Top 7 Reasons Why I Use My Credit Card for Everything
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JD Hancock I charge absolutely everything to my credit card. Everything. Even $3 purchases if I can. I am a credit card junkie (and have been for many years) for a number of reasons. Here’s my countdown of them.
7. It builds up a great credit rating.
By charging and paying off up to thousands of dollars in expenses each month, I have built up a rock-solid credit rating — the best one possible. So whenever I have sauntered into the bank for a loan, I have been accepted right away, and at the lowest possible interest rates, with no security deposits required. (See also: How to Use Credit Cards to Improve Your Credit Score)
6. It's quick and easy.
Swiping or dipping a card these days is often as quick as (if not faster than) paying with cash and counting out coins.
5. It's great for accounting and spending reports.
Since I don't dole out cash, or make purchases on my debit card (and I rarely use checks), all my monthly spending is nicely bundled into one report — my monthly credit card statement. Not only that but my current credit card of choice actually categorizes my spending for me, so at a glance I can see how I've spent my pennies for the month and year-to-date.
4. I don't need to carry cash.
I don’t have to make stops to ATMs to keep enough cash in my wallet, which is also one less thing to remember to bring whenever I head out the door. Not to mention the less I have to deal with storing and keeping track of loose change, the better.
3. Automated billing is great.
Cell phone bills, utilities, cable, you name it. If I can sign up for automatic billing, I do. It doesn't mean I don't look at each carrier's statement to ensure the charge is correct. But it does mean that on a monthly basis I don't have to worry about paying any bills (other than my credit card!) — they're already paid.
2. They provide free services and protection.
From concierge services to car rental insurance and extended warranty, my credit card provides extra services and protections that I wouldn’t normally pay for, but benefit from greatly, especially should the rare unfortunate thing happen. If someone steals my brand new iPhone, purchase protection will replace it. If I get into a fender bender with my rental car, my credit card insures it. (See also: Awesome Credit Card Perks You Didn’t Know About)
And my number one reason for charging everything to my credit card (drum roll, please):
1. I get frequent flyer miles.
Since I started to charge all expenses to my credit cards, I have collected and redeemed miles for everything from fancy dinners to sports gear, to multiple flights all around the world. It’s easy to get started with travel rewards, but redeeming miles for travel isn’t your cup of tea, a cash back card will give you free cash just for using your credit card instead of cash (of course, the only way you stay ahead is by paying off every balance, every month. Any interest charges will obliterate any benefit or reward a card can offer). (See also: Best Travel Reward Credit Cards)
Tagged: Credit Cards, Shopping, charging expenses, credit cards, frequent flyer miles, monthly expenses
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I have made well over $600 dollars on my credit card's cash back program since I got it. I have yet to pay a penny in interest. :^)
Be warned that when traveling abroad the use of credit cards is not as wide spread as in the US. (Even in Europe.) Getting cash before you go can save you some expensive exchange fees when you find out that only the larger stores will take your card.
You can also use a debit card! (if you don't care about frequent flyer miles). I don't like writing checks because when I look at my statement -- I can't tell what the check was for.
the miles dont have to be used for airfare. they can be converted to cash or gift cards.
Yup! Everything you just said rings pretty true with us too. One reason I like them better than debits for stuff is that you have major back up if there's a problem. Not usuallly as much the case if you have a problem with your debit account. At least for certain situations that are coming to mind for me. Good post.
I agree. Why should I use my money when I can have it sit in the bank until the actual due date of the bill and earn interest?! Plus, debit transactions may have a charge per instance.
The best part is not having to pay for it for two months. I buy something at the beginning of November, I don't have to pay my credit card bill until the end of December. That money can sit in my savings account and earn me a couple extra dollars at no cost.
Hmm but don't you have to pay interest and other hidden charges on the credit card payment ?
...offer all except the 1st point.
Well I don't wait for the bill to arrive...I actually pay ahead so I have a Credit Balance on the card.
Mine pays a 1% Cash Back every month applied to the balance for anything bought at other than the Hess Gas Store...there its 5%...even on Gas..(Card is a Hess Branded Visa).
I've noticed they like to play games with the Due Date in an attempt to make Late Payment Fees and Accrue Interest so I don't give them the Chance!!!
~ Roland
I hold two cards, an Amex and a Citibank MasterCard, which I juggle to keep the actual payment as far out in the future as I can. I use the Amex until the MasterCard cycle starts, and I use the MC until the Amex cycle begins anew. Tightwads like myself have an aversion to parting with money, and credit cards delay the pain in addition to earning another buck or two in interest. By contrast spendthrifts should use debit cards because they need to form a connection with buying something and having to pay for it.
Also credit cards allow for accurate expense projections. If I know exactly how much my credit card tab will be in the next few weeks, I can plan ahead and update my spreadsheets accordingly.
If everyone was as skillful with their cards, they wouldn't be free, so we should thank all those that charge through the roofs ;)
Great post, even if it only rings true and logical to a small niche group.
They'd still be free, as card companies charge the business a % that you use it at, anywhere from .75 to 3%. The card companies can make money off both ends.
Great post... I agree completely..
... voice to counteract the more frequently heard advice to avoid credit cards!
I was curious about your choice of FF miles vs. cashback. Maybe you can work up a follow-up column about the pros and cons of various reward programs?
Total BS. If you pay cash for everything (ie. debit card), there is no point to have a great credit score! And that includes buying a home! Instead of shopping for a mortgage based on your FICO score, get a manually underwritten loan that actually checks your income, assets, etc. and not your FICO. You, the author, obviously have been brain-washed by the FICO monster and you are now in the back pockets of all credit card companies and they love you for it. Pathetic article which may cause one person to actually get a credit card and overspend into debt. Why tempt yourself in the first place! Pathetic....
I agree with you completely.
A good credit score is important, if you want to get a mobile phone contract they do a credit check. Those with a dubious history can end up being declined or having to pay a deposit. You mention about overspending, credit cards should not be seen as a way of funding a luxury lifestyle. If used properly they are a great way to manage one's finances, as with everything else there is a clear difference between use and abuse.
Paying with a debit card in shops is not a good idea, if it gets cloned then there could possibly be the inconvenience of not being able to access your wages and certain bills going unpaid. With a credit card it is the bank's money on the line and your own money is never touched.
If you buy something on a credit card like a sofa for example and the company goes bust prior to delivery then a credit card offers protection and you will be refunded.
Still think credit cards are bad?
Only problem with that is that lets say you want to rent a rental car, you can't rent one without a credit check or a credit card. I almost couldn't get home one time stranded and couldn't get a rental car because I had no credit and no credit card. You really can't buy everything with cash in many cases unless you are backed by a credit card or a high credit score. The guy I finally convinced to let me rent only rented it because it was off the map of the rental company and he wrote me on paper and said he really wasn't supposed to write anyone up a contract this way and everyone else had to go through the system. I had to bed him to let me rent the car and he only rented it to me because I proved I had the cash for the days I was going in my account. It would have been so much easier if I had just had a credit card. I am now looking at getting a small line of credit with a cc company that doesn't use credit checks to approve you you just pay a monthly fee and you are set. I feel that I can utilize this card to show proof the next time I need a rental car and can't travel by bus or plane. Rental companies are getting stricter about this because they want the money to be readily available and not get ripped off by someone claiming they have cash and a debit card. I was so happy when I found this no credit check company because I have no credit and it will be good for a person like me to establish something so that I might be able to have a good credit score when I go to purchase a house, which they look at even if you have enough cash to buy the home. I have decided in this day and age, no one can really do everything they want without a credit card and a monthly payment option.
Tyler, I was a total cash believer for years. However, using a cashback credit card to purchase routine items like gas, groceries, etc rather than a debit card or cash was a recent epiphany to me. There are now cashback cards that give up to 5% back. Other cashback cards give up to 2% on all purchases, including paying routine bills for elect, cable, phone.
That said, those that use credit cards to delay payment are just plain ignorant and will eventually have to pay the piper. If you consider the money has been spent and must be accounted for each month (just like paying with cash) you can realize a savings of several $100's each year. Something to consider.....
Five years ago I converted the full amount of my mortgage into a home equity line for the full value of my home. Everytime I get a 0% balance transfer offer from the credit card companies I use them to pay down my home equity line. One month before the 0% term on the card expires I pay the card off in full from the equity line and cancel the card. Currently I have about $70,000 of my home debt at 0% interest and my credit score/limit has gone through the roof! In theory someday I will be juggling all that debt at 0%!
Cash allows for anonymity. With credit cards you lose all privacy. Not only is every purchase you make tracked, but every place you travel is also logged.
Never invite big brother to watch you.
This is about the dumbest post I've read on Wisebread. Unlike a debt card, which can do everything you mentioned, if you miss a payment your screwed. I just dropped my RSS subscription from here.
You're the fool. When a debit card is hacked or stolen its YOUR money that gets stolen and its up to you to fight the bank to get it back. If a credit card is stolen its the banks money and its up to them to track down the thieves while your money sits safely under your mattress.
Two more reasons to use credit cards:
1) Although they aren't as good as they used to be, lots of cards still provide some insurance coverage for items you buy. Mine, for example, provide collision coverage for cars I rent. Some also provide some degree of coverage for consumer items--extended warrantees and the like.
2) If you buy something that's defective or not as advertised, and the seller refuses to make you whole, your credit card company will often reverse the charge. Federal law requires them to do so under certain circumstances, but most credit card companies have much more consumer-frendly policies than the minimum required by law.
You make it sound really good, but not everyone is as disciplined about paying off their credit card. The scenario is when people live paycheck to paycheck, and then they have an unexpected expense throughout the month, what do you think they'll pay for first? They'll probably rationalize it by saying, "well, I can just pay my credit card bill later". Paying cash or using the debit card is a much safer route unless you already have a big emergency fund saved up and you're extremely disciplined with your money management.
So, in your scenario of people living paycheck to paycheck, where would they find the money if they have an unexpected expense during the month? You can't use cash or debit card if there's no extra money in the bank. These people will probably have to take out a loan which, technically, is using credit and paying interests (a la credit cards).
absolutely right.i agreed. shopping through credit card is very easy but payment of that purchased is burdensome in latter period.
Good point, I am one of those paycheck-to-paycheck folks, except I am more cashout-to-cashout since I am a waitress. :)
I use my credit cards like debit cards, don't overspend even though my total available credit is well over half my meager income. I think I've only not paid in full twice, and even then I plopped down as much as I could. I keep my debit card locked in the glovebox (shhh) and deposit my cash nightly at the ATM. I had to hand away my wallet once at knifepoint, which secured my faith in this strategy. I was able to quickly and easily freeze everything, and only lost my loose change and some old ticket stubs (why?).
On top of the security, I think it's great that I can build both a positive credit history and good relationships with lenders while making everyday, typical purchases. I was already in a good spot when it came time to replace my high school car and had no cosigner, and will be in an even better spot when I buy a home in the distant future.
However, I have certainly been in situations which required me to put my credit card bill at the bottom of my priority list. However, I'm lucky to have a job where the pay is pretty much proportional to how hard I want to push myself. I also do some side gigs online. So when an unexpected expense pops up and I already have balances on my credit cards, I go into total grind and thrift mode. I typically pay my bills on the statement date, but since you have almost a month after that statement date to pay, it's not too hard to come up with the cash. But yes, my revolving accounts will have lower priority than my installment accounts. That doesn't mean I'm not serious about and dedicated to paying the full balance as soon as humanly possible.
Sure, I wouldn't have to worry if I were paying cash throughout the month and had no credit card bill to worry about, but then how would I have been able to come up with the emergency funds when I needed them? A savings account maybe, but paycheck-to-paycheck folks don't generally have those. :)
Some people may not be in a position to handle it as well as me, especially if they're in a typical corporate minimum wage job that doesn't allow overtime (so no way to push for extra income), but I don't think every poor person should fear credit at all. Learning to manage credit wisely and building a good profile can be insanely useful for a poor person. Often they are the ones who may need financing the most, and "predatory" financing terms can make a poor person even poorer.
Just some thoughts from a poor, young gal who's in the high 700s. :)
I have to hope that everyone with a CC DOES NOT adopt the 7 rules for CC"s.
I have been using CC's for 45 years and have NEVER paid any interest....if everyone did that the CC companies would go out of business.
So keep on spending and racking up those humongus monthly fees.....I appreciate it!
Mac
Not really. Even if all the people using credit cards were "deadbeats" like me, who never pay interest or fees, the banks would still make money off the fees they charge to merchants - generally between 2% and 2.5% on each transaction. Plus there's a monthly fee and a transaction fee on top of that. They get their pound of flesh one way or another.
Yeah, the ideal customer for a credit card company is the one who holds a ton of balance and always pays on time but just the minimum payment. ;-)
@Jonathan:
We do the exact same thing! I've never met anyone before who does that.
My goal is to have my expenses totally mapped out for a month and a half ahead at all times, which is why I alternate between two credit cards (one gives cash back, the other gives airline miles), with evenly spaced payment dates. I have a checking account, which holds only enough to cover the next bill, and a ING savings account, where I put the rest of my money. I always pay my credit card bills in full, and so I get a free month-long loan with bonus cash or miles. Using a credit card for all my expenses means that I can look ahead, make a note to retain the amount from the paycheck immediately before the bill is due, then save everything else. With a debit card I wouldn't have that luxury.
Maybe it's mainly a psychological benefit, but I'm very satisfied with this approach.
Hi. This is a really interesting, thought-provoking post! I have a question, though. Does this system mean that you end up with one huge bill to pay each month (i.e., the credit-card bill)? In other words, since all other bills are paid using the credit card, is the credit-card bill the only one you write a check for? Wouldn't this amount be enormous?
I think it's easier for me to pay several different bills at various times of the month, instead of one huge one. But maybe I'm not understanding...
(Forgive me. I'm NOT financially savvy!)
And have been since college. I don't think I've carried a balance since 1999, so I know that the credit card companies are making very little off me. I do enjoy the cash back from my cards, but I do it mainly for the convenience.
What's that? My car repairs are $760 and I only have $350 in my checking? No biggie, I'll transfer money in when the statement arrives.
I've stopped charging amounts under $10. Mostly because of the looks my boyfriend gives me for charging "such a small amount" rather than paying cash. But all in all, my cards are just more convenient than trips to the ATM, and I am totally with Nora.
Great post. Credit Cards also offer extra protection on purchase. My Visa also offers liability insurance on car rentals as well as Extended warranty on huge purchases. As long as you are responsible with credit, it is always better than using a debit card.
HI Guest: Yup - since all my bills are consolidated to the credit card, some months can have eye-popping balances. However, as long as you're living within your means and budgeting properly, then whether you are paying 5 different bills that add up to one big total or just one big bill, you're still doling out the same amount of money!
And I also agree with the other comments about CC companies not liking the likes of me too much: I'm not making them any money. But they give me that choice, and until they take it away, I'm happy using my credit card responsibly and paying it off in full each month.
re: Anonymity - using a credit card each month does certainly impede on my anonymity. However if big brother is really watching me, he has many other tricks up his sleeve to keep tabs on us and I'm not doing anything wrong anyway. So.....maybe it's callous of me, but there you go.
re: Debit cards - I haven't seen a debit card yet that offers frequent flyer miles (or buyer protection, which a few commenters have mentioned), but maybe there is one. I also find that since I am traveling full time, I'm not in my home country and pay through the nose for debit and ATM fees. This is just one more reason why CCs work better for me personally.
Thanks, all!
Couldn't agree more. Why use cash? It smells funny, takes longer when used in a transaction, offers zero protection, and offers nothing in return. Nowadays, if you use cash, you liken yourself to the old ladies of the 90s who would whip out their checkbooks whilst everyone behind gasped and moaned.
I have a Chase UAL Visa DC. I believe Citibank offers an AA one. There's plenty of other award earning debit cards. You're being foolish if you think you're not paying fees on foreign credit card transactions. They may be lower than the debit card fees but you're still paying them.
So tell me how many times have you used the buyer protection on your card? I would bet for 90%+ of people it's never.
I've used the buyer protection a total of 5 times on both AMEX and Visa...it was low hassle and the companies handled all the work..and in EVERY case, I got my money back. Try to to that after paying with a wad of cash. I've also never paid any interest on any of my credit cards and this year will make about $500 cashback. I agree that you DO need to be disciplined in your money spending...what is wrong with our society that we can't control ourselves in our spending and try to "fool" ourselves by only carrying cash? That's what a budget is for...if I see something I like that I haven't budgeted for, I don't get out the credit card. We also don't buy anything other than true necessities throughout the year and purchase special items on holidays and birthdays only. Aren't we all adults with some self control?
Credit cards are the way to go to maximize your money to its full potential. Why not earn rewards and cash for things you're going to buy anyway right?
-Raymond
Excellent article...I agree with all your points. I charge everything...why not get something back for money I'm already going to spend? The protection is far superior as well...last year I had a credit card stolen, and before I even realized it was gone $1,000 had been charged to it. At the time, that was more than I had in my checking account, so had it been my debit card it would have been a HUGE pain. Oh not to mention I had $90 taken out of my wallet as well...that was gone forever and it was after that I capped my cash on hand to ~$40 and began charging everything. Cash and debit cards are for people who can't use credit responsibly.
Excellent article...I agree with all your points. I charge everything...why not get something back for money I'm already going to spend? The protection is far superior as well...last year I had a credit card stolen, and before I even realized it was gone $1,000 had been charged to it. At the time, that was more than I had in my checking account, so had it been my debit card it would have been a HUGE pain. Oh not to mention I had $90 taken out of my wallet as well...that was gone forever and it was after that I capped my cash on hand to ~$40 and began charging everything. Cash and debit cards are for people who can't use credit responsibly.
This blog is about saving money and if you are able to save money through cash back using a credit card to get an additional 2% off of every purchase than isn't that what we are all here to do?
I don't understand why people would come here, comment and complain about how they are victims of credit card companies. You are not victims, you are simply foolhardy individuals who demonstrated a lack responsibility and willpower.
The only ones with a valid argument against CCs are the ones who want to live off the grid, but thats a whole other issue.
I agree with most of these points and use credit cards in the same way, paying off the balances each month and using cash back cards. However I have to agree with some of the critical commenters here, that credit cards are dangerous things in the hands of people who are undisciplined or unaware.
I think of credit cards like a loaded gun: if you understand how they work and take the proper precautions, they are a useful tool for sport or protection. But if you're careless and uninformed, you can easily hurt or even destroy yourself!
Over draft protection.
At one time my wife and I were working for the same company. Our compensation was set up with direct deposit. One time HR goofed and deposited our paychecks 3 times. We noticed that our balance was far too high and alerted our bank of the error. (It was the weekend and the HR dept was shut down. We did not know that it affected all employees.)
The bank reversed the two erroneous deposits and our balance was normal... until Monday when HR took all of its money back; unaware that we had already given it back. Suddenly our account that should have been $2,000 in the black was $3,000 in the red.
It was three weeks before we could sort the whole thing out and identify who had our cash between our bank, our employer and their bank. It was 6 months before we straitened out all of the late fees, overdraft fees and bounced checks fees all over town. It was years before our credit rating recovered.
During that time when our balance was negative, we were forced to live off our credit card. We have not looked back since. Now everything goes on the plastic and we pay that off at the end of the month.
Wow how ignorant of you to NOT do anything & just wait for the fix to happen. Companies will always find those errors & remedy it themselves. Big lesson learned for you NOT to act hastily! It's not hurting you to hold the extra funds, but I would never spend the amount of the overage. Some unscrupulous folks could and that would only cost them in the end. Same with you in this case - nice guys always finish last LOL
In the case a fraudulent use, there is a large difference between debit and credit cards, at least in the US.
If your credit card number gets nipped, then the thief is spending the bank's money. The card holder can simply refuse to pay that charge. The liability lies with the bank.
When a thief uses your debit card, then it is your money that disappears. You must petition the bank to restore it. That is much more difficult than denying the charges.
Plus, the law works differently for the two situations. Banks can limit their responsibility on debit cards. Plus, (according to a manager at a large bank customer service center) if you admit to ever telling someone, anyone, your ATM pin, then the bank is released from all liability, and they will refuse to pay restitution.
There's a lack of understanding in this article and some of the replies which could prove dangerous to gullible readers.
" According to one Mastercard vice president a person with a "taste for credit who's willing to make minimum monthly payments—forever" is a "preferred customer".
Or shouldn't that be "sucker"?"
"1/3rd of Americans claim they pay off their credit card bills in full every month. Inside the credit card industry, these customers are known as "30-day wonders or "deadbeats"
Dave Gilson September/October 2007 Issue © 2007 The Foundation for National Progress
MORAL:
Be a "30-day Wonder" or "Deadbeat"
not a "Sucker" or "Preferred customer".
Interesting comments. These comments have been made before and I am sure the credit card companies have planned for the minority of the 30 day wonders into the business model.
A less disciplined/credit junkie will think these comments are sound ideas and stay in debt for the rest of his life and that is his decision. For some of the people who have posted to say they are using the credit card companies money for a free loan is erroneous and understand you or someone else is paying for this "free" loan.
Yet no one has discussed there is a degree of risk involved with using a credit card.
For instance what happens if you lose your job before the month ends? How do you pay your card off? Or how about the one month that the credit card company does not receive your payment on time and the fees and interest one will incur?
Also by using the card every month a person stays in perpetual debt? I thought the goal was to stop sending money to the credit card companies for the rest of one's life.
One can also set up automatic payments for the monthly household expenses using a bank account as oppose to using credit.
For those who talk about the frequent flier and cash back rewards you receive by using your cards, I would suggest if you are earning such a substantial amount in rewards maybe you are overspending and trying cash might not be a bad idea. As always you have a choice and if this working for you so be it.
Most credit cards have an option in which you can have the balance or minimum payment or even other amount you specify deducted from you checking acct monthly so that you are never late and never incur late charges.
Valid concerns, but those concerns of risk are a result of a missing budget and emergency funds. A simple resolution is to follow the YNAB 'You need a budget' rules and learn to live today on last months income. The rules will get you there, you can choose to use their software or not.
Hi Terri M!
You make some very valid points, and thank you for your comment. With regards to the risk involved with using credit cards and experiencing job loss, my hope is that the responsible credit card user has also taken measures to avoid such circumstances being a problem....with the use of an emergency fund, and always having cash on hand for payments.
True - life happens when you're busy making plans, but a truly responsible CC user will make sure all payments to through well before interest can be levvied, they have enough to cover off unexpected emergencies, and that they'll always remain a "deadbeat" in the eyes of the credit company!
And as long as I don't erroneously charge more to my credit card than I would normally spend just so I can get reward miles (that is certainly important given that we are aiming to be frugal, not spend thrifts), I still see no need to curb my charging habit. Like I said, I've flown around the world so far (admittedly after years of banking points), and I'm still going strong!
Many commenters imply that the banks make no money if the card user does not carry a balance. That is not the case.
Visa, MC, AmEX and all others charge the retailers a few percentage points on every transaction. So while Citibank might not make as much money when you reconsile your balance every month, they are still getting income from your business.
Can we use debit card for all sites online shopping?
Can we use debit card for all sites online shopping?
I'm thrilled to find a PF blogger who doesn't see credit cards as the ultimate evil. Credit cards are just little pieces of plastic. It's what we do with them that counts.
I, too, buy everything with a credit card. I carry three different cards and use them each for specific types of purchases. Every bill gets paid in full each month. I budget carefully and have no problem understanding that when I make a purchase, I've just spent money!
Sure, right now we're solidly in the upper realm of middle-class but it wasn't always so -- and even when we were barely scraping by, I used credit carefully and wisely.
Personally, I'm much less careful and disciplined when I have cash on me than when I'm buying with a card. I love the paper trail and the cash back. My husband loves that he can keep our money in the bank for an extra 30-60 days.
How about doing it the other way around.
When you have the money, pay it on to your credit card. Have a positive balance. Then it's just like a debit card, but with the protection and ease of a credit card.
Or how about those prepay credit cards? (probably fewer benefits, though)
The only drawback is that you wouldn't earn a credit rating?
That's an interesting suggestion to accumulate a postive balance on the credit card.
My big beef with this is that as long as your hard earned cash is sitting as a positive balance on your card, you aren't earning anything with it. At least if it is in your bank account (or even better a high-interest savings account), your money is working for you (even if it's a tiny bit of interest....it's better than nothing).
However, if learning to use credit responsibly is a challenge, or if it is a first credit card for a teenager for example, prepaying cards is a good way to teach spending discipline.
Thanks for the comment!
I recently became the kind of person that charges most everything to a credit card and why not? I earn about 3% interest on my money sitting in the bank and 1-3 percent back on all my purchases. While I've just begun, I'm already seeing the benefits...
BUT, I will agree with a lot of the people here that say a credit card can lead to a lot of debt and trouble. I waited until I was 23 to get my first credit card, I had established credit through cell phone bills and responsible payments on time and got approved for a Chase Freedom (awesome rewards card). At first I was like a lot of people, very hesitant to use it, I had 0% interest for 12 months and used it about 3 times in 8 months (really dumb but I was new and like many had that fear of credit cards). I used it that year for my xmas shopping and began to relax a bit about my fears. About 9 months into the first year I began moving my money to ING checking accounts to earn interest and then paid my balance off in full.
I think about every purchase (even down to a soda!) and am always looking to save a penny. The credit card is tempting at times but forces me to consider how much money I have in my bank accounts and thus I can treat the card as essentially a debit card.
Cash only never worked for me, Id just see the cash in my pocket, spend it, then need more. Now I can track my expenses and spending online, I think more about a purchase, and overall the card has forced me to become more responsible with my money.
Another small advantage: When I go out to eat with friends I'll generally charge the meal. Not only do i get rewards,but it's essentially a free cash withdraw as my friends give me the cash that they owe on the meal right there. I put most of that case right into my bank account until the CC bill is due saving a bit for cash on hand.
Great point about being the one to pay with credit cards at restaurants and get cash from fellow diners! I tend to do the same, although I'm increasingly finding I'm in similar company with plastic addictions, and more often we're splitting bills on plastic.
I will say, once or twice I've been burnt by this strategy with large groups of friends....I end up paying the entire bill, but somehow I don't always get all the cash back from other diners that I should. Sometimes the math is off on their part, or they leave early and forget to pay, or they're just cheap! (smiles)
Yes I use the CC for the smallest purchases. But don't bother when going out to dinners with friends. It isn't worth the aggravation of being short-changed or having to make a trip to the bank to deposit the cash. This is one of the rare few times that I pay cash and give up the cash back or points opportunity.
I've to agree and disagree on your given reasons.
It builds up a great credit rating: But you must make sure you pay your balance every month. Do not use money you don't have or you'll end up with mountains of debt.
It's quick and easy: It depends on where you use it. Actually credit card could be the cause of long queue if signature is require from cardholders. The machine jam, the phone line slow to get the approval, etc.
It's great for accounting and spending reports: I envy you for having a credit card that categorizes your spending. i guess most of the issuers do not bother to do this.
I don't need to carry cash: I am more comfotable with cash. Not all places accept credit card. What if the credit card machine down and you're unable to get approval? I am carrying at least a few hundreds minimum.
Automated billing is great: Yes and no. It could be harder to claim back your money if there is any dispute.
Almost everybody takes Visa: Disagree. It all depends on which part of the world you are. In Malaysia for example, MasterCard is more popular.
Frequent flyer miles: If you fly frequently, this is great. But I hardly fly, so this is not an advantage to me. Anyway, you'll be better off getting a frequent flyer credit card if you are serious about accumulating fast airline miles. Frequent flyer gives you more power for your money, so you can fly more frequent with deep discounts.
This does not means I am against credit card. I love credit card to be honest. Credit card is the most convenient tool a human every created for the dynamic of globalization.
But please remember rule #1 : Do not use the money you don't have.
I make weekly credit card payments instead of once a month. What ever I use my cc for during the week gets paid at the end of the week. This way I help knock down some interest charges. I like to use my cc instead of debit card for security reasons.
The weekly payment option is a great way to use your credit card. You have the right idea by considering it a debit card of sorts and only spending money you have in the bank.
The next step is this: if your credit card only charges interest after 30 days, you can get away with making monthly payments instead of weekly without paying a dime of interest. The benefit to this is that you get to keep your money in your own account, earning money (okay, a pittance, but money nonetheless), instead of giving it to the credit card company before they need it.
For some people, it's more of a hassle than it's worth. So if you are one of those people, then stick to what works for you - weekly payments. But if you can see your way through to monthly payments or your credit card doesn't levvy interest from the date of purchase, you know what to do!
I guess it works for some people but I would rather pay with cash or debit and have no credit card balance. It's too tempting to charge more than you can pay back immediately. Personally, it works better for me to budget $60 a week spending cash and when it's gone it's gone. Otherwise, "wants" become "needs" very quickly.
I actually got another credit card to get myself out of credit card debt. What? Yeah, that's right, here is the story....
I've had credit cards since I was 18, I put myself through college with minimal parental financial help, and have never paid a bill late in my life. After college, where I graduated with a small student loan, ZERO credit card debt and a marketing and economics degree, I was frustrated with how difficult it was to find a decent paying entry-level job. After switching jobs a few times and ending up in a commission only sales position that I also hated where I didn't make a cent, I decided I'd take some "me" time to figure out what I wanted to do with my life. That "me" time added to the no-paycheck time added up to about 5 months, and I paid all my immediate bills during that time using my savings, and charged the rest. Not exactly responsible I admit, but definitely necessary for my happiness and well being.
All of a sudden, I had a credit card balance of nearly $9,000 and no savings left. A car accident and kidney infection happened during that time when I had car insurance but no medial insurance and both were expensive, so those unexpected costs definitely added to that large balance. I finally found a decent paying job I enjoyed and made a commitment to pay off the credit card. I used my checking account and debit card for all my expenses each month and would make large payments toward that balance each paycheck only to run out of cash at the end of the pay cycle and have to use my card again in the meantime. I'm not one for tracking every little cent and definitely like to have fun and enjoy life, but always within my means. I knew I wasn't necessarily spending more than I was making, so it wasn't making sense that my credit card would get paid down then I'd have to charge more on it, or use what little I'd been able to save to make it until the next payday. My credit card balance wasn't going down, my savings were not going up. I'd never lived paycheck to paycheck, so this was uncomfortable for me and obviously not working.
That's when I decided to get a Bank of America Alaska Airlines Visa. I put every possible expense on it that I can, and have any possible bill paid on auto-pay. Each paycheck, I take the amount deposited into my checking account and subtract the amounts of my fixed expenses that are coming up for that 2-week period. This includes $50/paycheck transfer into a savings account that's grown into a comfortable emergency fund. After I get the amount I need to keep in my checking account to pay the bills for that 2-week period, I pay off the BofA VISA credit card balance in full and subtract that from my checking balance. EVERY penny that's left after all my bills and card are paid goes to paying down my credit card balance, which I have managed to pay down to a little under $2,000 in less than a year using this method.
My checking account is at zero by the end of the pay period, which might sound scary, but if something unexpected comes up where I do need cash, I transfer that into checking from my savings account and no big deal, I'm covered. When I pay off my credit card balance, I'm definitely going to continue managing my finances this way, and that leftover money will go into savings and I'm going to increase the amounts going toward my retirement.
I'm glad to read there are others out there who understand how to leverage their credit this way to get rewarded for things they pay for anyway. I have a 775 credit score at this time and I've finally figured out a way that works for me to pay down debt and save. I also love to travel and vacation, so the miles I get are provide huge savings for me and allow me opportunities to travel I would not have otherwise. In the past 2 years, I have flown to Vegas three times for free, and taken myself and my boyfriend to Mexico and Hawaii on a companion fare for very cheap with the miles and rewards I've earned, all without the over-spending like one person posted I needed to do to gain any benefit. The rewards just add up with regular spending like on gas and grocery bills.
Another person posted that we are all victim to the FICO and we don't need credit, even to buy a home. I work in the mortgage industry and we've turned people away for home loans for not having any established credit, even if they've paid cash for everything their entire lives and have no debt. That's awesome that someone can pay cash for everything, but if you choose to live and work in this society that ties you very close to your credit rating, I'd rather conform than suffer the financial consequences. You COULD find someone to manually underwrite a home loan with no credit, but it's going to take you a long time to find someone to do that and you will likely not be offered the most competitive lending rates.
Also, I see people's credit reports all day long and a lot of times it's ruined by medical bills. I was essentially unemployed for 5-months and had to deal with the non-insured medical bills from a painful kidney infection, and could have ruined my credit with any unpaid bills that were sent to collections, but because I charged them, my credit rating is gold and I'm paying them off at 0%.
This was long I know, but I hope my info helped at least one person understand how they can use this method to work toward getting themselves out of debt like me. :)
Thank you for sharing your story! You have great insight and have obviously come a long way in life. Congrats!
It only makes sense to use the credit card for everything regardless of what kind of card you have. No point on leaving free money on the table as long as you can pay the whole thing off every month. I use mine for air miles too.
I couldn't agree with you more. I made the switch this year. I used to use my debit card for everything, which to me was like spending cash. This year I got two different cards - one that pays 3% cash back for common purchases such as gas, groceries, cell phone bills, and 1% cash back for everything else. The other pays me 5% cash back for a specific bill I have to pay every month. On the 3%/1% card I wait until I've earned $200 to request the cash, then they send me $250. A nice 25% bonus!
I understand what everyone says about temptation, which is why I keep a separate credit card. If for some reason I feel I must buy something that I do not have the money in the bank to cover, I can charge it to the other card. I have found that just that simple bit of having to pull out a different card stops the temptation.
I keep my savings in a high-interest money market account, and keep my checking account just over $2,000 so there are no fees associated with it. I haven't paid a bank fee except ATM in 3 years, and those have been only a few times. When my debit card came up for renewal this year, I did not activate it. The bank said there was no way to get it without the Visa capability, which would mean if someone steals that Visa card they can empty my bank account.
I think a lot of people do not know just how dangerous using a debit card with a credit card attached is. If someone steals your credit card number and wipes out your bank account, every time you swiped your debit card to pay for something, you get to pay a returned check fee to your bank. And while your bank may make you whole in a couple of weeks for the money stolen, there is nothing requiring them to waive those fees. I've heard horror stories of people racking up $500 to $1,000 in those fees. No thank you! I'd rather charge it to the credit card and make one or two payments a month from my checking account to my credit card.
A lot of people have been burned by keeping their checking account balance low, then using their debit card for gas, car rental, hotel, or anything that puts a hold on your credit card. Even though the money is in your account, if they put a $75 hold on your card and you have your bank balance go down to $74, then you get pegged with a bounced check. There's a reason why the banker insiders call what they advertise as "no fee" checking, their "fee-based" checking. They rack up a fortune!
One other thing I do not do is setup automatic payments if I can avoid them. They have a way of continuing beyond when they should. I feel a lot better by paying my bills as they come due. If you must setup an automatic payment, at least by using the credit card you can dispute it.
The bottom line for me has changed drastically. I used to pay my bank fees every month and risk huge fees because I didn't know how easy it would be for someone to empty my bank account for me. Now instead of paying fees, I earn money. I've also managed to put just over $27,000 in high-interest savings that last year was earning 5%, and now makes 3.5%. I'm finding this makes an overall difference of $200 to $225 more in my pocket every single month. While it won't make me wealthy, it is nothing to sneeze at! It is also a wonderful feeling to be in charge of my money rather than having it be in charge of me.
One thing I wanted to mention regarding credit scores - they are now being used for more than just credit. Some insurance companies will charge you a higher fee if your credit is bad. You can also be denied employment for having a bad credit score.
I agree with all of the author's points except the last one.
A cash back card is the way to go and I can prove it. I've earned over $1,000 to date by using my favorite card and my wife using it too...
Enjoy!
-Patrick Bateman
Statistically you spend more money on credit than you do if it was a debit card.
Before we got married, my wife had the same theory: charge everything to the credit card and just pay it off at the end of the month. She would get all sorts of meaningless crap. She would pay it off though.
Fast forward to today and now we're trying to pay off $20,000 in credit card debt because we "thought we could pay it off each month." All because we could pay it off.
Sometimes, the best way to solve a problem is to not even approach the problem to begin with.
Matthew09
The insufficient funds fees I've accrued over the years have regularly encouraged thoughts of murder towards those who would think a $35 loss is a slap on the hand for someone in my shoes. Recent problems in my bank have caused me to lose money even when my overall account never went negative from the money I've spent.
But in keeping a cool head I studied up on what was going on and found that check cards suck because of the credit system itself. You authorize money to be taken out, and the authorization take money out before the money is given. Then If something doesn't go through or you cancel an order, you're screwed if you thought more money would be there because of it and didn't wait for everything to resolve first.
A bank teller who explained this to me suggested that buying it all through a credit card might have been better since there's more time to wait and know exactly what you owe and then pay it. So I got to thinking, what if I just put money on the credit card before it was spent and made a check card out of a credit card?
One person above mentioned that she already does this and that it works. I'm a little hesitant, but I think I'd like to have my student loans directly deposited into a credit card account and go with that. Does anyone see a flaw with that idea? Will other loophole charges make their way in even if I never let it go negative? Even when it does, at least 30% monthly interest isn't $105 for most of the reasons that I go into a negative balance.
@Guest re: above - Although you are certainly thinking outside of the box with regards to creatively avoiding fees (good for you!), I encourage you to be incredibly careful about utilising a credit card too much. If your finances are tenuous enough that you are regularly getting slapped with NSF charges (even though it is due to timing issues), you could run into long-term trouble with "one charge here" and "one charge there" on the card that doesn't get paid off each and every month.
So only you will know best if using a credit card will be a license to print money, or if you can use it legitimately to balance the proper spending and budgeting of your monthly expenses with the timing of income payments.
Until I started reading about frugal living 1 month ago, I could count the times I had thought about a credit card on the fingers of my left hand. Over here nobody uses credit cards except for travelling abroad and some online ordering.
Meanwhile we used to call the United States the motor of our economy; they would keep spending and importing stuff, we would earn huge amounts of money. Until the recession came ofcourse.)
Now everybody tells me about the wonders of the credit card.
I can't help but think about what would happen if something bad happened to you.
Do you have money to pay back the credit card debt in less financially secure times? Can you pay it off at all?
Loads of 'benefits' of the credit card (#1 on your list excluded. I don't fly.) I can get on my debit card.
I can't imagine spending money that's not yours, financially healthy morgage excluded.
Did you not bother to read the article? Of course we don't spend any more on a credit card than we would on a debit card! That would be stupid. Credit cards make everything cost LESS. Saving anywhere from 1%-5% on things we would purchase anyway is smarter than saving nothing by using a debit card, cash, or checks.
When my brother went to buy a house he was told that he had done the wrong thing by paying off his credit card balance each month. He was told he needed to let a small amount "ride" to build up good credit.
Nonsense. I've paid off my card in full forever and my credit rating is perfect.
LOL...horse radish! I have never kept a balance on my card for over 35 years and my credit rating is the highest. I even paid the $35,000 as cash for my car. None of that have hurt me. I was given an un-secured line of credit of $200,000 with no fuss! My $500,000 mortgage was approved in days.
Either someone lied to your brother or you are lying to us.
I pretty much do everything you mentioned. One thing I'm confused about though is that if this messes up your debt to income ratio. Does that just account for carried balances?
for example if I have an income of 4000/month and I spend $1500 on my credit card every month a pay it in full does that give me a debt-income ratio of 0% or 37.5%?
@Rob - I can't say for sure, but I can't imagine that a balance paid off each month qualifies to be calculated in the debt-income ratio. However just to be safe, make sure you don't charge anything to your card if you're applying for a loan! (smiles)
The benefits of having a credit card are the free things they give out to encourage the user to use that card. Credit Cards companies don't like to compete in lowering their interest rates, so instead they give out free things, which comes out a lot cheaper than lowering interest rates.
Low interest rates don't even matter to people who pay their full bill each month. If the APR is 0% or 10000% doesn't have any sway on a person who pays the full statement balance each month. I don't even look at interest rates because I know that I will never use a credit card to pay for anything that I don't already have the money to buy. To me (and the other cheapskate deadbeats), credit cards are all just a means to get extra cash rewards and discounts on necessities. I love getting paid to do something that I was already going to do!
You are doing EXACTLY what I have been doing for years for EXACTLY the same reasons. What better way to use someone else's money for up to 40 days and get my bookkeeping done free by someone else?!! Of course, I have NEVER carried a balance since 1982! My last bill was $17,000 paid in full. I go even farther, in fact. I use my cards for even items less than $1. As well, my pockets are light - no spare change! I carry only $5 with me at any time! If I lose my wallet, all I have lost is some plastic!
And if everyone follows this idea, prices go way up as credit card companies can charge a max of 2% to the vendor (who then one way or another ends up passing most of that on to you) whereas debit transactions cost pennies.
In the end, we pay for our own rewards and then some.
Plus, credit is based on paying your credit card bill on time, not how much you pay. Charge $1 every month and pay it on time and your score will be just as good as charging $3,000 every month and paying on time.
Great article. I use credit cards for all my purchases too. Much easier to track where my money is going and why. Credit card rewards don't hurt either.
Nora, I am curious how you manage to accumulate sufficient miles that add up to being enough for free flights if your total annual cost of living per year as per your blog is only $17,000 a year .. even if you pay for EVERYTHING on your card ( maxxing it out at a total of $17,000 a year) ... something doesnt seem to add up to me? Maybe you do your sums differently to me? Just asking.
Commonly referred to as Credit Card churning. Sign up for large initial bonus awards on new cards. i.e. 30,000 when you charge $3000 in the first 3 months. Use the card as suggested in this column and move on to a new card when you have reached the requirement for the initial bonus.
Don't pursue this method unless you know you can reach the required spend in the timeline for the bonus.
This needs to be updated as credit cards may be imposing "user" fees in 2013.
used credit card to buy thing you use buy in cash/debit card, so you know you can afford it to pay back. Build you emergency fund and follow your budget
debit card undeniably encourages more discipline approach in spending compared to credit card. You feel the pain when money comes out from debit card or cash. On the other hand, when you use the credit card, you don't feel the pain. It twist your mind thinking you have a unlimited supply of money. And most people end up with too much debt. That's why we end up working so hard because of too much debt. We buys stuff that we don't really need. Cut the credit card and live a life with cash. Spend wisely. Live a prudent life by making your money work for you through wise investments and you'll reap financial peace. Process to win with money: 1. Save emergency fund 2. Pay off all debt (except house) from small amount to large amount to have a momentum 3. Put 3-6 of expenses in savings (for emergencies, like loosing your job) 4. Invest 15% income to Roth IRA and pre-tax retirement plans. 5. Save for children's college education using tax favored plans 6. Pay off the house early. 7. Build wealth and learn to give.
What about fees associated with paying with a CC? I have to pay a flat rate of 4 dollars everytime I pay my utility bill with my CC instead of straight out of my bank account. since my bill is almost always about 100 dollars, this is a 4% charge or more. Do you get 4% worth of points or bonus back from your CC? If not, then this is not always the best method of payment. In fact, about a third of the bills I pay charge some fee for paying with a debit/CC as opposed to ACH withdraw from my bank account.
Purchases at stores, yes I use CC all the time. But paying some bills, through certain vendors, is not always the best to pay with a CC, even if you gain points.
Right - same here. If I see a fee, I don't even do the math. I HATE fees and will just use another form of payment.
Do you put car payments on your credit card?
I agree with your post completely! I have just started buying mostly with using credit cards. I will be getting the rewards coming back to me soon, just buy what you normally would buy anyway, and you should be fine unless your the type that will overindulge. If you are, you should cut up your cards.
An added tactic to what Nora says is to have a mortgage offset facility. I'm in Australia, I assume Nora is in USA .... don't know if you have these. Anyway what you do is put all your pay/income into your mortgage. This reduces your debt ... the interest is calculated on the daily balance. Then on the day you need to pay your credit card transfer $$ from mortgage to credit card bill.
If one is responsible enough and know how to keep the credit card balance revolving he/she will definitely love to use credit cards and maintain a better score. This indirectly attracts the eyes of the lenders and make you the most wanted as a customer whenever you lookout for a loan or a credit card.
Yes.But a lot of people use credit cards to buy online. Do you think it's a good or bad idea?
to increase your credit score, by using your credit card, do you pay it off before the closing date. I have read that by doing that, it will increase your credit score overtime because it decreases your credit ratio.