There’s a lot of debate in the financial world on the topic of credit cards. Some people are in the camp that any debt is bad debt and should be avoided at all costs. Others understand the perks and potential benefits of having a credit card. While CCs can be a slippery slope for a lot of Americans, I feel the benefits outweigh the drawbacks. When it comes to credit cards, responsible usage can actually HELP you instead of HURT you in your financial goals.
Drawbacks to Using a Credit Card
First, if you are holding any balance on a credit card, stop right now and read my article on budgeting. In the third quarter of 2022 in the U.S., credit card balances jumped 15%, the highest jump in 20 years. The average American household now has almost $7500 of revolving credit card debt. This means the balance carries from month-to-month as opposed to paying off the credit card balance in full each month.
Carrying a balance on a credit card is one of the fastest ways to get into debt that is HARD to get out of. It’s not impossible, but with the average interest rates being between 19-22%, carrying a balance lends to very hefty payments. If you’re currently carrying a balance on a credit card, can I recommend you talk to Trinity Debt Management? See if they can help you consolidate your debt and pay off your debt faster. Also, feel free to read my article on paying off debt with intensity.
Not only can carrying a balance hurt you, but it can be hard to keep track of your budget. Without money coming straight out of your account, you may forget to track your spending carefully. Also, with credit cards it can be harder to feel the weight of spending a dollar. There was a study that at McDonald’s, the average credit card user spent $7 while a cash customer spent $4.50. Don’t forget $1 is $1 whether it’s on a credit card or paid for in cash. Watch adding extras just because you may not feel the weight of it.
Benefits to Using a Credit Card
If you’re not currently carrying debt and are regularly budgeting, then a credit card might help you maximize some benefits that you aren’t currently utilizing if you’re in the habit of paying cash for everything.
POINTS
One benefit to using a credit card are points and rewards. My husband and I charge all of our groceries, gas, and household expenses onto one of three credit cards. At the end of each month, or even throughout, we pay off the balances so nothing carries from month-to-month. Just putting our average expenses on a credit card yields us roughly $500-$600+ a year in cash back. We typically fund our Christmas using the money we’ve accumulated in cash back on our CCs!
If you’re shopping for a CC, think about your regular purchases and find cards that maximize cash back on those things. For our family, groceries and Walmart/Target are the main categories/stores we use to shop. I pair my credit cards that have the most cash back at those places to help me save even more money. For instance, I have a Capital One Walmart Rewards Card and earn 5% back on all of my Walmart pickup orders, which means every time I use grocery pickup, I save 5% on anything I can buy at Walmart! Explore your options and make sure you get a credit card with good perks for your categories with the most spending.
perks
Another benefit to having a credit card is the perks that come with them. For instance, my Chase Freedom card comes with Auto Rental Collision coverage for free if I pay for a rental car through this credit card. This means anytime I rent a car and they try to offer me protection on the vehicle for $100+ extra dollars, I can decline the coverage knowing if something happens, I can file a claim through my coverage from my Chase Freedom. It also offers extended warranties for purchases and roadside dispatch services just for the no annual fee card I hold.
bonus cash back
On top of regular cash back and perks is the bonus cash back categories. My husband and I bank through Chase and utilize the Chase Freedom as one of our cards, and right now, I have 83 offers through our checking and credit card accounts. Some of these include things like $10 back on turbotax, 10% back at petco, 15% back on Disney+, 10% back at Panera, $20 back at Dropbox, etc. So if you can time these right and you’re in need of something at one of the retailers, these can offer more bang for your buck at these places.
Also, my Chase Freedom has quarterly 5% cash back categories, which just so happen to be Target, grocery stores, and Fitness Clubs/Gym Memberships currently (1/1-3/31/2023). If I see a category like groceries or gas as one of the 5% categories, I’ll shift this spending to this card for the quarter to maximize my cash back.
Conclusion
Overall, credit cards come with some great perks. Just because you’ve been told credit cards can be dangerous doesn’t mean you can’t use them responsibly. And rack up lots of savings while you’re at it. If you know how to budget and you’re looking to make extra cash, use a CC instead. Just switching from one card to another may mean hundreds more in your pockets, which may just fund your Christmas.
Do you have any advice for regular use of credit cards? Do you have any favorites for maximizing cash back?
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