If you aren’t careful, your credit cards may quickly take over your life, but with a careful strategy, using credit cards can actually help you save money. Here are some ideas on how to make credit cards work for you.
The first rule of thumb is, don’t spend money that you don’t have. That’s pretty straight-forward, isn’t it? The reason people get into trouble with credit cards is because they forget that important rule. Set a budget for spending and make the purchases on your credit card, but do not go over your budget or stray from it. Many credit card websites have a tool to help you track your spending breakdown by category for you. Then, at the end of the month, pay off your credit card in its entirety.
Using your credit card for purchases in this manner has several advantages. When you pay off your credit card each month, you essentially are getting an interest-free loan on your purchases for a month, which can leave cash in your account in the meantime. Depending on your bank account, you can possibly get a small amount of interest during that time.
Second, purchasing with credit cards generally offer greater protection to the consumer. There is normally fraud protection associated with your credit card account, so if your account is compromised, it is much easier to get the charges removed than with a debit card. Many credit cards also offer extended warranties on larger purchases, which will vary from product to product.
The biggest advantage to using a credit card is credit card rewards. Many credit cards offer rewards anywhere from 1 to 20% back on purchases that are made for a reason-they are counting on people not to pay off the balance each month, and they will make a lot more off the interest and other fees if you aren’t careful. However, if you follow the advice given not to spend money you do not have, you can actually make money off your every-day purchases. Here’s a personal example: I have a DiscoverCard that I recently used online to purchase about $150 worth of vitamins and supplements off gnc.com, one of their partner sites where they offer 15% cash back bonus. I was able to get $22.50 off a purchase I was going to make anyway but finding the best rewards combination for that particular transaction. Even just receiving 1% back on your purchases can add up fast!
When looking for credit card rewards, I would recommend finding ones that offer cash back, and finding ones that offer the best percentages for items that you frequently purchase already, NOT items that you will be tempted to start buying. Generally speaking, if you calculate the actual cash value the points that offer points towards their catalog of items, you come up much further behind than if you got the cash off a cash-rewards card and buying what you want. Finding credit cards that offer additional bonuses for gift cards or coupons in excess of the cash reward is even better. Also, find a rewards card that does not charge an annual fee, unless the additional rewards you can gain from the card exceed the fees.
Sometimes it becomes necessary to carry a balance on your credit card due to financial hardship, but if you are able to keep paying off each month’s purchases and use credit cards for the mentioned advantages, you can actually make money and have additional protection for your everyday purchases.