Credit Cards Are Not an Expense

It’s pretty common for people to have a line item (or multiple line items) in their budget called “credit cards”. But credit cards are not an expense to be budgeted for. Instead, credit cards are a method of payment. Did you know that credit cards are NOT an expense? It's too easy to think of them as one, but changing how you think about them can make a huge difference.

Can you imagine having “cash” or “checks” as an expense? It sounds silly when you put it that way, doesn’t it?

Unfortunately, I see budgets all the time with things like “Credit card $200″ listed as a line item. Budgeting that way makes it difficult to track what you’re actually buying, and easy to mask areas where cutbacks might be possible.

It’s what you’re buying that matters

Confusing credit cards with an expense makes it difficult when people try to create a budget. They plan on a certain amount for various expenses, and then a certain amount for their credit card payment. Then they charge things to their card, and wonder why their credit card minimum payment is more than they’d planned on.

It’s better to budget for the things you’re buying, regardless of how you pay for those items. Quit using credit cards altogether, and things get even easier.

Why quit the cards?

When you’re working on paying off credit card debt, the easiest thing to do is to stop using the cards altogether. Period.

I know, you can get rewards by using credit cards. And it may surprise you to know that I’m not unilaterally against credit cards. I use them all the time — now that I absolutely, ALWAYS pay them off in full before they are due.

But I didn’t use them at all for many years, because I couldn’t seem to do that. A ton of people can’t. If you’re in credit card debt right now, that means YOU are one of the many people who can’t handle using credit cards.

Don’t feel ashamed, but do stop using them if you want to get out of debt.

Make credit cards a temporary line item

While you’re paying off the cards, I’d suggest creating a temporary line item in your budget that says “Credit Card Debt” — a line item that you use to indicate the additional payments you’re sending to that debt.

Once you’ve paid them off, you can eliminate the credit card debt line entirely. For good. (Whether or not you decide to use a credit card in the future.) It won’t need to be there any longer, because once you’ve paid them off, you’ll be doing your budgeting based on the things you spend your money on.

And credit card debt won’t be one of them.