Imagine you’ve just paid off a boatload of debt after months, or years, of struggle. Now that you’re finally debt-free, you have extra cash to spend each month and your credit score is higher than ever.
With that in mind, you may think you’re ready to use credit cards again. Thanks to the array of travel rewards and cash-back offers available, you may even be itching to start earning rewards for each dollar you spend. And why not? You’re debt-free and have a much better grasp on your spending now. Plus, paying off debt has helped you develop the discipline to avoid letting your spending get out of hand.
While it’s great to feel confident, many financial advisers say you should probably still err on the side of caution to avoid any more credit mishaps. It’s true you may be ready for credit cards, but there are still precautions you’ll want to take right away, they say.
As you ease back into credit card use, here are some steps you should take.
Review your spending frequently — especially at first
Wealth adviser and certified financial planner Brian Behl of Bronfman Rothschild says one of the best steps you can take as you get started is reviewing your spending often. “Every few days or at least weekly” at a minimum is what Behl suggests, although you can tailor this advice to your lifestyle and needs.
By reviewing your spending at least once a week, you can check to see if using a credit card has brought on any of your old habits. For example, you can make sure you’re not using credit as an excuse to splurge, and that everything you’ve purchased can be paid off immediately when your credit card bill becomes due.
Make frequent payments
Behl also suggests making more than one payment each month. If you have access to your account online, you can usually make payments from your checking account instantly without sending a check. This allows you to keep your balance from accumulating and lets you maintain a low credit utilization ratio.
By making frequent payments, Behl says you can stay on top of your spending, take advantage of credit card rewards, and avoid credit card debt. (See also: 5 Simple Ways to Never Make a Late Credit Card Payment)
Use credit cards as part of a monthly spending plan
Financial adviser Matt Adams of MoneyMethods.com suggests you use credit cards as part of a monthly spending plan if you want to make the most of rewards without falling back into debt. Yes, this means dealing with the dreaded “b-word” (budget), but it doesn’t have to be bad news.
Try writing out a budget for the month, then make sure you never charge more on that card than you would if you were paying in cash, says Adams. Also, “make certain it is never an amount that can’t be paid off each month. If you don’t keep close track of it, that credit card balance can get overwhelming very quickly.” (See also: How to Budget When You’re No Longer Broke)
Adams says that, even though he is a financial adviser, he still tracks his spending and compares it to his budget at least once a week. This way, he can earn travel rewards points good for airfare or hotels while making sure his spending isn’t getting out of hand.
“If you are diligent and pay close attention to it, the rewards may very well be worth the trouble,” he says. After all, who doesn’t love a free vacation?
Use credit for fixed bills only
Shane Sullivan, a certified financial planner and founder of the blog Wealth Over 50, offers this strategy for people who want to ease into credit use slowly: Try paying only recurring bills with credit and use cash or debit for everything else.
Recurring bills include any bills you pay monthly — for example, utility bills, cable subscriptions, day care, and your gym membership. Very often, you can even set these bills up to be charged to your card automatically. From there, you can set up automatic payments so your credit card bills are paid once a month from your checking account.
Sullivan says he uses this strategy to maximize rewards while avoiding debt problems in his home. “For example, our day care is $1,000 per month and it is automatically charged to our credit card where we earn points used to take a family vacation,” he says. “However, I also set up a monthly bill pay to automatically send $1,000 per month to pay off the card.”
For this strategy to work, Sullivan says you need to make sure you don’t carry your credit card around in your wallet. If you want to benefit from your recurring expenses without worrying about getting into trouble, then you have to make sure you’re not using your card for regular spending.
“Stick it in a drawer, give it to your spouse, or cut it up,” he says. “If you carry the card, you’ll use the card — so don’t carry it.”
Hold off on rewards if you’re not certain
Finally, if all of this sounds overwhelming or the mere thought of using credit has you nervous, don’t forget that you don’t have to jump in.
Jon Luskin, a certified financial planner based in San Diego, says that, for many people, the risk of getting back into debt is simply too great. Sure, you may be able to earn 2% back on your purchases, but what happens if you wind up paying 24% APR on those purchases for years?
Sign-up bonuses can make the initial rewards sweeter, but Luskin says it’s still a terrible deal when you’re stuck paying credit card interest for an unknown period of time.
So pursue credit card rewards if you’re determined to do it responsibly, but don’t forget there’s nothing wrong with skipping credit altogether. The rewards may be tempting, but the risks are downright scary.