Most personal finance specialists agree that instead of relying on the use of credit cards for most purchases is not considered a smart move. However, there are exceptions.
While most of the time credit cards have the potential to wreak financial havoc, there are times when using a credit card to buy almost everything can be a smart financial move. For instance, if you receive a cash-back, it is possible for that credit card to benefit you. There is a catch, however; you have to use it in the right way. You have to pay every bill in full and on time, every month, without fail. If you fail to do that, you could fall into a cycle of debt from which you may never emerge.
Make The Credit Card Work For You
Though many personal finance specialists and money experts cite credit cards as having a bad reputation, they are actually one of the smartest and simplest financial tools available to consumers. As long as you don’t use them to buy anything you can’t afford to pay cash for, you can make a rewards card work for you, not against you. Read the details of the offer carefully and make sure you understand all the terms and conditions. In fact, it is remarkably simple to use rewards credit cards to earn extra money with little or no effort.
Find the Right Credit Card For You
The most important step to making a credit card work for you is to get hold of the right one. There are many rewards cards on the market offering cash back, or even gift cards. Whichever one will work for you will depend on your needs and your lifestyle. Just remember, not all bonuses programs are the same.
You want to look for a card that offers as much cash-back as possible for spending money on things you already buy. Some offer more cash back with certain retailers, but make sure they are retailers you already shop with. Some cards offer more cash back on certain types of purchases, like groceries or gas, while others offer a bonus when you reach a certain threshold.
Consider Your Spending Habits
Match your card with your spending habits and make sure you do better than break even. If the card you’re considering pays one percent cash back, but it costs you $79 per month, you will have to spend more than $7,900 per year just to break even. That may not be a good card for you. Also, keep in mind your credit score; the better the rewards, the higher your creditworthiness must be.
Use Your Card a Lot
Even if your cash back reward is 3%, keep in mind, that it is a small amount, so you will have to use the card a lot to get back a considerable check. For instance, it will take $10,000 in purchases at 3% to get back $300. Therefore, commit to using the card for all regular purchases, as long as you know you can pay the bill in full at the end of the month.
If you currently pay cash for most things, but you get 3% back, consider using your rewards credit card for almost everything. This is why you have to make sure your credit card fits your lifestyle; the only way to get anything out of a rewards credit card is to use it all the time.
Stay Within Your Budget and Know What You’re Spending
Since you’re paying for everything with your credit card, and not cash, it can be far too easy to spend more than you have, but you have to resist that temptation. Again, you can not put more on your card than you can pay in full when the bill comes. That is regardless of your card’s credit limit. Don’t spend more than you have in available cash, or you will be taking on revolving debt, which can become uncontrollable over time. Even before then, the interest each month can easily wipe out any rewards you may be earning.
The best way to keep this simple is to choose a single rewards card and use it for everything. Also, get into the habit of checking your credit card statement online, at least as often as you check your regular bank account and always know where you are.
Have a Plan For that Month When You Can’t Pay in Full
Most of the time as long as you’re staying within your budget and not charging things for which you have no money, paying off your balance should be no problem; it has to become a habit in order to make your rewards card work for you.
However, as we all know, sometimes unexpected expenses happen, which can serve to keep you from paying your balance in full by forcing you to charge something extra. When that happens, be sure to make a payment of as much as you can afford, and then put the card away until you can afford to pay new charges again. And use that month as a learning opportunity; you will then know the importance of paying every credit card bill in full and on time every month. By doing so, you don’t have to worry about an outstanding balance the next time an unexpected expense crops up.