Fewer people are carrying cash and instead switching to using exclusively cards. While many people are deterred from credit cards in fear of amassing debt or getting tricked into paying huge interest fees, responsible and strategic credit card use is one of the easiest ways to make and save money. Here’s why you should be using a credit card and how to do it right.
You’re losing money by not using a credit card
When you sign up for a new credit card, you’re entering into a relationship with your bank where they promise to give you money and you promise to pay it back. Often, credit cards will offer 1-2% cash back on what you spend, which can add up to a lot of money over time. When you buy something using a debit card, you’re essentially spending 1-2% more than someone else making the exact same purchase with a credit card.
Ask yourself, do I like paying more than someone else on the same thing? If not, get a credit card.
The more you use, the more you get
What’s the smartest way to use a credit card? Not only do credit cards save you money and earn you cash back, but they also set you up for more perks in future. If a credit card is essentially a loan, the more often you use your credit and show you can pay it back on time, the better your reputation becomes. This reputation is called your credit score.
The better your credit score, the more trustworthy you become. This gives you access to better loans with lower interest rates and reduces the premiums paid on insurance for your cars, health and travel. For this reason, it’s good to start your credit history at an early age by getting low risk credit cards with a strict spending limit.
Each credit card has its own unique rewards program that can offer a range of different services and perks. The important thing is picking a rewards program that reflects your lifestyle and needs.
Credit card rewards can include:
Cash back cards: This is where you receive a certain percentage of money back on what you spend, direct in your account or towards debt. The more money you use, the more you receive.
General rewards cards: Similar to cash back, these cards work on a point system. When you spend you accumulate points that can be traded in for a variety of goods, from hotel stays, electronics, gift cards and more.
Hotel or travel point cards: This type of card earns you points that can be put towards a hotel stay or flights, making it the perfect type of card for the frequent traveler. Watch out though, most have a higher annual fee.
Retail rewards cards: For this type of reward program, major retailers team up with credit card distributors to offer specific perks when purchasing from them. Accumulated points can go towards purchases from the specific retailer.
Gas cards: Are you someone who spends a lot on gas? Then this card is perfect for you. They offer rebates on money spent on gas, meaning you can recoup some of the cost it takes you to get from point A to point B.
Frequent flyer credit cards: Many major airlines are teaming up with credit card companies to offer loyalty programs to frequent flyers that come with crazy perks, like lounge access in any airport, and miles earned with money spent.
Signing bonuses: Almost every credit card has a signing bonus; it can be points towards a rewards program or even money. Do your research and find out which card offers the best signing bonus for your lifestyle.
Cash costs more
Not only is carrying around cash cumbersome, bulky and unorganized, but it also costs more than carrying just cards. Small coins and bills can get lost in your wallet or bag, essentially turning into wasted money. If you use a credit card, you’re eliminating all this money lost to your jean’s pocket or living room sofa. Switching to less cash and more cards also means you can carry a slim wallet that takes up less space in your pocket.
Credit cards also make you more accountable for what you spend. It’s easy to drop a couple bucks here or there without realizing how much you’ve spent. But with a credit card, your money is being tracked for you and having a statement makes it easy to see exactly what is being spent where. This is a major step in trying to streamline your finances.
If you go to an ATM to take out cash, you’re probably going to be charged $3 each time, and if you lose your wallet or it’s stolen, there’s no way to recoup that loss. Most credit cards however have a zero liability for unauthorized purchases, and getting your money back is as easy as a phone call. If you are someone that often misplaces your wallet, you might want to invest in a trackable wallet like the one from Ekster, that allows you to locate your wallet no matter where it is on the globe.
Credit cards are the safest way to pay and make it easier to be sure you’re always paying the lowest price. Most cards offer something called price protection. This means if you buy something and then it’s price drops right after, you can get back what you overpaid on the item before it’s value decreased. This way you’ll never pay more by accidentally purchasing right before the sale.
Credit cards also offer fraud protection and warranties. While cash and checks are easy to use fraudulently, credit card fraud can be resolved usually in one phone call. Unfortunately, this only protects against credit card fraud but not against your identity getting stolen. If your identity is stolen, there is no way to prove that the transactions are fraudulent, because, well, it looks like you’re doing it. One of the best ways to protect from identity theft is to invest in an RFID blocking wallet. This way, scammers can’t steal the data off your cards using an RFID skimmer.
Make your life easier
Credit cards are quicker, easier and safer to use than other forms of currency. They are globally accepted, making travel cheaper by avoiding exchange rates. They offer rewards, cash back, and other perks, earning and saving you money over time and building a good reputation for loans and insurance in the future. Credit cards help keep you accountable for your money, and make sure none of it gets lost in the form of small coins or missing bills. Credit cards can even protect you from germs, since they offer a contactless option for payment.
The best way to protect your cards and make sure they stay in good shape for a long time is to invest in a smart, trackable, RFID blocking wallet. This means they won’t break or get lost, they are protected from identity theft, and you look cool using them.
The best ways to use a credit card
Now you know how credit cards can save and earn you money, but what is the right way to use a credit card?
Always pay in full and on time
You should only be using a credit card if you can pay for everything you charge and pay on time. If you make a big purchase you can’t actually afford, you’ll end up incurring late fees and racking up debt because of interest. This can badly damage your credit score and make it harder to finance things in the long run, like a new home or car.
Here’s what you need to remember:
Set a strict spending limit
Always pay your bill in full and on time
Never take out a card with an annual fee that you cannot afford
Use credit cards strategically
The only way to get the most out of your credit card is to understand how it works and to use it strategically. Credit cards can end up incurring huge fees if you forget to pay on time, and it’s important to pick a card with a rewards program that reflects your lifestyle.
Do your research: Before getting started make sure you understand all the different options available to you and their costs and benefits.
Pick the right card: Make sure you pick a card that you can afford and with a rewards system that reflects your lifestyle. Do you spend a lot of money on groceries? Then get a card that gives you cash back on money spent buying food. Are you a frequent traveler? Get a card that offers you rewards for flying and lounge access.
Never spend what you don’t have: Don’t get tricked into believing that a credit card is free money. You should only be spending money that you know you have, otherwise your credit score will be at risk and you might fall into debt.
If you use credit cards strategically it’s basically like getting an interest-free loan to invest in yourself and your life. They are an important financial tool for anyone looking to get the most out of their income.
Here’s the rub. If you don’t already have at least one credit card, it’s time to get one. Here’s what you need to remember:
Do your research.
Know your budget.
Always pay your bills on time and in full.
Make use of rewards and perks strategically.
Always keep your credit score in mind, you’re building for the future.
Make small steps toward a larger goal - good credit doesn’t happen overnight.
Protect your cards and identity with a smart wallet.