Tips on How to Use Credit Cards for Financial Flexibility

There’s a large body of literature on the web about how to use credit cards responsibly, focusing on ideas like not spending more than you can afford, paying your bills on time, keeping your balance well below your credit limit, and building up your credit history. But what about after you’ve mastered those basics? Are there more sophisticated ways to use credit cards when you need to increase your financial flexibility while maintaining your financial wellness?  

Simply: Yes. The essence of the Consumer Financial Protection Bureau’s (CFPB’s) definition of financial well-being is to control your day-to-day finances in such a way that you can absorb an unexpected financial shock, meet long-term financial goals, and “have the financial freedom to make the choices that allow you to enjoy life.”¹ Over the years, I’ve used credit cards to help achieve many of those financial wellness benefits, and I describe some of those examples below.

I almost always follow the responsible wisdom offered in those “how to use credit cards” guides about paying your balance in full and on time every month to avoid interest charges. But being self-employed for a decade, and then launching my own business, I inevitably faced cash flow crunches.  

For several years, it was a stressful scramble to meet expenses for the first few months of the year. Then, one January, I realized that the credit limits on my two main credit cards were plenty high enough to cushion a couple of months’ worth of expenses. By paying less on my monthly credit card bill, I could use the leftover money to cover other monthly expenses. Later, when the income started flowing, I paid extra on the credit cards until I caught up.  

It’s important to note this approach cost a few hundred dollars in interest, however, at the time, I appreciated the peace of mind and the smoothing out of that cash flow crunch. It’s still recommended to pay your monthly credit card bill in full, but in this instance credit cards afforded me the financial flexibility to choose an approach to day-to-day finances that allowed me to better enjoy life.

Using credit cards responsibly over the course of many years enabled me to build a pretty good credit score. I paid on time, and kept balances below 30% of the credit limit, which is an important credit score factor. For more, read “What Affects Your Credit Score.” When you have a good score, card issuers may try to reward you with promotional offers. But three years ago, a 0% promotional APR offer hit my inbox in January, just as I was facing another cash flow crunch. I enrolled in the offer, and so the financial flexibility to manage through those first few challenging months cost me nothing extra that year.  

Beware, though, because using credit cards this way requires significant discipline. The promotion lasted only until August 1, and I just managed to pay off the balance in full before interest charges would have kicked in. It wasn’t easy.