I hate to be the bearer of bad news but credit card float is not something you want to continue doing. I know you might not be paying any credit card interest (yey) but technically you don’t have the money in your account to pay it off today.
You are stuck in that cycle of putting a purchase on your credit card and then waiting until the next paycheck to pay it off. We’ve all been there so don’t be embarrassed.
Maybe there is a “MUST have” item on sale or you got a float tire that needs repaired now but you don’t have that money in the bank. So, you swipe your card and tell yourself, “I’ll pay it off before interest hits so it’s no big deal”.
Although it is better than paying credit card interest, it still isn’t the best situation. Have I done it before? Yes. Most people have. You don’t want to get stuck in that cycle. Let’s dive into it:
What Is Credit Card Float?
If you are:
2. Waiting for the money to hit your account
3. Then paying off the credit card a few days or weeks later
Then you are dealing with credit card float. One issue with credit card float is that it is essentially putting you in debt even if you only plan on having the balance for a week or a few weeks.
Like I said, it is MUCH better than true credit card debt with interest but it is still not ideal.
Why? You may encounter another emergency or “must have” item which could potentially extend your float another month or two thereby increasing the amount of interest you will need to pay.
You are essentially one month behind on all of your expenses. For example, you are putting all of April’s expenses on your credit card but you need May’s paycheck to actually pay off the card. Then you put May’s expenses on the card and you use June’s paycheck to pay it off. So yeah, one month behind.
How Do I End Credit Card Float?
First, develop a realistic budget you can actually stick to (I help you do this in my signature program, Flourish FinanciALLI, so click here to learn more).
I do not think your entire life has to involve sacrificing the things you life. Maybe for a month or two try ordering your groceries online for pick-up to avoid the impulse shopping. You will need to reduce your extra spending temporarily so you can pay off the current credit card balance while still paying for current bills (I know…it could be a lot so give yourself grace).
I highly recommend budgeting per paycheck. Why? So you can see what expenses come out of what paycheck so you can stay current. This is the process I teach all of my students (with templates and videos) and it is life-changing. It might take a month or so to really get the hang of it, but I promise it is worth it.
I recommend that you stop using the card (if possible) until you can pay off the current balance and start at $0. This way when you swipe the card it will truly be for the current expenses instead of past expenses. I understand this might not be possible right away but that is the goal.
How Do I Break the Cycle Forever?
If your credit card float was incurred because you had an emergency, then let that be your sign that you need an emergency fund. Before you make any huge purchases or debt payments, bulk up your emergency fund.
The amount that each person needs is specific to them based on their own situation. I recommend starting with 1-3 months of expenses and then you can focus on other debt/savings goals and come back to it.
Another way to stay out of credit card debt is to say no! I know it can be hard at first but if you do not have the cash in your checking account or sinking fund, then maybe you need to wait to make the purchase. And then, who knows? Maybe you will not even want the item then. Impulse spending is a real struggle (I’ve been there) so click here to read my post on reducing impulse spending.
Sinking funds can also help you avoid credit card float. This will help you when unexpected expenses come up such as car repairs, vet bills, or expenses for your kids. You can click here to read my post on sinking funds and how to determine the best ones for you.
What To Do Instead
Credit cards aren’t bad. I use them daily. Instead of living the credit card float life, all you need to do is put expenses on your credit card that are already budgeted for with your current paycheck and then pay it off that week. I recommend paying your card weekly (you can do it as soon as the transaction hits too).
I am all about rewards points so you can definitely use credit cards responsibly. You want to make sure you have the money to cover the expenses in your checking account or a sinking fund.
For example, if you get paid 4/15 and your Netflix subscription is due 4/18 you can put your Netflix subscription on your credit card and then pay it off that week since that money is already allocated for Netflix in your budget.
Another example, you get paid 4/15 and you have $200 allocated for groceries. You spend $100 on 4/17 and put it on your credit card. You pay off the card right away so now you still have $100 left in your grocery budget.
If you are really struggling with credit card debt (not just credit card float), you need to take my self-paced course, Master Your Credit. This course will not take you long to go through. It covers everything you need to know about credit cards and credit scores.
Credit card interest is the WORST (seriously why are the interest rates so high?!) so you need to get rid of it ASAP.
The credit card float way of life might seem like it’s working but what if you lose your job? Or multiple unexpected expenses come up at the same time? Or your paycheck is late?
I don’t want you to live the credit card float way of life forever. I want you to be able to spend your money on things you value without worrying about how you’re going to pay for them.
Let me know your thoughts in the comments. If you found this helpful, send me a message on Instagram (@financiallifocused) and let me know!