By Priya

March 29, 2021


Show notes

🎙 Credit cards aren’t as evil as some financial experts would have you believe. When used responsibly, they’re a great tool to help you make the most out of your money and offer great benefits like points and travel hacking. But how do you use a credit card properly and responsibly without accumulating debt? 🤔

This episode discusses topics like:

  • When it’s okay to use a credit card in emergencies;
  • What banks and card providers don’t want you to know about your credit card debt; and
  • How to use a credit card without going into debt. 


Hey, friends! And welcome back to Girl on FIRE, the financial independence podcast for women. 

My name is Priya, I’m a Chartered Accountant, an analyst and the creator of Paper Money Co. 

I’m also a fierce financial feminist and the host of this podcast. I believe that a woman who is in control of her money, is in control of her life.

And that’s why this weeks’ episode is about how to use a credit card without going into debt. 

Now, everything that I’m going to share with you today can also be applied to buy now, pay later services like AfterPay. 

But that’s a whole other beast that I’m going to tackle head on in another episode. 

There’s just too much to say about it to include in the episode, and I don’t really want to be listening to myself talk for an hour.

So, I’ve got that planned for another episode. But for now, it’s important to know that credit card debt in Australia has actually declined in 2020. 

And some of that is because people are saving more and spending less due to everything that came along with the pandemic. 

You know, lockdown, nothing to do, nowhere to go. People losing their jobs and tightening their belts. 

You also had people using JobKeeper payments to pay off debt or save more.

Credit card debt in Australia usually spikes in January, after Christmas, but after Christmas 2020 it actually fell to a 10-year low.

But it’s also because more and more people are turning to AfterPay and similar services instead, especially for millennials.

Having said that, though, the average credit card debt in Australia is $4,200 and in the US, it’s $6,270, which is about $8,000 Australian Dollars.

So, it’s certainly not a thing of the past. But in today’s episode I really want to talk about my 3 rules for using a credit card responsibly. 

Because the story of credit cards being an evil death spiral into debt for people who can’t control their spending is a myth.

Now, when I first started using a credit card, I gave myself some boundaries to make sure I wouldn’t end up in debt. 

I knew how credit cards worked, but honestly, I was scared of ending up in debt, so I created some rules for myself to make sure I was being responsible.

Those boundaries have become the 3 essential credit card rules that I’m sharing with you in this episode. 

It’s a core PMC philosophy and, in my opinion, it’s crucial that all Girls on FIRE follow these rules if you want to use a credit card but you want to stay in control.

As always, bookmark this episode for future reference. The full transcript is also up on my website —

Why I only use a credit card for all purchases

So, a bit of backstory for you before we get into it. I first started using a credit card when I was about 21, so 7 or 8 years ago. 

And if you remember from last weeks’ episode when we talked about how to calculate your net worth — that was just 2 years before I hit a 6-figure net worth. 

So, at the time this story takes place, I was well on my way to a 6-figure net worth and I just started using a credit card.

I was in my first job out of university as a recent graduate. And I wanted a credit card because I was taking a lot of business trips at the time.

Now, of course, I was being reimbursed for expenses on those business trips, but until the company reimbursed me, I was out of pocket. 

And being out of pocket meant that I wasn’t earning interest on that money and that pissed me off.

So, I applied for a credit card so that I wouldn’t have to be out of pocket. 

I’d raise the expense claim, and when I got reimbursed, which usually took about 1 week, I’d pay off the card. 

Now, I always paid off my card in full before the due date. Sometimes that meant I was out of pocket for a few days but I was okay with that.

Better to lose a few days of interest than a whole month of interest, right?

And at first, I was only using it for those business trips. Because I knew how a credit card worked, but I was afraid of wracking up debt. 

I knew that it was essentially borrowing money that you had 30 days to pay back before getting charged interest. And I wasn’t worried that my spending would get out of hand.

I had learned how to save money when I was pretty young, and at that point I’d been budgeting successfully for years.

But I was worried that I might forget a payment, or that a payment would fail for some unknown reason. And then I’d get slapped with an interest charge or a late fee. 

And at the time, the interest rates being offered on savings accounts weren’t too bad. At least not to me — a fresh university graduate, making $54,000 a year who just bought her first car with cash. 

I can’t remember now what the interest rates were but it was certainly more than it is now. I think it was between 2-3%.

And I thought to myself: “well, the longer I can keep my money in that account, the more interest it will earn. But how do I pay for things without spending that money?”.

And the answer to that question? A credit card!

So, my plan was that my money could chill out in my savings account earning interest until the end of the month when I paid off my credit card. 

And, sure, it’s only a few extra dollars of interest, it’s not a fortune by any means. 

But it’s literally free money. It’s money I’m earning by doing absolutely nothing. 

And by that point, I had proven to myself that I could handle this grown up thing responsibly. 

I was confident that I could use my credit card for all my expenses, not just my business trips. 

So, that’s what I did. And now, 7 or 8 years later, I’m doing a podcast about it. 

Sorry, Dave Ramsey, Credit cards aren’t evil or dumb

But that’s still the reason why I use a credit card today — so that my money has the maximum amount of time sitting in a savings account earning interest.

Not only that, but the card I use doesn’t have any account or card fees and uses live exchange rates.

And that’s great for shopping online for products from overseas, because I’m not paying any more than I have to on currency conversion. I also don’t pay any translation fees, only the cost of the purchase.

A lot of people use credit cards for travel points — it’s called travel hacking. Some people are able to do it really successfully, as well. 

The point is that credit cards aren’t evil. And they’re not dumb. You can absolutely use a credit card responsibly and get some benefits from doing so.

My job as a financial expert isn’t to sit here telling you that credit cards are evil and you should cut them up or throw them in the freezer. 

That’s judgemental, and I’m not interested in that. My job is to teach you how you can use one, if you want to, while still having control over your financial situation. 

So, let’s dive in. 

The 3 rules for using a credit card responsibly and without going into debt

Should you use a credit card?

Now, I want to get something clear here. If you have a debt problem, you should not be using a credit card. 

I want you to focus on reducing the debt you do have and setting up a system that allows you to spend and save without going back into debt.

So, if you can’t abide by the 3 rules I’m about to share, you should not be using a credit card.

Otherwise, you risk getting stuck in a debt cycle and spinning out of control, which is the opposite of what we want to achieve here. 

#1 Pay on time and in full every month

Okay, so rule #1 is to pay off your credit card on time and in full every single month. 

Just making minimum payments isn’t going to be enough. If you can only afford minimum payments, then you shouldn’t be using a credit card.

You have to be able to pay it off in full every month. And to avoid late fees, which — let’s be honest — is low hanging fruit, set a reminder in your phone to pay it off on time.

I know that life is busy and overwhelming and we all have a million things to do. But it takes 30 seconds to set a reminder or alarm on your phone to pay your credit card bill. 

And if you don’t have time to sit there paying bills, then contact your card provider or your bank and set up a direct debit or auto-pay if you can. 

Now, a word of caution here — if you are going to set up any automatic payments, make sure you’re still paying off the total balance of the card and not the minimum payment.

One thing I want to be super clear on here is that minimum payments are not your friend.

They’re not designed to help you, they’re designed to keep you in debt for as long as possible.

Because the longer you’re in debt, the more interest payments you make. And for credit card providers, your interest payments is money in the bank.

That’s the income they earn. No one is lending you money out of the goodness of their hearts. They’re in this business to make money.

And that’s why they want you to stay in debt and they want you to keep paying them interest.

Because when you only make minimum payments, the card provider takes the majority of that payment in interest and only a small portion of it goes to actually paying back what you owe. 

And by making only the minimum payments, you’re helping your card provider keep your debt alive for as long as possible.

Now, the way to really piss them off and avoid paying interest altogether is to make sure you’re paying off your credit card on time and in full every single month. 

By doing that, you’re paying back what you owe within the time frame, so they can’t charge you interest for borrowing money.

And if you’re paying it off on time, you’re also not incurring late fees. 

So, that’s rule #1.

#2: Your credit limit should only be what you can afford to pay in full

Moving on to rule #2 — your credit limit should only be what you can afford to pay in full. 

When I got my first credit card, they gave me a monthly credit limit of $6,000. That was twice the income I was earning every month. 

I knew that if I ever maxed out my card, I wouldn’t be able to pay it off in full without dipping into my emergency fund. 

And that is NOT an emergency. So I called them up and dropped my limit down to $3,000.

Your credit limit should never be higher than what you can afford to pay off in full. 

Otherwise, you risk spending more than you can pay back, which leads to debt and interest payments. 

Credit limits and your credit score

Now, you’re probably thinking: “well, that’s all well and good Priya, but what about my credit score?”. 

There’s a lot of information floating around on the internet saying that maintaining a credit utilisation rate of less than 30% is good for your credit score. 

Let’s pull that apart. Your credit utilisation rate is how much of your credit limit you use.

So, for example, if your credit limit was $5,000 and you use $3,000 then your credit utilisation rate is 60%. 

Now, according to popular advice, this is bad for your credit score. Even if you’re paying it off in full and on time, it’s apparently a big no-no. 

And I’ve heard advice out there saying that: “well, if you’re spending more than 30% of your available credit, then you should increase your credit limit.”

The argument there is that you’re increasing your credit limit but not your spending. Which means that your credit utilisation rate goes down.

So, if we go back to our previous example, if you’re spending $3,000 a month on your credit card, you would need to increase your credit limit to $10,000 in order to have a credit utilisation rate of 30%.

Now, that right there is a recipe for disaster.

With a credit limit that high, it’s so easy to overspend. 

You might not even realise it because your card doesn’t get declined at checkout for reaching the limit. 

Or maybe you feel tempted to spend because, hey, you’ve got available credit to spare. And it’s especially a problem if you already have trouble with overspending.

It becomes so much easier to end up accumulating debt because you spend more than you can afford to pay off. 

And that’s because your credit limit is so much higher than what you can afford to pay in full in one month.

But here’s the thing — if that happens, if you accumulate debt because your credit limit was too high and your spending got out of control — then your credit score is going to suffer anyway.

And having debt is going to impact your credit score a lot more than having a higher credit utilisation rate but paying off your card in full. 

For the 7 years I’ve had my credit card I’ve paid it off in full and on time every single month, without fail. 

And my credit limit has stayed at $3,000. I don’t need it to be any higher, and my credit utilisation rate is usually 50-70%.

But I checked my credit score a few weeks ago when planning for this episode. My score is excellent — it’s 821. 

And apart from my student debt, which we talked about in episode 10 — I’ve never had any other debt. 

So, that score, is calculated purely off my 1 credit card that I’ve used for 7 years. 

And it’s because my credit limit was manageable enough that I could pay off my card in full every single month. I was never late and I never accumulated any debt.

So, that’s rule #2. Your credit limit should only be what you can afford to pay off in full. If you can’t stick to rule #2, you won’t be able to stick to rule #1.

#3: Credit cards should never be used to bridge the gap

And that brings me to rule #3, our final rule — credit cards should never be used to bridge the gap.

So, what do I mean by that? There is a difference between using a credit card and relying on a credit card.

Unless it’s a life or death situation, or a question of survival, a credit card should never be used to bridge the gap between what something costs and what you can afford to pay.

This could be the difference between financial independence and financial ruin.

If you learn only one thing from this episode then let it be that. It’s super important, so I’m going to say it again. 

Unless it’s a life or death situation, or a question of survival, a credit card should never be used to bridge the gap between what something costs and what you can afford to pay.

Now, I want to break that down into three categories — your emergency fund, your living expenses and everything else.

Credit cards and your emergency fund

Let’s start with your emergency fund. Now, we talked all about emergency funds in episode 6. 

We talked about how much you really need, how to save up for it and what to do with all the money you’re saving.

Now, I’m going to be really blunt here. A credit card is not an emergency fund. We all know someone who says they have a credit card for emergencies.

But a credit card is not an emergency fund. It’s a ball and chain that will drag you into financial ruin when you’re vulnerable.

That’s why I teach my students that your emergency fund needs to be the #1 financial goal you focus on. It’s the one that comes first.

Nothing else will matter when you’re on the street and can’t feed yourself. Your debt won’t matter, your retirement won’t matter.

And if you use a credit card as an emergency fund, you’re putting yourself in a position to wrack up more debt.

Now, there’s a simple solution to this. You need to save up an emergency fund. If you’re still working on your emergency fund, go back to episode 6.

Having an emergency fund means you don’t need to rely on credit cards when everything hits the fan. And you know it will, that’s a part of life, right?

So, be prepared and responsible. Start by saving up the amount of your credit limit for emergencies. 

So, if your credit limit is $5,000, start by saving up $5,000 for your emergency fund. 

Now, the only exception to this rule is this — unless it’s a matter of life and death, or survival. That’s the only exception here.

And I mean life or death in the most literal sense. Not “it’s so pretty that it’s giving me life” or whatever influencers say online these days. Life or death.

Living expenses

Following on from that, your credit card also shouldn’t be used to bridge the gap between what you can pay for basic living expenses like food and rent and what they cost. 

If you cannot afford basic necessities without a credit card then you’ve got to find a way to either cut your expenses down to the bone or increase your income.

You might need to take on a second job to make ends meet. Using a credit card to pay for your basic expenses will keep you trapped in a debt spiral.

And unless you can break free from that cycle, you’ll never be able to build any true and lasting wealth. 

You’ll never have the financial independence you crave and retirement won’t be possible for you.

Everything else

Now, onto our final category — everything else. These are things like gym memberships, eating out, Netflix, nice new clothes, beauty products, travelling and other lifestyle expenses. 

Basically, anything that isn’t essential. Now, I’m going to be really blunt here so prepare for some tough love. 

If you can’t afford to pay for lifestyle expenses without going into debt, then you just straight up can’t afford it and you should not be buying it until you can.

A credit card doesn’t entitle you to buy the non-essential things you can’t afford to buy with cash. 

If you treat it like it does, then the price you’ll pay is a mountain of credit card debt. 

You can’t avoid credit card debt if you believe that a credit card entitles you to buy whatever you want.

I can’t stress this enough — a credit card is just a tool. It’s not free money, no one is giving you free money. And it’s not permission to spend money you don’t have.

And that doesn’t mean that you can’t have nice things. It means that you need to be able to pay for them without relying on debt.

Save up for the things you want. Not only does that help you get more intentional about your spending but it teaches you to become a patient spender.

Look over your budget and see where you can make cuts and save money towards the things you want. 

Yes, it takes a bit of sacrifice. But there is nothing in this life that comes without sacrifice. 

You either need to go without these non-essentials or save up to afford them without a credit card. 

Using a credit card to bridge the gap is not an option if you want control of your finances or financial independence.

Now, at the beginning of this episode, I said that I use a credit card to pay for everything. 

But it’s not because I don’t have the money to pay with cash. I do. I have the income to support my lifestyle and I have sinking funds and savings for larger expenses. 

I also have a fully funded emergency fund that covers more than a year of living expenses.

My credit card isn’t being used to bridge the gap between what I want and what I can afford. 

It’s a tool that I’m using so that my money can sit in a high interest savings account for as long as possible. 

I also pay it off on time and in full every single month. I’ve never had a cent of debt. I’ve never paid any interest or late fees. 

I want you to understand that you can use a credit card — they’re not evil or dumb. 

You can use them to defer payment and maximise interest income like I do, or for travel points or other benefits — whatever you want. But you have to do it responsibly.

Next weeks’ episode

And that’s all I have for you Girls on FIRE today!

My challenge for you this week is to go over those 3 rules and apply them to your own life — are you following them? And if not, what changes can you make so that you’re using your credit card responsibly? 

On next weeks’ episode we’re going to be talking about investing and how to determine your investing strategy, even if you’re new to investing. 

If you’re serious about building wealth and retiring at some point in your life, then you need to be investing. 

So, I’m going to walk you through how to create that investing strategy so that you can get started.

It’s going to be a super interesting episode so you’re definitely not going to want to miss it.


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