Credit cards get a bit of a bad rap in the personal finance world (I suppose for not entirely un-justified reasons), but (just maybe) it could be time to re-evaluate your relationship with credit cards.
But first of all…
If you have lots of consumer debt or if you can’t walk past a cute purse or awesome pair of jeans without pulling out your card, then this post is NOT for you. KNOW THY-SELF. A HUGE step in the direction of intentional living… know yourself. Be unwavering about what is ok for you and what is not, regardless of what anyone else recommends. I wouldn’t watch a horror movie or an episode of Bates Motel, not even for a thousand bucks. I know myself, and If I know something is going to be massively detrimental to me I stay away from it. (I’m getting off the soapbox now.) Credit cards can be your best buddies, but they are fickle buddies – they’re only good to have around if you are in control of your money!
The benefits of credit cards
SO assuming that you ARE in control of your money, there are a few massive perks to having a credit card – I have many! (And I do not carry a balance on a single one of them.) Once you know how to make a credit card work for you, they can SAVE you money. Not to mention that they’re excellent tools for building good credit, and good credit is important for a healthy financial future.
Good credit comes (partly) from having a reputation of paying bills on time. It is cumulative information gathered from many different sources, (utility bills in your name, a mortgage, a car payment, a credit card.) Every time you pay a bill on time, you win. There’s more to credit than just that, but it’s a good place to start. If you, like me, live debt free – that means there isn’t necessarily a car payment or a mortgage reporting in your favor. A credit card can really help to boost your credit score. Make small purchases (like a tank of gas or groceries – something you would be buying anyhow) and pay them off immediately.
I have a credit score of over 800 (which is very, very good), and we have never had a mortgage, never had a car payment and I have no utility bills in my name. I have built my score entirely with credit cards. (However, you CAN build a great credit score without a credit card too!)
I make these cards work for me – I save money by using them. I have a no -fee card (I never pay to have this card) through Costco that gives me back 2% on all purchases. Some years it’s a lot, some years it’s not – depending on how much I used the card. This year I got $42.00, but last year I got over $200.00. I put absolutely ALL my purchases on a card that earns me something; if I’m spending the money anyhow I might as well reap the rewards! (Read about how I get rewards credit cards without qualifying for the minimum income, It is TOTALLY POSSIBLE!)
I also have a card that does have a fee, but we travel a lot and it’s an amazing travel rewards card. We get free airport lounge membership with it, and the card costs less than the membership so that in itself is a savings. Just for signing up for the card we got $300.00 in travel credit, and since using it almost exclusively for a year we now have $900.00 in travel rewards on it. That’s $900 we wouldn’t have if I didn’t use this card!
(The credit card rewards available for travel are so intense that there’s actually been a system developed for taking advantage of those rewards – travel hacking!)
Purchases made on a credit card are often protected – for example, in 2012 when Air Australia went bankrupt, we had flights booked from Brisbane to Bali. If we had paid cash (debit card, check, or gift card) for the flights we would have been out of luck… but because we purchased them on credit card, we were refunded in full. (You should check the specifics of your card to learn more about this.)
Where to start
If your thinking of delving into the credit card world (or maybe back in after a bad experience), start with a no-fee card that comes with a tiny little limit. Don’t be afraid to ask the card company to reduce your limit to the minimum amount! Make sure you can trust yourself with that credit, and PAY THE BILL IN FULL EVERY MONTH. The credit card companies make money on your failure, so they want you to fail. But YOU are in charge of you, so you don’t need to fear the card. Credit cards have been a great financial tool for us in so many ways.
What’s been your experience with credit cards? Would you disagree that the risk is worth the rewards?