How I treat credit cards like debit cards: The updated envelope system

Juggling a mountain of credit cards can be a tough task. You'll want to keep close track of things like spending requirements across all of them, payment due dates and which credit card is the best for each spending category. It can be a lot to handle.

My wife and I each have more than 20 credit cards. With all of these credit cards, it might seem like I could lose track of how much money I'm spending and blow my budget for the month. In order to avoid that problem, I treat my credit cards like debit cards. Let's look at what I mean by that and how it could help you juggle your many credit cards.

The envelope system — but modernized

I'm not the biggest fan of Dave Ramsey. However, the envelope system for budgeting isn't a bad idea. I've adapted this with a modern twist since I prefer digital approaches to everything and want to use credit cards for my spending. This allows me to earn rewards that I use for travel (I've been to 170 countries and counting).

Instead of an envelope with cash in it, I use two separate checking accounts. For simplicity, let's call them Account A and Account B.

Account A is where I receive money. When my wife and I make deposits, receive our paychecks or sell some old items on eBay, all incoming money goes into this account.

We make our payments from Account B — sort of. Since we use credit cards for all possible spending to earn rewards, I don't want to lose track of how much we've spent during the month across these many credit cards. Every few days, I look at our receipts and recent spending. Then, I move that amount of money from Account A into Account B. In this way, the money is set aside to cover bills we need to pay at the end of the month (things like rent and utility and credit card bills).

Related: Off-the-wall things my family has done to earn more points and miles

A glance at Account A tells us how much money we have left this month. Account B has money that we can't spend (it's not attached to our ATM cards for withdrawals) and is ready to cover our financial obligations for the month. In short, when a bill is due, I pay it from Account B.

How my credit cards function like debit cards

By moving money into Account B for what we have already spent on our credit cards that month, we know we can pay the credit card bills. We also know how much we have left in Account A.

Daily Newsletter

Reward your inbox with the TPG Daily newsletter

Join over 700,000 readers for breaking news, in-depth guides and exclusive deals from TPG’s experts

Email address

Sign up

By signing up, you will receive newsletters and promotional content and agree to our Terms of Use and acknowledge the data practices in our Privacy Policy. You may unsubscribe at any time.

Debit cards work in a very similar way: They instantly subtract money from the linked checking account and you can't spend what you don't have. (Note: Some banks will allow you to overdraw your account, but that's a different discussion.)

Related: 4 reasons why you shouldn't use your debit card

By using two checking accounts, I can treat my credit cards like debit cards to avoid overspending. This works for me since I'm personally not able to remember exactly how much we've spent across all of our credit cards throughout the month. Dedicating 15 minutes or so to add it up every few days and transfer that money from Account A to Account B helps me pay bills at the end of the month, knowing the money is there to cover them.

Related: Why a credit card is a smarter choice than a debit card

Bottom line

As you get into the points and miles hobby, juggling numerous credit cards can seem daunting. You use one card at restaurants, another card at supermarkets and a third card for filling up at gas stations. Keeping track of how much you've spent across those cards each month can be tricky and might lead to overspending.

By modernizing the envelope approach and using two checking accounts, you can use your credit cards like debit cards. This ensures the money you've spent is set aside, ready to pay the credit card bills at the end of the month.

A different, more rigid way to prevent overspending is to use the envelope system with prepaid gift cards, which still earns you points and miles.

Featured photo by Olleg/Shutterstock