I’m not yet credit card debt free, so it may surprise you to learn that I’ve actually been using my credit a little more often in the past few months. I’m actively working on getting my credit card and other debt paid off, but I have already gotten to the point that my spending is under much better control and I can trust myself to use my credit card in some situations.
Credit cards are not inherently evil, despite what some may say. In fact, when used correctly, credit cards can be a great financial tool that can allow you to save money.
Think you have what it takes to use credit cards wisely? Here are 3 smart ways to use credit cards.
To Earn Cash Back
As I said, credit cards can be a great tool to help you save money. But here’s the catch: if you are using credit cards to earn cash back, which is essentially saving you money, you still have to take care not to purchase things you don’t need. If you can successfully use cash back credit cards to buy things you need, and avoid things you don’t, and you apply the cash back bonus to your balance, you will in fact, be saving money.
Where most people get in trouble with this one is when they:
- buy things they don’t need to earn more cash back. They think they are saving money, but they aren’t because they’ve just bought a bunch of junk they don’t need.
- transfer their cash back into their checking account and use it as “extra” money to buy things they don’t need and end up paying full price for the things they charged on their credit card.
- can’t pay off their balance and end up paying higher interest on their purchases than the amount of cash back they received.
In order to use credit cards to earn cash back and save money, you have to be extremely disciplined with your spending and paying off your credit card balance.
To Earn Sensible Rewards
Another smart way to use credit cards is to earn other rewards besides cash back. For example, some people use credit cards in order to earn travel rewards. I absolutely do not have a problem with this as long as they are not making the same mistakes I already listed above, and they plan to use their rewards rather than letting them go to waste.
Unfortunately, I’ve heard of people I know earning travel rewards only to let them expire by not using them to take a free or low cost trip. If you are not planning a specific trip or if you are not a frequent traveler, you would probably be better off with a cash back rewards card or to choose some other benefit instead of travel rewards.
I’m not going to judge you if you decide to use your rewards for an Amazon gift card instead of travel if that’s what makes more sense for you. It’s better to do that than to waste your rewards entirely.
To Smartly Finance a Project
Ok, stay with me on this one because I know it sounds a little bit shady.
I have warned before about the dangers of financing things with 0% interest promotions on retail credit cards. The traps of these promotions are usually a little more dangerous than 0% interest promotions on non-retail credit cards because retail cards will charge you interest on your entire purchase from the date you made it if you don’t get your balance paid off in time. Non-retail credit cards will usually only charge you interest on the balance you have remaining on the card beginning the day after the 0% interest promotional period ends.
That said, I still love using 0% interest promotions and offers on retail and non-retail credit cards to smartly finance projects or purchases I need.
The emphasis here is on need. Once again, financing a purchase you don’t need, even at 0% interest, is dumb. But if you need something like dental work, other medical care, repairs or required maintenance on your house or car and you don’t have the cash in hand (or emergency fund) for it, 0% interest promotions are a viable option.
I would even go so far as to say that choosing to finance a needed purchase like this at 0% interest with 100% certainty that you can pay if off to avoid interest charges at the end of the promotion is an ok alternative to emptying out your emergency fund if it would wipe it out completely.
Credit cards, if used correctly, can be a great financial tool, and there are smart ways to use credit cards. The key is to make sure you have the self discipline and financial ability to use them properly to avoid wasting money.
Have you ever used a credit card in one of these smart ways? Can you think of any other smart ways to use credit cards?