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Unlocking Financial Freedom: A Deep Dive into Consumer Credit

Consumer Credit

I learned about consumer credit in college in a personal finance course I took while getting my accounting degree. It changed how I viewed the credit card industry as a whole. Whenever anyone asked for advice on their finances or building credit, I told them about this. This is how passionate I am about this specific practice. So, you all get a blog about it as well!

With all that in mind… let’s talk about consumer credit.

What is Consumer Credit?

My introduction to it was years ago, and you can probably look up a better explanation online, but this is how I’ve implemented it and learned to love it.

Step one is to use your credit card in place of your debit card. Going to get gas? Use your credit card. Buying groceries for the week? Use your credit card. Need to buy new light bulbs for your vanity because you’ve been putting it off for two years and have only one of three working? Use your credit card. The goal here is to stop using your debit card and checking account for everyday expenses. Some people may even put their monthly bills on their credit card. I am not that person, but that’s a personal preference and also an option.

Step two when you get your paychecks use that money to pay off your paycheck-to-paycheck expenses. The idea is that your credit card covers your expenses between paychecks, and you use your paycheck to paydown or pay off those transactions. If you spent $425.32 between your last paycheck and this one, then you make a payment of $425.32 from your checking account to your credit card.

Step three, and this is crucial for this to work. Have a dedicated credit card that you use for everyday expenses. You can only use it for everyday expenses. I have an emergency credit card that sits open with a $0 balance unless I run into an emergency. If I want to finance a new purchase, I sign up for a new credit card or loan to do so. You have to keep one credit card as just everyday expenses because this is the one, you’ll want to consistently pay off or pay down and it’s easier to manage your expenses if you’re not adding other noise to it.

Step four, and this is optional, but I love the idea of it, leave your debit card in your wallet never to be swiped again. If you feel really buck wild about it go ahead and just cut it up and throw it out. Maybe even cancel your debit card altogether if you’re bananas for the idea! That’s how confident I am when I say you won’t need it. I promise.

Why is consumer credit beneficial?

The answer that always gets people excited is that it builds credit easily. In one year of doing this with a credit card I added more than 70 points to my credit score. 

If that’s not convincing enough, using a credit card eliminates your personal fraud risk. Here’s a scenario to noodle on. You use your debit card to make a purchase, and someone hacks your information. They charge $3,000 to your checking account and every payroll deposit that comes in goes toward the fraudster’s purchase until your bank can fix it. To work around it you open another checking account, re-route your deposits, and hope the bank figures out your case.

Now imagine you’ve used your credit card instead. The fraudster can’t exceed your credit card limit. You can control your payments to your credit card, paying only the transactions you know are yours. It’s the bank’s responsibility to remove fraudulent charges and any interest that accrues because of those charges from your credit card. And all the while you still have access to all your cash from your deposits.

Not sold yet. Well, another cool bonus is that certain credit cards offer rewards programs on everyday purchases. Just imagine a world where your bank pays you to pay your phone bill or buy groceries. Think about the fact that every purchase you make could have an automatic 2-5% discount automatically because of a cashback program.

My favorite party? If you do consumer credit correctly, you may never owe any interest on your credit card purchases. Don’t believe me, I’m going to dedicate an entire blog on how to understand your credit card disclosures. I want you to understand how to mitigate or avoid paying interest on your credit card.

Best Practices

If you want to become a consumer credit person like me, these are the tips and tricks I’ve kept in my arsenal to keep me on track.

  • Always pay your credit card on payday to get the cash out of your account.

  • Ignore your credit card limit. Your checking account balance is your credit card balance.

  • Have another emergency credit card, line of credit, or savings account that can cover big purchases or unexpected events.

  • Have a budget you follow and use that to inform your average payment amount per paycheck.

(Below here is the life story part you can skip. I included it to be more relatable and put it at the end if you haven’t bought into my bologna yet. You can thank me in the comments if you appreciate this format!)

My Experience:

I grew up in a lower income/poverty level under a single mother household, and I have 3 siblings. Money was always tight. I knew nothing about loans, credit cards, credit scores, investing, or any of that stuff. I just knew that the world required a lot of money and if you didn’t learn how to make it work you would struggle. So, I made a promise to myself to learn whatever I could once I was out on my own.

I got my first real credit card when I was about 21, back in 2016, when I learned about consumer credit for the first time. Before that I only had one store card for a purchase I wanted to finance, which I closed immediately after paying it off. My credit score was near 640 or so, and that was just because I had some student loans that were in “good standing” as far as the credit bureaus were concerned. 

Once I learned about consumer credit, I put my debit card away and got a basic credit card. I continued living as I normally did, just swiping my credit card instead of my debit card and taking the money out of my paychecks to pay my expenses for the last two weeks. In just one year my credit score was just over 720, I was receiving at least 5 pre-approval offers for credit cards monthly, and I was able to get an incredible interest rate on a car note without a cosigner. 

The best part about the year of credit card usage was that I didn’t pay a penny of interest. Beyond that, seeing how my money was moving also allowed me to start saving and budgeting better. In that one year I also managed to save $5,000 which was the most I ever saved in my whole life.

Now as an avid consumer credit user, just over 7 years later, I have been able to finance so much for myself. I’m a proud homeowner, I have a few credit cards, I’ve done debt consolidations and loan refinances, and have been able to build a wonderful savings nest egg. I got my husband into consumer credit and his credit score is climbing. He’s been able to qualify for credit cards he never could before, and we were able to jointly apply for a home-equity line of credit account to do fixes and improvements around our house.

I’m not saying everyone should become a “consumer credit” spender. Not because I don’t want this life for everyone, but because you have to have a lot of personal discipline and understanding to make it work. The last thing I want is for someone to get a credit card, and then tumble into massive credit card debt because they started swiping for things they couldn’t afford. But if you have the discipline and tenacity to exercise control and really manage your finances, I highly recommend becoming a consumer credit, credit card user.

Author’s note: I hope my posts are helpful. I try to break these things down in a way that is easy to read and understand. I appreciate any feedback on how to improve, so feel free to leave a comment below. If you are simply enjoying the content, I’d love to hear about that as well!

Disclosure: I am not a licensed financial advisor. I have an accounting degree and a business major with a certification in finance but I am not a legal expert. These posts come from my personal experience, learning through trial and error, working in the banking industry for nearly a decade, and seeing the fruitfulness of this advice in my own life.

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