Hacking Your Budget with a Credit Card
Jan 8, 2025
Growing up, my folks always told me to never get a credit card. Thinking back, I never knew the details of why, but I do recall a time period when I rarely saw them use cash followed by a time period where cash was put into corresponding envelopes that were pulled out as needed. Hint: this is called the “envelope budgeting system” and is almost the complete opposite of hacking your budget with a credit card. Being the responsible young adult at the time, I heeded that advice (for a few years anyway).
Sometime during my late college years, I decided to foray into the world of credit cards. The timing was cliche, but the main reason I wanted one was to build my credit to prepare for buying a rental property. The credit card I got had 2% cash back on gas so I decided to only use the card for that. And thus began my journey from no credit cards to putting everything I possibly can on my credit cards (yes, plural).
Little Disclaimer
Before we go any further, it’s important to understand: credit cards are absolutely not for everyone. They can be a powerful tool or a heavy weight that will drag you down. The deciding factor is simple: will you payoff the entire statement balance every single month? If the answer is anything other than “absolutely”, credit cards are likely not for you and you should stay aware from them. There’s a reason credit card companies are still open today - they are turning a profit and that means the majority of people can’t, won’t, or don’t do this.
Now, if you are absolutely confident that you can and will payoff the entire statement balance every single month, then you have a powerful tool that you can integrate into your budgeting system. We’ll get into how my wife and I do it, but before we do that, let’s talk about what hacking your budget with a credit card means and why we do it.
The What
We budget out our expenses as usual
We pay for everything that we can with our credit card: groceries, restaurants, gas, utilities, phone bill, car registration, gym memberships, etc.
We payoff the entire credit card’s statement balance each month
Pretty simple.
The Why
Cash Back & Rewards
Most credit cards offer some types of cash back or rewards benefit. For example, some “every day” cards may offer a certain percentage (typically 1% - 3%) as cash-back on groceries or gas. 2% cash-back means if you were to spend $100 on gas your credit card will provide you $2 in rewards when your next statement drops. Travel cards may offer cash-back on hotels or flights booked through the credit card company.
You can typically redeem the rewards for:
Statement credits - reducing your statement balance by your reward amount
Gift cards to retailers - this may provide a small “bonus” in your reward amount. For example, get a $50 gift card for $45 in rewards
Travel (flights, hotels, cars, etc.) booked through your credit card company - this usually comes with a “bonus”. For example, our travel card’s rewards are worth 25% more when we use them to book travel. This means $100 in rewards are worth $125 for travel.
In addition, many credit cards come with a sign-on bonus earned after you charge a certain amount on the card within so many months of opening. Our travel card offered a $1,000 bonus after spending around $4,000 within the first few months. Cha-ching.
Our Rewards History
By taking advantage of a credit cards sign-on bonuses and rewards, we receive money back on our everyday purchases. We can then use that money to pay for things we were already going to buy. In other words, it’s free money. Again, as long as you payoff your entire statement balance every month. Below is an overview of our “profits” over the past year -
Credit Card #1
Rewards Earned -> $85.61
Annual Fee -> $0.00
"Profit" -> $85.61
Credit Card #2
Rewards Earned -> $1,012.51
Annual Fee -> $95.00
"Profit" -> $917.51
Credit Card #3
Rewards Earned -> $362.52
Annual Fee -> $0.00
"Profit" -> $362.52
For a grand total of… (drum-roll)… $1,365.64!
How We Do It
Make a Budget & Stick To It
Before you start hacking your budget with a credit card, I’d recommend budgeting for at least a year the good ol’ fashioned way - directly from your checking account. This will build the habits needed to help ensure you don’t get yourself in credit card trouble. We had 5+ years of budgeting behind us before we started using our credit cards as our primary payment method. If you find yourself consistently overspending, I wouldn’t recommend introducing a credit card into the mix.
Automatic Credit Statement Payment
The second step was simple - we setup automatic payment from our checking account to our credit cards. During the payment setup there was an option to pay the minimum balance, the statement balance, or another amount. As you may have guessed, we picked the statement balance option. This is absolutely critical as we knew that as long as we did this every month, we didn’t have to worry about interest charges on any of our purchases.
Automatic Bill Pay
Where we were able to, we changed our automatic payments to use our credit card as the payment method. At this point, all of our expenses except for housing and phone are paid with a credit card.
When doing this, we had to make sure we weren’t going to be charged extra (some places may charge you 2% - 3% for paying with a credit card) or lose any discounts. For example, the only reason we don’t pay our phone bill with a credit card is because we’d lose a $10/month discount.
Look Ahead
As the time progresses, we are racking up charges on our credit card, but not much is coming out of our checking account. So, we typically have a decent balance on our credit cards, but also a nice chunk of change in our checking . Here’s how we manage that:
We use the Taproot Budgeting app we built (currently in testing and gathering a Waitlist) to track our income, expenses, and expected spending (i.e. groceries, gas, etc.).
Taproot allows us to track when we get paid, when our bills are due, our planned spending, and what we typically pay with a credit card.
We keep Taproot updated as things change and when our new credit card statements drop.
Taproot shows us how much money we need in our checking account to cover our upcoming expenses over the next 60 days and how much extra we have.
We then move any extra money to our investment account (we typically will leave a cushion of ~$200)
Rake in the Rewards
By doing this, we essentially are getting paid by the credit card companies to use their money free of charge to pay for things we were going to buy anyway. We then use the rewards to pay for flights/hotels so we get a 25% bonus on our rewards (read “more free money”).
Plus, in our experiences, these rewards are non-taxable. Woot woot! This is not tax advice though and it could vary based on the program - had to add that disclaimer. You get it.
Some Parting Perspective
So this all sounds great - what’s the catch? Well, the catch is that a lot of people end up carrying balances on their credit cards. According to the Q2 2024 Federal Reserve Bank of New York report, credit card debt was at $1.14 trillion. Considering we have nearly record high APR’s (22.76%), credit card companies are getting plenty of interest payments.
With that said, it behooves me to repeat myself: credit cards are not for everyone. Don’t try hacking your budget with a credit card if you are not absolutely sure you can payoff the entire statement balance every month and you’ve proven to yourself that you can consistently follow your budget. Otherwise, you are just asking for trouble.
Well, that’s all I got on the matter. If you are interested in learning more about Taproot Budgeting and seeing if it can help you on your financial path, join our Waitlist.