Money Lessons: Credit Cards

I feel credit cards are a great financial tool when used right. If you’re disciplined with your finances, credit cards should enable you, not hold you back. I prefer to use my credit card for almost everything and try to stay away from using cash.

• If you pay in full, you’re essentially getting an interest-free loan on your purchases. The money earmarked to pay off that purchase can then be put into a high yield savings or checking until payment is due. The amount is nominal, but I believe your money should always be working for you. Generally every $100 earns you 41 cents give or take at 5% for one month. I used $100 x 0.05 / 12 btw. So if you’re someone that charges $2,000/month. That’s about $8.30 you’ll earn in interest or $100/year. $100 ain’t much, but it’s essentially free money.
• Add on the cash back rewards you get for purchases too makes it sweeter. My Citi card gives me 5% cash back on gas, supermarkets and pharmacies. I get 1% back on everything else. So why pay cash when you can get a free 5% discount on all those types of purchases? Generally it’s best to have multiple cards that give you different cash back rates on different categories so you can maximize your cash back.
• You get a statement at the end of the month for all your purchases. It’s convenient because you can see how much you spent for things and can easily reference how much you paid making recording your expenses a lot easier. I can reference exactly how much I’ve spent on gas in the past year. The only time this would be a big disadvantage is if you wanted to hide certain things from a spouse or whoever.
• Another big convenience is you don’t need to carry cash. If you get pick pocketed or lose your wallet, you aren’t liable for any charges on your cards. You also limit your cash losses. There’s no need for the merchant to give you change, so you don’t have to carry around coins that hurt your arse.
• Line of unsecured credit anytime you need it. If any sort of emergency arises, you have a line of credit to tap into.
• Build a credit history easily. There are a lot of myths out there regarding credit cards, I won’t get into a lot of them, but most people think you need to carry a balance to build your credit history… it’s false! As long as you have the credit account, you’re “building credit history”.

Those are my reasons why I value credit as a tool. It’s a great tool for anyone that’s disciplined enough to control their spending. I know it’s not for everyone and a lot of people out there shouldn’t have access to credit at all.

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“Money Lessons” is a series of posts on various subjects that detail what I’ve learned or how I view that certain subject. View all “Money Lessons” posts.