Now before you go all “Dave Ramsey says..” on me this post isn’t about getting into credit card debt or even spending without a plan. It’s about what you can gain using a credit card, if you use it with strategy.
Traditionally using a credit card is a bad idea. We all know how detrimental credit card debt can be. I certainly do. I carried credit card debt back in the day before I got smart. Sadly according to the latest research credit card debt is skyrocketing again and half of American’s feel insecure about their financial situation.
If you can’t stick to a very strict plan using a credit card this post is not for you. You need to read my book How To Get Out of Debt Living Paycheck to Paycheck and take my Financial Freedom course.
Now that said, if you can use a “no annual fee with rewards credit card” in a smart way read on. And note this only applies to a no annual fee rewards card that you either get cash back on or that provide points for something you use anyway, like travel points. Not just a standard credit card with no perks.
3 Reasons to Use a No-Fee Rewards Credit Card
1. You travel for work and your employer reimburse you. Or if you regularly get reimbursed for other purchases. This is a great way to either make cash back or get travel points without spending your own money!
It’s especially great if you use a credit card with an airline carrier and your employer lets you keep the mileage points. That way you earn points both for flying and for the ticket price. And, don’t forget the hotel and rental car points as well. If you travel a lot you can fly on vacation for free or for a lower cost courtesy your employer’s money.
If you struggle with credit card debt you may be too tempted to use your card for personal use. If that is the case this is going to cost you more than it’s worth. Don’t play with fire!
2. You strategically use your credit card for things you would use your debit card or cash for like gasoline, groceries and utilities. This one requires discipline. Let’s say your food budget is $100 per week. Go to the store, swipe your card, immediately get on the computer and make a $100 payment on that credit card from your checking account.
You get cash back or travel points but you use your credit card temporarily before using your cash.
3. No matter how much I tried to come up with a third reason I couldn’t. This is where you come in. I would love to hear how you strategically use a no-fee rewards card without going into debt.
Leave a comment below and let’s learn from each other (any rude, snarky comments will be deleted).
For protection when making purchases online with companies I had not dealt with before.
Should the vendor not give me what was promised, I have the ability to claim the money back from the credit card issuer – there is protection with debit cards too, but for some reason not to the same extent as credit cards.
I should add that I have never had to make a claim from my credit card issuer, but it gives me peace of mind to know I can!
Rick Siderfin recently posted…Step By Step: How to Write a Salesletter (Even If You’re Not a Copywriter)
Good point Rick. I know you have the same/similar protection with a debit card but then you have to be out with the money while you’re waiting for the issue to be resolved. I’d rather not be the one out with money.
Camilla,
This is great advice. I’m in the process of reviewing different cards for the purpose of work travel. I really liked the idea of paying with the CC then immediately making a payment to the credit card account. That alone was pure genius. I wish I would have thought of that.
Eric recently posted…My biggest regret
Thanks Eric. There are cards out there like Chase that allows you to use the points for any airline and often have deals when you get 50,000 points if you sign up.
We do number 2 but subtract it from our checkbook like its a debit purchase. We make sure it’s within our budget if it’s something that is not a need but a want.
That’s a great way to do it 🙂
Actually I don’t use them. Ever. As you know Camilla. But that’s because we’ve been burned by them before through our own misuse of debt. So I just don’t play the game anymore. I also posted recently about how Travel Hacking and reward points actually is based on someone somewhere getting into debt. So I don’t use them since I want to encourage the responsible use of credit.
That being said I do know people that use them responsibly. But study after study still shows that people spend more with credit (and to a lesser extent debit) than with cold hard cash. So there is that. If you want to read a scholarly paper on this Google
Monopoly money: the effect of payment coupling and form on spending behavior.
The third reason that Rick listed isn’t one I’d use, you have the exact same protection on debit for Visa and MasterCard as you do credit, the only hassle is that your money may be out of your bank account for longer but it will come back. But if you live with a budget and emergency fund then this is able to be covered.
For extra protection both Visa and MasterCard also offer services to use online that prevent your real number from being entered which adds another layer and if you really want to go whole hog you can simply open a second account and use that one with debit for online purchases. Only transfer into it what you need to spend. That’s even safer than online credit card use.
Instead the third reason that I can consider it is the convenience of using it during travel to not have to deal with travel checks and cash, especially foreign travel. But even there I still choose to use debit and I’ve done it successfully.
Scott
Scott Maderer recently posted…Is Travel Hacking a Sin?
I’ve learned during my travels that sometimes you can’t use cash at all. Only cards. So for someone who travels a lot using a card that doesn’t charge extra transaction fees has saved me a lot of money. That 3% adds up. I have a feeling more and more debit cards will start offering more rewards to capture more customers. Which isn’t a bad thing.
I think everyone is entitled to work their finances however works best for them, whether that’s credit cards or cash. But if we are honest, your statement of “If you can’t stick to a strict plan…this isn’t for you” pretty well disqualifies the majority of people from being able to take advantage of card benefits without racking up debt. But if you are part of the small percentage that can actually manage your personal finances well, then yes, the benefits can be rewarding.
I’m definitely for everyone creating their own version to make sure their finances work for them. And yes, if you can manage your finances reward cards can be great. But managing your finances even without rewards should be a goal 🙂
Similar to the protection issue, for a free extended warranty. Many cards double the warranty of certain goods for free. If you have the cash to pay it off and your card doubles your warranty then that might be a third reason provided that you pay it off in full right away and aren’t overspending.
Nick recently posted…The reason your husband thinks you’re nagging him (that he will never admit…)
American Express has an awesome warranty…they double any manufactures warranty so on my iPhone I get two years instead of one. Has saved me a few times as they always break about a month after a year! Good point Nick.