The Value of Using Credit Cards – The Right Way!

Credit-cards-in-wallet_5-Jan-2015It didn’t come as a surprise to any of us at LRWC that last week’s post about not using credit cards generated so much conversation and that so many readers have strong, staunch opinions about their cards (or lack thereof).

Clearly, getting rid of the plastic is only one side of the argument and while we can all agree that carrying balances on a credit card is never a good idea, there are many people (myself included) who whole-heartedly embrace using credit cards the RIGHT way.

Credit Card Rewards and Cash Back Incentives

The number one reason commenters on last week’s post stated for using their credit cards was their rewards systems and cash back opportunities. As one reader pointed out, “it’s like getting free money.” And she’s absolutely right. As long as you pay your balances, in full, each month, many credit cards offer users amazing rewards and money-making opportunities that can maximize couponing and catalina rewards. But you need to have the “right” cards. One of my personal favorites, the Chase Freedom card, offers 5% cash back on select purchases every quarter. As another reader pointed out, this quarter that includes grocery stores, which is akin to taking 5% off my total grocery purchases for the month. Similar cards, such as the Target RED card, offer users the same advantages, but only at their establishments.

Other rewards include airline miles, physical items, and gift certificates. Paying attention to the “real” value of these options is another way users can maximize their card use and make money. In general, a cash back total translates to 10 points = $1 statement credit or physical check. However, gift certificates may be priced more favorably. I have gotten a $25 gift certificate for 200 points, for example. This adds up to even more free items as you maximize your point usage.

Bottom Line: To use your credit cards the right way, you need to comparison shop before you get them, before you charge with them, and before you cash out your rewards earnings.

Credit Cards and Budgeting

The second most referenced benefit to credit card use is the way that, properly used, credit cards actually aid in budgeting and overall financial health. One way that this works for my family – and many others like us – is that we designate specific cards for specific purchases. Using the rewards maximization principle I outline above, we choose a specific card for that month’s groceries, gas, restaurants, and special purchases (say, a trip to the outlet mall). This way, at the end of the month, I have a clear breakdown of what we spent and where and can easily enter it into my ledgers.

People who don’t carry multiple cards can do the same by entering each charge separately. Some credit card bills, such as Discover, even include purchase category breakdowns for you, especially if they use those categories to determine cash back totals. While you could easily do the same thing with cash receipts (or a debit card statement), the convenience this offers in addition to rewards is just another way that credit cards can and do make life easier.

Bottom Line: Credit card bills offer a simple, condensed picture of an individual or family’s monthly budget that saves time over cash receipts.

Knowledge Is Power

When it comes to responsible use of credit cards, and deriving real value from them, there is much more to the process than simply paying off your bill every month. Using credit cards the right way is a mental exercise of sorts that asks you to consider, track, and understand a lot of particulars about your cards and your spending. Ignoring these factors, even for a little while, is what gets a lot of people into trouble with their cards.

Knowing details like interest rates, closing dates, and fees for each and every card you own is essential. This way, in the event that you do need to pay less than the total balance, you can do so with the least possible damage (i.e. by incurring the least amount of interest).

You should also have a running total of your balance in your head at all times – or at least a rounded figure close to it. Not only does this keep your budgeting on track, but like cash envelopes, it allows you to stop making purchases when you know you’ve exceeded your self-imposed limit. This degree of self-control is absolutely crucial for anyone who uses credit cards as part of a budget.

Bottom Line: When used in the right way, credit cards offer you a ton of real benefits including money-making opportunities. However, this is only possible if you have the wherewithal and self-control to monitor your credit card spending, track the details of your cards, and control your purchases with “invisible” money.

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  • Kate

    I love using credit cards and I always maximize my rewards.
    I love American Express Blue Cash Preffered that gives you 6% back on groceries all year long! It also gives you personal offers like $5 off $30 at Shell (that I combine with my Stop&Shop gas points of course), $5 off $5 at McDonalds or $5 off $15 at Walmart and many others. It puts hundreds of dollars in my pocket each year!
    Discover card is similar to Chase Freedom but I like it a little more because it gives you free FICO score every month (you can monitor your credit without paying for that service) and always has discounted gift cards to redeem your points for.
    Other great cards are Capital One Quick Silver that gives you 1.5% on all purchases and Citi Double Cash that gives you 2% on all purchases. For me credit cards is just a way of making money 🙂 Some cards have sign up offers up to $400-500!

    Of course you have to play this game smart and avoid credit card fees. To be fair, I have to say that people who don’t use credit cards often end up paying a lot of overdraft fees on their checking accounts that can be more expensive that carrying a small balance on the credit card! For example, if you only overdraw your account once a month, you’re paying your bank $420 a year! Since I switched my debit card on a credit card I solved that problem and I do have piece of mind with credit cards because I don’t have any problem managing them.

    • Michelle T.

      Yes, we love Discover and Amex. We have used so many Amex deals since Small Business Saturday! My husband and I each have a card from the same account, so we each could do SBS 3 times. Plus $5/$5 at McDonalds, they even had $15/$15 on Amazon. Love it! We always pay off the balance, and since we didn’t want to forget to pay the bill, we are set up on Autopay. The full balance is automatically set up to be paid every month. We just have to make sure enough will be in checking to cover it and all is good 🙂

      • Kate

        Yes we were able to redeem 6 offers for SBS between me and my husband. And I forgot to mention 2 offers $20 off $20 for Amazon! Thanks for adding that.

        • MisterBill

          My family has 17 uniquely numbered AMEX cards (several different types of cards and household members on them, plus Serve and the Fidelity card from FIA). I was able to make $510 worth of SBS purchases! I bought gift cards at 6 different restaurants in my area (split into $10 charges) and will be eating courtesy of AMEX for a while.

          AMEX has had some EXCELLENT offers recently. They had $20 off $100 at Staples, $10 off $50 at Office Max/Depot, $25 off $75 at Verizon Fios (redeem twice). We got the FIOS deal on 11 different cards. My monthly bill is $350 because my Verizon Wireless bill is bundled in.

          • Kate

            Wow 17 cards? The idea with gift cards is brilliant! I never even thought about it. I assume all family members have to be present in case the restaurant wants to check your ID or suspect ID theft?
            And what is FIOS?

            • MisterBill

              FiOS is Verizon’s fiber-based cable TV/Internet/phone service. I actually did not have all family members with me and did consider that if someone caught me with all of the cards they might think that something was suspect. Fortunately no one questioned it. I did learn that some restaurant’s systems don’t let you use the same card to pay for a single transaction, which kind of messed me up because I had a whole plan based on multiple $10 swipes on a single card to buy a large gift card at various places. I even had a color-coded spreadsheet with me that I had to change along the way!

              • Kate

                You’re a pro 😀 The problem with complicated deals is there’s always a chance of something not working or somebody refuse to process your transaction. Sometimes I don’t do the deal if it’s involves more risk. Because usually fixing something that went wrong is a big hassle.

                • MisterBill

                  You did 6 SBS transactions so you must have figured out how to make it work!. Presumably you got credit for all of them without difficulty? I didn’t have any problem with the restaurant employees splitting my transactions, especially once I explained why I was doing it. In the past, I had bought separate gift cards for each $10 offer, but there’s no reason to do that when the registers can handle splitting payments.

                  Having the color-coded spreadsheet (which I only came up with at the last minute) showing which card got used at which restaurant made live much easier. And it was well worth it given the $510+ in gift cards I ended up with (one restaurant was having a 25% off sale on gift cards for SBS, so I got $55 and only paid $41.25.

                  • Kate

                    That’s really awesome the way it worked out for you. I did receive $60. We went to meat market and a grocery store and stocked up on ground beef and steaks! Stuff that’s expensive and there’s no coupons for. So I thought I did very good 🙂

                    • MisterBill

                      That’s great — you used it for things you actually needed, as opposed to gift certificates to restaurants that I didn’t really need to buy.

          • MisterBill

            New AMEX offer: $25 off $100 at Staples dotcom. Check your account.

  • frink

    I have the (no longer available) original AmEx Blue Cash. 5% on Gas, Grocery, & Drug Stores, and 1% everywhere else. No fee! I am waiting for the day they tell me it’s discontinued…

    • Kate

      What year did they issue this one? I wish I applied 🙂

      • frink

        2003

    • MisterBill

      You forgot to mention that the 5% only kicks in after $6500 in charges for the year. I used that as my primary card for a few years but I now use the Fidelity AMEX from FIA which pays me 2% on everything. I think it’s a better deal overall, especially since you can get 5% on gas at least 6 months of the year between Chase and DIscover, and 3% the rest of the time with my Bank of America 3-2-1 card.

      • frink

        Excellent point MisterBill, yes I did forget about that! I usually get to that threshold by Feb / March by making all my charges on the one card…which I have totally been forgetting to do this year… thanks for the reminder!! 🙂

        • Kate

          I was considering opening that Amex card but now Citi Double Cash came out which is the same 2% on everything! And you don’t have to have investments or anything else. I might give it a try.

  • Lee

    I’ve really enjoyed your posts on this subject. The comments have been quite interesting. I totally agree that if a person isn’t on a budget that cutting up the credit cards is best. Not getting cashback would be worth not getting into debt. On the flip side, if you know how to handle money and be on a strict budget and never get into debt then getting cashback can be a small bonus.

    • Totally agree!

    • Kate

      Not so small 🙂 Like somebody noticed already, savings are comparable to couponing. And we put a lot of work into couponing. I consider credit card rewards an easy tax-free income 🙂
      I do agree it’s not worth getting into if you tend to get in trouble with credit cards.

    • MisterBill

      Not sure what a budget has to do with it. I’m fortunate that I have not had to deal with a budget and credit cards work fine for me. I know there’s enough money in the bank to pay my credit card bills at the end of the month.

      • Jodi

        Agree completely, never been able to sort out an actual budget, but lucky enough not to need to, we’ve never carried a balance nor have we gone into debt with our credit cards. We know the money is there to pay the bills so we use a credit card for nearly everything and take advantage of all the points and other rewards that each card pays us.

  • MisterBill

    For me, the “Knowledge Is Power” piece is knowing which card to use at which store, since you get different percentages back in different categories on different cards. I may care about the closing date so I can extend the free float when I make a large purchase. If you always pay your bill in full, then there’s really no need to worry about interest rates.

    • Kate

      Agree with all your points here. I have to say, your comments are always helpful, right to the point and full of useful info 🙂 Thanks, MisterBill!