the more expensive version, upgrade.
  • Second, if the annual fee is waived for a year, try out the annual fee card and opt down if you end up not earning enough rewards to offset the fee. With this option, you do run the risk of incurring an unwanted annual fee if you forget your card’s anniversary date (ie: the month you got the card).
  • Lastly, you could do the math ahead of time. As I mentioned above, the difference in rewards between a free version and a card with an annual fee is usually double. If we look at an example of 2 cards:
    • First card: No annual fee with a 1% cash back reward, or
    • Second card: $95 annual fee with a 2% cash back reward…
    • The amount you would need to spend each month for the annual fee card to be worth it is: $95 annual fee divided by (2% – 1%), which is $9500 per year, or $791.67 each month.
    • Check back to the amount in your spending plan to see if it’s worth paying the annual fee.

(A quick note on the example above; it’s just an example. I am aware CitiBank’s Double Cash credit card offers 2% cash back with no annual fee.

If you have decided to apply for a rewards credit card, and would still like some help deciding, feel free to email me at I’ll be glad to help in any way I can.

So, there you have it. These are the guidelines I use when deciding to apply for a credit card.

Thank you for visiting Finunciate. Come back, soon.

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