Blog

The Softer Side of Credit Cards:  Ways To Make Them Work For You

Credit Cards are not all bad news, if used responsibly.  There is a lot of good to be had by using them, such as improving your credit score, no interest offers (for paying down debt) and reward points, to name a few benefits.  However, anyone who knows me and practices good money sense knows that credit cards are ONLY beneficial if you pay them off every month or by the promotion deadline so that you do not incur any interest fees.  Credit card companies are brilliant in how they trick people into paying so much extra for trivial things, so don’t get caught in a bad place.  Now, I’d like to go into more detail about how they can be help you (again, when used responsibly):

Build Credit:

Building credit doesn’t always mean for the positive, you can build negative credit too.  The way to build positive credit that works for you (using credit cards) is to keep your balance low (your debt to credit ratio) and to pay on time, preferably the entire balance, each month.  Just a FYI, your debt to credit ratio (how much debt you have to available credit) makes up about 30% of your credit score, so keeping this number low is very good for your credit.  Remember, the key here is to pay on time every month because if you don’t, not only will you incur higher interest rates and fees, but your credit score will take a hit too.

Interest Free Offers:

One of the best things credit card companies provides is a no-interest for a designated number of months offer.  This is an EXCELLENT way to get out of debt quicker and for less money.  Bankrate.com is a great resource to see what credit cards have the best rates and balance transfer offers; Credit Karma is another great source for recommendations.  It is important to understand that taking advantage of these offers is not free, they normally come with a charge, but no interest.  For example, to transfer a balance to a credit card, it may charge a 2% or 3% fee to do so.  You will want to do the math–are you going to pay that balance off on its current card in less time and for less money than it is to transfer to the new card and incur the balance transfer fee?  If it makes financial sense, do it!  If not, buckle down and be sure to pay your balance off quickly!  

I wanted to share a quick story on how we used this method to save us a ton of money and become credit card debt free.  When my husband and I got married, he came into the marriage with nearly $15,000 in credit card debt.  We decided to open up a new credit card (we chose Chase Freedom) that only charged a 2% transfer fee and gave us interest free for 14 months.  Even though we paid $300 to make the transfer ($15,000×2%=$300), it saved us over $12,000 (assuming we had continued to pay the high interest rate and the minimum monthly payment, not to mention how long it would have taken to pay off–over 10 years!).  It was a no brainer for us to pay the transfer fee to save that much in interest fees. 

The important thing to remember here is that you cannot continue to charge things to this card to make this beneficial.  Most cards will charge you interest on the new purchases–they are not included in the free interest balance transfer promotion.

Rewards:

Most credit cards come with rewards when you spend and pay off the charges.  If you are going to shop, you might as well earn something back on it.  We put all of our expenses on to our credit card to earn reward cash each month, but you can also redeem for travel, gift cards and charity purposes, to name a few examples.  Again, I cannot stress enough, if you cannot pay the balance off at the end of the month before finance charges hit, you are NOT winning.  You are NOT coming out ahead.  If your card does not come with rewards, you should look into one that does Remember, opening a new card can cause your credit to go down a few points so you only want to do this sparingly.  The above mentioned sites, Bankrate and Credit Karma, are both good for looking into a new card.  They can tell you details about several cards before you make a decision.  We use two cards:  our Chase Freedom card and our Bank of America Cash Rewards card.  Both have different bonuses each month, with Chase normally offering the best percentage back.  Find a card that is right for you and use it responsibly.  Double check if it has an annual fee–it’s rare that I find the annual fee worth the rewards (although, in 2019, I analyzed several and decided to try out the Chase Sapphire Reserve card with a hefty annual fee, but also hefty perks).

Protect Your Bank Account:

If you use a debit card frequently, you run the chance of it being scammed and your bank account being hacked.  Unfortunately and fortunately, your debit card is directly connected to your bank account, so it’s great when you want to stay within your mean, but it’s not so great if your card number gets stolen.  It’s hard to get your actual cash back in a timely manner, whereas if a credit card is stolen or scammed, it doesn’t take your actual cash.  Your credit card can be put on hold, investigated and often refund the fraudulent charges made.  Chase and Bank of America have been great for us.  Just last week, I was making an out of the ordinary buy online and Chase texted me within seconds of my attempt to make sure it was a valid attempt.  A few months ago, Bank of America realized there was a fraudulent attempt on our credit card, blocked it and sent out a new one immediately, as well as refunded the attempted purchase.

Miscellaneous Benefits:

Read the fine print of your benefits or give your credit card company a call.  I have an international trip coming up and checked with Chase to see what kind of rental car insurance they offered.  It turns out, they fully cover a rental car out of the US and gave me directions on how to make sure I rented the car properly to ensure Chase was the insurer.  

Another feature that many credit cards offer is extended warranties, purchase, return and price protection, which can include a warranty that usually extends past the manufacture’s warranty, damage and theft reimbursement for an item purchased on your card, ability to return specific items and reimbursement for a recently purchased item where the cost went down.  Again, read the fine print.  

Other forgotten features may include assistance with trip interruption/cancellation, lost luggage, travel accident insurance, roadside dispatch and other services.  Your card may offer these as a benefit of being a card holder and for no additional charge, so be sure to thoroughly review your benefits guide (you can call or email your provider to receive a copy of this in the mail).

Credit cards are not always evil!  We make them out to be so awful, but they have good qualities too.  It’s like the bible verse that is misinterpreted all of the time: money is NOT evil, the LOVE of money is evil.  It is so important to know how to use a credit card and pay it off, and if you know you are not able to pay it off each month, please do not explore getting a credit card or utilizing your existing one.  However, once you are in a place where you do not have credit card debt and can pay it off, by all means, take advantage of the above benefits!  Do you have any other suggestions on how to maximize credit card use?