What if using a credit card could actually save you money?

By: Nicole Sieber
Posted on: June 12, 2016

I remember a shortly after my 18th birthday, impatiently opening a long awaited white envelope to find my very first credit card.  I was out of school, working part-time and had minimal financial responsibilities.  When I went to work the next day, I excitedly bragged to my co-worker about my shiny new MasterCard only to have her look at me with the most condescending face she could muster and say “You’re an idiot.  I got a credit card when I turned 18 and within six months I was $5000 in debt and my mother had to bail me out.  I’m still paying her back today.  Just wait.  It will happen to you too.”  She was roughly ten years older than me and completely convinced that I was about to make the worst mistake of my life.  I wasn’t concerned.

Fast forward five years and I have no debt, an incredible credit score and I’ve actually saved money thanks to my trusty credit card.  In fact, it costs MasterCard to have me as a client.

Here’s how you can accomplish the same.

Free, free and only free

No matter what, never apply for a card that comes with any sort of annual or monthly fee just for owning it.  Remember, the goal here is to keep more dollars in your pocket, and that doesn’t happen by paying for things you don’t need.  Look for a card that advertises “No annual/monthly fees!”

Perks and rewards and discounts, oh my!

When searching for the perfect credit card, no annual fee is just the beginning.  Many cards offer all sorts of rewards for using them such as cash back, travel rewards, free movies tickets, and discounts at certain stores.  Find a card that has as many of these perks as possible and select the one that caters to what you currently spend the most money on.  Personally, I chose a card that gives me cold hard cash back, as well as discounts at a number of stores and restaurants.  As an added bonus, some cards offer an additional bonus when you are first approved.  More free money!

Use it like debit

Unplanned and unafforded purchases are how credit companies rake in billions of dollars each year.  It’s important to understand that the average interest rate on a credit card is 20% which is crazy high.  There’s also compound interest meaning you have to pay interest on the interest you already owe.  Many people see credit cards as a way to buy things that they don’t have the money for.  Wrong!  If  you couldn’t buy it in cash, then don’t buy it at all!  Use your credit card just like you would your debit card.  Buy only what you need and pay off the entire balance at the end of each month!

Control yourself

If you tend to be an impulse shopper, make sure to set a conservative credit limit.  Your credit limit should be no more than what you make in one month, or the total of your savings, if you have any.  Even less if possible.  This way, even if you go a little crazy, you can still pay off the bill at the end of the month.  Remember, we are here to save, not spend.  Paying interest is like lighting money on fire.

Use your credit card for EVERYTHING

By now you’re probably scratching your head since this concept flies in the face of what you’ve always been told.  “Credit cards are only for emergencies!”  Nope, nope, nope.  Never use a credit card as a personal loan unless you’ve exhausted all your other options.  Lines of credit usually offer interest rates between 5-10% which is far more appropriate for an emergency loan.  By using my credit card for absolutely everything, I have managed to save thousands of dollars over the years.  This is why you should put all your spending on plastic:

  1. To track your spending.  At the end of each month I go over my bill highlighting all the necessary expenses in yellow- things like gasoline and groceries  These are unavoidable expenses.  Then I take a pink highlighter and flag all of the things I consider iffy.  “Okay, so I needed a new pair of shoes, but maybe I didn’t need to spend $100 on them.”  Essentially, this category is for things that were somewhat necessary but perhaps could’ve been postponed, or things you could’ve spent less on.  Finally, I take a green highlighter and mark all the things that were totally unnecessary.  Fast food, alcohol, concert tickets, clothing, etc.  It’s not that you can’t ever have fun, it’s just that you should be aware of how much money you are spending on things that you need vs. things that you don’t.  By adding up each of these categories, it helps me to budget accordingly.  Each month I try to have less green purchases than the month before.  I also use the mobile banking app throughout the month to monitor how much I’ve spent so far.  I find that I spend less by doing this than by just using cash and then wondering where it disappeared to.
  2. To start cashing in on those rewards.  Points and cash back are accumulated based on a percentage of your monthly spending.  It’s usually a small amount, but over time it can add up to be quite significant.  If you are spending money anyways, you may as well collect any freebies you can get.  The cash back on my card is paid back as a credit on the last statement each year.  Every December I get $50+ off my bill for the month.  Sure, it isn’t much over the span of a year, but it’s $50 more than I’d have otherwise and it’s free.  If your card also offers discounts at stores you frequent, you’ll save there too.  Just be careful not to fall into the “I’m going to shop there just because I get a discount” trap.
  3. To build up your credit score.  This may be the most important point yet.  When you consistently pay off your full balance, your credit score climbs higher and higher.  People with good credit can obtain loans easier and are eligible for the best interest rates.  After following this model for five years, I have earned a credit score higher than most people twice my age.  When the time comes that I need a mortgage or any other loan, I will be less likely to need a co-signer and more likely to receive a prime rate.  By securing a great mortgage rate, I will again save thousands of dollars over time.  Do you see a trend here?

Like with anything else in life, you need to trust your gut.  If you feel that you would overuse your card despite your best efforts, then trust that feeling.  But if you know that you can trust yourself, a credit card doesn’t have to be a bad thing.  It’s all about making the system work for you.

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