I’ve had a credit card for more than 15 years. And I’ve never carried a balance.
I know a lot of financial experts (Dave Ramsey comes to mind) are very anti-credit card. They advise paying cash or using a debit card for everything. Well, I’m not anti-credit card. I’m anti-debt.
When used properly, credit cards can be an excellent money-management tool that can actually help you save money.
Here are just a few examples:
1) Many credit cards come with consumer protections. Some credit cards offer extended warranties on your purchases or offer protection in the case of customer disputes. Credit cards can be a good way to protect yourself when shopping online.
2) Some credit cards help protect you while traveling. You can save money on car rentals if your credit card offers rental car insurance. In addition, credit cards can also make dealing with the exchange rate simpler if you’re traveling abroad.
3) Credit cards can provide a way to track your spending. Some credit cards break your purchases into categories and give that data to you on your statement, which can help you as you’re budgeting. You can also use your credit card statements as a way to keep track of major purchases.
4)Rewards! Credit card rewards are the best way to use your credit card to save money. Some credit cards offer cash back on your purchases. Others award you with points for every purchase you make that can be exchanged for gift cards, frequent flier miles and merchandise. We pay all of our regular monthly bills (phone, internet, gas,) etc with our credit card. Any major purchase (like a kitchen appliance) or a repair (like a new transmission) is put on the card and then paid in full when the bill comes. By using our card this way, we’ve been able to earn some substantial rewards, like cash and even a KitchenAid stand mixer!
But in order to really take advantage of saving money with your credit card, you must follow these rules:
1) Always be able to pay your credit card balance in full each month. NEVER put anything on your credit card that you can’t pay for when the bill comes. Carrying a balance on your credit card more than erases any savings you may earn.
2) Keep track of what you’ve put on the credit card. Use a budget tracking app or even a spreadsheet to keep track. And make sure to check your statements and report any errors you find right away.
3) Pay attention to the terms of your credit card. Credit card rates and terms can change. Make sure that you are using a card that offers you the most benefit. For example, my favorite credit card used to offer cash back on purchases. Now I see that they’re only offering gift cards and merchandise.
4) Be safe with your credit cards. Watch out for credit card scams and be sure to check your credit reports annually. Frequent credit card use exposes your card to more people, some with nefarious plans. Protect yourself by monitoring your cards and credit reports for unusual activity.
Remember, your credit card is not your “fun money” and it’s not your emergency fund. It’s simply a financial tool to help you manage your money. Be smart with your credit card and you’ll save.