Are You on the Credit Card Float?

When you hear the term “the credit card float”, what comes to mind? Do you picture sitting on a rickety raft in the middle of a dangerous river? That’s what I think of and that’s what it feels like! 

Before my husband and I started zero-based budgeting with our favorite budgeting app (YNAB), we found ourselves on that rickety raft in the middle of the river. Besides some savings in a savings account, after we paid our credit card bills each month in full, we didn’t actually have enough money in our checking account to pay for our bills and other expenses until we were paid again. When the next paycheck came in, we could pay off the credit card in full. We didn’t incur any credit card interest, which was great, but we were actually living off of borrowed money. If the credit cards had suddenly become unusable, for whatever reason, we would have been stuck. In other words, we were reliant on short term debt to cover us until our next paycheck.

Sound familiar? In researching this post I wasn't able to find any reliable statistics on how many North Amercans find themselves on the credit card float. What I can tell you is that many of the coaching clients I have worked with have found themselves in this situation, and many did not realize or recognize that this is what was happening. 

What is the Credit Card Float?

Are you on the credit card float? Here's one quick "test" to see: 

1) Could you pay your credit card in full today?

2) If you all of a sudden lost use of your credit card, would you be able to pay for your expenses with the money in your bank account until you were paid again?

If the answers to these questions are no, then you are on the credit card float. 

This means that you are reliant on short term debt (yes, that credit card) to 'float' your expenses until you are paid again. This is a situation that likely developed slowly, where on payday the amount of money available to pay for your upcoming expenses with money in your bank account slowly decreased over time. You may not have even realized it. For example, if your spending on groceries has gone up and up (and whose hasn’t?), and you haven’t had an increase in your pay or made adjustments in other areas of your budget to compensate for this, it's likely that you’ve crept towards being on that credit card float slowly over time. It’s the slow swim out to that raft. 

The Perils of the Credit Card Float

Being on the credit card float is a fairly common situation but doesn’t come without its risks.

You might say "Well, what's the big deal, Julia? I always pay my credit card in full every month and I'm not paying any interest". 

The big deal is that the credit card float is quite a precarious place to be. 

First, when you don’t have the money in your bank account to pay off your credit card bill at any time, it is harder to keep a handle on your spending vs. your future income. In other words, you are more at risk of putting more expenses on your credit card than you can pay off with your next paycheck - putting you at risk of changing that short-term debt into a longer-term debt (with interest). 

Second, if you have a change of income, a missed paycheck, or an unexpected expense, you don't have the flexibility to deal with it as easily with that big credit card bill always looming.

Third, you are reliant on the credit card to pay for your life. If your card is compromised, for whatever reason, and there is no other backup option, you’re stuck.

Jumping off of the Credit Card Float

There are a couple of options for getting off of the credit card float.

You could cut down drastically on your expenses for a short period of time in order to build up the cash in your bank account.

Or, you could temporarily increase your income by selling things, working overtime, or picking up a side hustle. This may not be sustainable in the long run but if you can make enough to get yourself off of the float, it’ll be worth it.

Maybe you could do both! Again, this may not be sustainable in the long run but think of it like a short sprint to get out of a precarious financial situation.

Either way, you’ll want to have a solid spending plan in place. I recommend zero-based budgeting with a program such as YNAB. 

Conclusion

The credit card float is a subtle but risky financial situation. If you find yourself waiting for paychecks to settle credit card bills and relying on them to bridge the gap, you might be on this precarious float.

The dangers are clear: a potential shift from short-term to long-term debt, limited flexibility in handling unexpected financial hits, and dependence on a single financial lifeline. Recognizing your situation is crucial.

To navigate beyond the credit card float, there are a few strategies you can take but the key is a solid spending plan.

And when you jump off of that float for good, you can set your sights on your next goal whether that is getting off of the paycheck to paycheck cycle, paying off debt, or saving for the future.

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