Recently I’ve been thinking about using something akin to a sink fund within our budget.
A sink fund is a business term used by some companies that issue bonds. They may set up a sink fund that, basically, saves money to use toward paying back the principal on their debt. That is to say, the money is still in their possession, but it is earmarked for paying back debt and can’t be used for anything else.
The idea goes as follows: set up a separate high interest savings account and label it, say, credit sink fund. Use your card as usual, but when you get home after any purchase, jump online and transfer the corresponding amount from your main saving/checking account to the credit sink fund.
Do that for the month until your payment date comes, and then pay off your credit card balance using your sink fund.
What advantage does this have?
In real terms, absolutely none. Psychologically, however, I think it has a few benefits. First and foremost, there is absolutely no surprise when your bill comes. Since you have been adding to your sink fund throughout the month, you would be constantly aware of how much you have owing. Linked to this, you would never have to think about what is in your checking account. Anything in the account is yours to do as you wish, because you have already taken care of your credit through the sink fund.
To a lesser degree, you would also be gaining interest in your sink fund that allows you to see the financial benefit of your interest free loan from the credit card company. (Let’s be clear, you are no better off, as the interest would have been gained in your main account. This just shows you exactly how much is a result of your using credit.)
The above mentioned DOES have a benefit over using a debit card, however, as debits are removed from your account right away, meaning you are giving up interest for the rest of the month, and any points or other rewards that are associated with your credit card.
You just need to be responsible, and pay off in full every month.