On a previous post I talked about how we made paying our bills simple. The strategy is to use our credit card and to automate bill payments. This saves us time by eliminating the need to manage the task weekly. Click here to read the post.
Most personal finance advisors will tell you to pay cash for all purchases to avoid debt. That is true if you are not a disciplined consumer. I do not recommend using a credit card if you do not fit in this category. If you live below your means and are not subject to compulsive buying, then using a credit card is the smarter way. You can beat the credit card companies at their game.
Credit card companies provide benefits to using your card. This is to encourage you to use the card. They want you to spend money and carry a balance each month. If you carry a balance, then you pay interest rates. This is how they make money. Again, I do not recommend using credit card for purchases that you cannot afford to pay in full. This is important to remember.
Here are some benefits to credit card purchases. Depending on your card, some or all may be available to you. Check your credit card benefits for exact coverage. I make a habit of calling our credit card company to ask for details specially when we travel.
Using a credit card adds a layer of protection on purchases. Items are protected from theft and damage for 90 days after purchase. Charges may be reversed in case of a dispute with the merchant. Manufacturer warranties are doubled and extended up to another year. Price protection guarantee is available on certain purchases up to 60 days.
Some cards offer a concierge service for dining out, entertainment, buying gifts, coordinating business arrangements and credit card related questions.
Most cards provide protection from identity theft. You are also protected from unauthorized purchases. My credit card company is great at notifying me on unusual purchases which we make once in a while.
An array of travel services is also available including road side assistance.
If you travel using common carrier (plane, bus, etc…) you are provided life and dismemberment insurance. You also receive rental car collision damage coverage which allows you to save on rental cars. Even delayed, lost or damaged luggage, trip cancellation and hotel burglary insurance are included automatically without extra charge when you travel and use your card.
Certain credit cards come with a rewards program. The most popular offers are mileage points and cash back. For our family, we use a card that offers mileage points that do not expire. The points can also be redeemed for products or for gift cards. By using one credit card for all purchases, we are able to accumulate points faster. Plane tickets for our last vacation were free courtesy of our rewards points.
Before using credit card for all purchases, we would make a trip to the ATM to withdraw cash regularly. We also had a tendency to withdraw more money than needed just in case. This type of behavior contributes to overspending. Since we already have the cash in hand or have “spare change”, the tendency was to spend it. So for us, using the credit card actually saves money.
Another great benefit is the ability to track our finances better. Since all purchases are done by credit card, all expenses are recorded. We also receive a yearly statement to get a comprehensive view of our annual expense. If you want to be on the path to financial freedom, this is a great tool. It allows you to see exactly where your money is being spent. This will help you identify which areas you can cut back on.
Do you have other tips on how to use credit card wisely? Please share it by leaving a comment.