5 Benefits of Using Credit Cards
By Matt - Friday, April 25th, 2008
Debbie Dragon is a writer for Creditorweb.com, where she writes about credit card offers, responsible credit card use, and rewards programs.
With all the focus on getting out of debt and paying off high interest credit cards, you might be wondering why I would suggest using credit cards to improve your financial situation. The truth is, there are a number of reasons why credit cards can be beneficial to your finances – it’s really all how and why you use them. Here are 5 ways to make credit cards work to your benefit:
- Find a credit card with a rewards program that will actually reward you – based on how you use your card. For example, if you only travel once every four years, a frequent flyer program or free hotel program is not going to be your best option. Look for rewards that allow you to earn on all of the purchases you make using the card, and that offer rewards in the form of cashback or merchandise that will actually benefit your lifestyle.
- Use 0% balance transfer offers to avoid paying high interest on older balances, and focus on paying off all outstanding credit card balances. This will allow you to get into the habit of using a credit card for all of your monthly purchases and paying it off at the end of each month to avoid interest, yet still benefit from the rewards program. This only works for individuals who use one or two credit cards at the most, and who are not carrying a balance from one month to the next.
- When in need of purchasing a large ticket item, use a credit card with a 0% interest rate for six or twelve months to give yourself more time to pay for the item without paying interest or finance charges. Take the total price of the item and divide it by the number of months you have an interest-free promotion to find out how much you have to pay per month to have the purchase completely paid off by the end of the promotional period. Keep in mind if you are late with a monthly payment, you will probably lose your interest-free status, so do everything you can to keep up with your payments on time.
- Don’t close your unused or paid off credit cards. Many people believe that reducing the number of credit cards on their record will improve their credit score, but the reverse is actually true for most people. If you close out your unused or paid off credit cards, you start reducing the amount of credit you have available. As the amount of credit available decreases, your debt to available credit ratio increases – making it seem as if you’ve charged almost all that you are able to charge; and putting you into a risk pool. This will often result in a lower credit score, even if you’re making your payments on time. It’s better to have more credit available – just don’t go on a crazy spending spree because you know it’s there!
- Credit cards frequently offer additional benefits in the form of purchase protection coverage, extended warranty coverage, and various travel insurance coverages. They don’t cost anything more but provide you with protection you can use if needed.
This entry is filed under Debt.
2 Responses to “5 Benefits of Using Credit Cards”
1 ben @ Trees Full of Money says:
April 25th, 2008
at 9:21 am
#2
One of the most helpful things for me when I started getting serious about paying down my debt was to roll over about $15K worth of credit card debt to a new USAA credit card at 0%. They didn’t even charge me a “transfer fee”.
I saved almost $230 a month in interest alone!
Credit cards do have their place in a solid financial plan as long as they are used wisely and not abused.
Good points!
2 jonathan says:
April 28th, 2008
at 11:07 am
My wife and I have recently moved to making all of our monthly purchases with a credit card (groceries, gas, etc) and one benefit we noticed is that the purchases “clear” a lot faster.
It totally helps us keep track of our finances and balances because we’re not constantly waiting for a debit card purchase to resolve with the bank. It’s almost instant with the credit card.
It definitely makes keeping our finances in check a LOT easier and less painful so we’re way more responsible with it now.
It’s a point that we never even thought of when we started and even now seems inconsequential, but has had the biggest impact on how we manage our money and stay on top of what we’re spending.
And it helps us segment our money. Now the credit card is everything that we spend, and the checking account is everything that we make. It makes it a lot easier to see what is coming in and what is going out.
There were just a lot of benefits that are hard to quantify but made a HUGE difference.
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