Finance 101, Money Hacks

The right way to use your credit cards

Best way to use your credit cards

Once upon a time, we were told to freeze our credit cards in a block of ice to stop us from using them.  While I appreciate the intention, we live in a world where credit card use is pretty much required.  The key to credit card use isn’t to avoid credit cards, but to use them wisely.

Credit cards provide consumers with a level of buyer protection as well as a way to build credit.  Building good credit and showing your ability to manage borrowed money (which is really what a line of credit is) contributes to your credit score, which can help you take out large loans for big purchases, like a house.

Credit cards are powerful in terms of spending, but the biggest problem is they allow you to spend money you may not have!  Using a credit card requires killer discipline.  The do nots of credit cards are really simple: do not spend more than you can pay off and do not let the balance collect interest.  In other words, pay it off every month!

Credit card debt falls in the category of consumer debt.  Most cards have astronomical interest rates, and once interest starts collecting, the bill gets out of hand fast.  If you have credit card debt, it is the first thing you should try to knock out when getting your finances in order!

Now that I’ve hit all of the basic concerns with credit cards, we can start on the fun stuff!

Why do I need a rewards card?

I’m going to give you several examples throughout this article, but the sum of it is that rewards cards give you something back.  As long as you are buying groceries, gas, or pretty much anything else, putting it on a credit card can earn you points and rewards that can do anything from putting money in your pocket to paying for your trip to Hong Kong.

If you are already swimming in consumer debt, you do not need another card right now (although looking at a card with no interest for a year and balance transference might help you get it under control).  But don’t close your cards once you pay them off!  Having mature credit lines is very good for your credit history.

If you are following a budget and living within your means, you can use a credit card to expand your budget (through rewards, NOT by spending up to your credit limit!).

Cash back rewards

The best thing about credit cards are the rewards.  Plenty of credit cards offer basic cash back rewards, usually starting at 1% back.  This might seem small to you, but think of how much you spend every month.  Even if your typical expenses are only around $1,000 a month, that is $10 back.  Over a year, that’s $120 you get just for using your credit card!

There are all kinds of 1-2-3 rewards programs.  Some have extra cash back for travel charges, others for eating out.

How I use rewards cards

We have a few different credit cards that have different rewards incentives.  Each card gets used differently.

We wanted something that would give us extra benefits for our regular expenses (we don’t eat out or travel much), so we found a card that offered 3% on gas, 2% on groceries, and 1% on everything else with no spending minimum and no yearly fees.  This is the card we use for everything.

When we first moved to Texas, we prepaid a 3-month lease.  We were able to put it on our credit card, so we got 1% back on a purchase in the $4,000 ball park.  That gave us around $40 back, just for paying rent!  Having that extra cash back was a HUGE help, since my husband was unemployed at the time.

Sadly, our new apartment doesn’t accept credit card payment, but it was awesome while it lasted.

If you’re looking for a good cash back card, Good Financial Cents has a list of cards with awesome rates here.  In addition to a great  reward rate, keep an eye on APR, yearly fees, and spending requirements.  You don’t want to get dinged for something unexpected!

Lot’s of institutions run signup bonuses where you can get larger-than-normal points back for spending a certain amount on the card.  Having a great reward rate is awesome, getting an epic signup deal is better!  You can also talk to your bank, but don’t be afraid to branch out.

Some of the best rewards come from online banks, so finding a good deal might mean getting involved with a new financial institution.

Always do your research and only apply for cards with reputable institutions!

Travel rewards

Like to travel?  The pro tip for traveling affordably is using credit card rewards to buy pricey plane tickets!

We have a trip to France planned later this year, so in 2017 we opened a credit card with an airline.  The card came with an incentive for 60,000 miles if you spent $1500 in the first three months.

We put all of our expenses on that card until we hit the $1500, which got us a big chunk of starter miles.  After racking up enough miles to get us overseas, we switched back to our every-day cash back card.

On top of that, we get travelers perks like free checked baggage, priority boarding, and cancellation insurance.

Bonus: when we buy the tickets, we will get extra miles for putting them on our travel card.  Boo-ya!

One thing to watch out for on travel cards is the annual fee!  While many cards these days have no annual fees, we ended up with a card that does.  We knew this, but decided it had the right benefits for us.  When we hit the one-year mark, we will look at our travel plans and decide if we should cancel or pay the fee for another year of benefits.

Update: we recently opened a Southwest card and we love it.  It has a yearly fee of $70, but we still saved tons by using this bonus points deal so the fee was worth it to us.

I found this awesome infographic from Creditnet that compares travel cards so you can find benefits you need!  After you look this over, be sure to check out the hot deals from Million Mile Secrets to see what cards are offering awesome signup bonuses.

Compare Credit Card Miles and Rewards on the Best Airline Credit Cards - Infographic

And if you’re wondering about using your credit card while traveling, there is a fabulous article about it on WiseBread.

Store cards

Way back in the day, we lived in a tiny college town that had a Walmart and a local grocery store.  Once or twice a month we would drive to a nearby city that had exactly one Target and one Sam’s Club.  Of course we got a club membership.

When we moved to Provo, UT, we were only 5 minutes from Sam’s club, so we continued to do a big chunk of our shopping and Sam’s club.  After a few years of this we clued in to store credit cards.

I figured out that a Sam’s club card would get us a bigger cash back on in-store purchases.  Since we also buy most of our gas at Sam’s, so the gas rewards didn’t hurt either.

We opened a card and got enough cash back to pay for our membership, and then some!  Win!  We ended up closing the card later for convenience reasons.

BUT the moral of the story stands – if you do most of your shopping in one place, take a look at a store card!  You usually get a higher rewards rate in addition to discounts and other benefits.

Store card example: GAP card

I used to work at Gap, so I spent lots of time selling customers a GapCard.  We would have a mom who came in to the store once a week to shop, but she wouldn’t open a GapCard!  Not everyone needs a GapCard, but if you are spending $250 a week on clothes at Gap kids, then you need a Gap card.

A GapCard gives you cash back at Old Navy, Banana Republic, and Athleta as well as Gap.  You get a 10% discount every time you shop on top of store promos.  You get special coupons in the mail and we often had big discounts as a sign up bonus.

I’m not trying to sell you a GapCard, just trying to show you that a store card might have benefits you didn’t realize!

Look at your budget and figure it out; where are you spending $100 a week?

If it’s at target, then why don’t you have a REDcard?  If it’s Walmart, they have a credit card too.  So does Costco, and Starbucks, and pretty much everyone else.  (Note: if they don’t have a credit card, they might have a sweet rewards program that is FREE!)

Final warning

Once again, PAY OFF YOUR CARD in full when the balance is due.  Don’t collect interest!  Did I say that enough?

Also, opening tons of credit cards can negatively affect your credit history.  The calculation of your credit score is a little mysterious, but one thing that is important is mature accounts.  If all of your cards are less than six months old, you’re not helping your credit score.

There is also some talk of credit inquiries negatively affecting your score, but I don’t completely understand how that works yet (when I figure it out, I’ll let you know!).  Basically, don’t bite off more than you can chew or apply for twenty credit cards in one month.

Having too many cards can make it hard to track the balances, so make sure you are meticulous and don’t use cards that you can’t track.  You don’t necessarily need to close accounts you don’t use, though!

We have one line of credit from our first credit card together.  It has no rewards of any kind, but it also has no yearly fees and no spending requirement.  We use that card once every few months to keep it active, but mostly we just leave it alone.  It is our oldest line of credit together and having it balances out some of our younger credit lines!

If you have yearly fees or a spending requirement on a card you don’t use, then it might be a good idea to close it.  Just try to have a long-term view when it comes to opening and closing credit lines, maximize your rewards, and pay your balance each month and you will be using your credit cards the RIGHT way!


The smart way to use your credit cards

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