How do I handle payments to my credit cards?

Credit cards are used in two different ways:

1. To pay for purchases and bills when cash is not available (creating debt), or
   
2. As a convenient way to pay online or at stores or to earn points or miles (no balance maintained)
   

In the first scenario, you are carrying a balance on your credit card and you are paying interest on the balance, which itself includes interest, meaning your paying interest on interest. If your credit card has an interest rate of 18 to 24 percent or more, you are wasting a lot of money. You can try our free trial of Debt Quencher to see just how much these are costing you.

What you want to do in this case is pay down this credit card debt and eliminate the leak in your spending plan. Here are the steps to use for paying off credit cards with a balance:

1. Create an expense bucket called Debt Repayment (or something similar)
   
2. Set a planned amount in your spending plan for this bucket that's high enough to make a dent in the balance monthly (not just the minimum amount)
   
3. Make sure you allocate income to this bucket each month to match or exceed the planned amount
4. Create a transfer (drag and drop your checking account on top of your credit card account) to record a credit card payment
5. Assign the withdrawal side of this transfer (the checking account transaction) to the Debt Repayment bucket

If you don't carry a balance on your credit cards and you're just using them to earn points or for convenience then you only need to do step 4 above but don't assign either side of the transfer to a bucket. All you're doing is moving money between accounts in this case.

In both scenarios, make sure you assign any purchase transactions from your credit card to the appropriate expense bucket just as if you paid for those groceries or that clothing with your checking debit card or with cash. Every non-transfer transaction should be assigned to a bucket so you can monitor your cash flow.