by , Help & Tips, 2 Comments

Jan 26

Why & How I Use Credit Cards with Envelope Budget

Credit Card Rewards

by Dustin Davis, Help & Tips, 2 Comments

Jan 26

I have a couple of credit cards I use for spending. Both are American Express (AMEX) cards I use for benefits and rewards points.

Benefits

  • American Express offers a warranty on all purchases. I’ve only used this once, but it was great. I bought my kids iPods for Christmas a few years back. One of my children dropped their sibling’s iPod on the tile floor 2 days later and shattered the glass. I contacted American Express and they basically refunded me the amount of that purchase so I could go buy a new one.
  • I’ve had a few instances of fraud with cards. When this happens I have found American Express very quick to deal with it and reverse charges. I am sure my bank will do this, but honestly it makes me more nervous when using a debit card where it affects my checking account directly. I feel like I have more of a buffer with the credit card and a little more time to resolve the issue.
  • I use a Costco American express card. I basically got this for convenience just to use at Costco. Instead of pulling out my membership card and my debit card, I just use one card when buying groceries or filling up with gasoline.

Rewards

  • At Costco I get additional cash back when I use my Amex card. I generally get a check every year from Costco for around $350 dollars around February or March.
  • I use a Blue Cash card basically everywhere else that takes American Express. For Christmas in 2014 we used our points to get $600 worth of Amazon gift cards and $200 with of Old Navy cards. So basically our rewards paid for Christmas.

Envelope Budget Integration

I use OFX Direct Connect to import transactions from American Express into Envelope Budget. I simply use my web username and password to connect. It is very simple.

When a new transaction comes in, I simply assign it to the related envelope as I would with a debit card purchase.

Here is the KEY, I have automatic payments set up to pay off the balance each month on the card due date. If you are late on a payment they hit you hard and the points are no longer worth the risk. If I can’t pay off the balance each month, then I shouldn’t be using credit cards.

So when the automatic payment is transferred from my bank account to pay off the balance of my American Express card I get two transactions imported into Envelope Budget, one is a withdrawal from my checking account and the other is a deposit into my American Express account.

I have an envelope named “Bank Transfers” where I put both of these transactions where they balance out to zero.

Debt Mixed with Monthly Spending

Some have asked how to handle this if they have a balance on their credit card and continue to use their credit card for payments.

There is no built in way to handle this type of spending, but there are some things you can do in Envelope Budget to help you.

Transaction Search

A simple way to see how much you have spent on a credit card is to do a transaction search.

  • Click the “More Search Filters…” button
  • Select the date range (Month to date, last 30 days, or custom for example)
  • From the Bank Accounts drop-down select the Credit Card
  • In the Type select, choose “Withdrawal”
  • Click the “Search Transactions” button.

You will see all the transaction results. At the top of the list you will see a summary of how much you have spend in that date range for that account. You can then use this amount to know how much to pay towards your credit card to cover the spending for that date range.

Balance Transfer

One thing you could do is to open another credit card account and do a balance transfer. Often you can find cards that will give you 0% interest on balance transfers for a given period of time (6 months or a year). You could then track this debt separately and even make use of the debt snowball tracker in the “Get out of debt” center. This will give you a little more time to pay it off while not incurring the interest fees.

Then, with your balance on your new card you could track your credit card spending as described above.

I would be careful playing the balance transfer game though – especially if your goal is to improve your credit score. Opening new cards might do more hard than good in some situations. If you are going to employ this method, I recommend only doing it once and be diligent in working to pay it off.

Debt Envelope

If you plan on carrying debt on a card perhaps you should just call it what it is. Create a new envelope title “Credit Card Debt”. Any transactions that you do not plan to pay off if that billing cycle would go in this envelope along with any fees you incur from your bank.

When you are ready to start paying down this debt, you would make allocations to this envelope when you are allocating your paycheck. Whatever amount you allocate you would then pay towards the credit card debt. You would still have two transactions come in and you would put both to “Bank Transfers” that would balance out.

Conclusion

Hopefully all these scenarios make sense and you can see how flexible Envelope Budget can be to suite you needs. If any of this is unclear, please leave a comment and I can try to clarify or even create a quick tip video explanation.

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    • MichaelSt

      It is nice to read a financial blog that doesn’t mark credit cards as the Devil’s children. I have been deep into credit card debt at one point, but I saw the writing on the wall. I got out, and went the way of Anti-Credit card for a couple years. It was very helpful to learn to not use a card, even for emergencies. Through some tough choices, I have learned to despise payments. When you have zero cash flow after credit card payments, utilities, etc..and can’t buy even food without breaking something you learn to hate letting that cash flow go. I don’t think this is the zero based budget financial guru’s prize.nnA couple years after not having a single credit card to my name, we got hit smack in the face. I don’t carry cash, because it is harder to track, thus not good for budgets. We headed out of state to visit my wife’s family, taking only 40$ of cash just to have on hand in case my wife needed it since my wife’s card was compromised a week before and we hadn’t received the replacement yet. Still living the credit card free dream! We got a good ways from home, and while trying to pay for some lunch my card was declined. I used part of the cash to pay for the food, and we immediately called the bank. My card was compromised as well, and they killed the card between me getting the money out and then paying for lunch hours later. So, there we were. No Debit cards, no credit cards, and 20$ to my name stuck away from home. Thankfully we were close enough to her parents, and had just enough money for gas to get us there. In their town was a branch of our bank, and they just happened to start a new service of issuing replacement temp debit cards for situations like this. I learned a valuable lesson.nnNow, there are options like Walmart transfers etc, but really the simply choice is to carry a card. So I got a credit card again. I like to use one for paying bills to get reward points, but I pay it off each month. I feel better knowing that if I am stranded somewhere, I at least have a card to fall back on. Doesn’t mean I need to abuse it. nnCredit cards are not bad, but a desire to spend, spend, spend is. Stop looking for stuff to buy, and you won’t buy things. :)nnThat’s my story, and I’m sticking to it!