Welcome to Q & A Wednesday on Millionaire Habits, where I answer one of your weekly questions for everyone’s benefit.
💡 Question: “Steve, I read that using credit cards can save me money. That’s hard to believe. Is it true?”
Credit cards are a…dicey topic, to say the least.
On one hand, Americans’ credit card debt balance has surpassed $1 trillion for the first time ever. Clearly, our quirky love affair with plastic has sunk a ton of people into deep, seemingly inescapable debt.
But on the other hand, responsible credit card use is one of the smartest ways to spend money. Those colorful plastic debt machines, when used correctly, offer huge benefits.
How can credit cards save you money? Let’s go.
How to Save Money With Credit Cards
Credit cards offer a wealth (<– see what I did there?) of opportunities to save money. The key is paying them off every month. Otherwise, they drain wealth.
So before I go any further, understand that point I just made.
For credit cards to save you money, you must pay them off every month.
That’s not optional. It’s a requirement.
How can credit cards save you money?
- Cashback and Rewards: Most of us know that credit cards offer cashback and rewards points on a percentage of your purchases. These rewards can add up over time and be used for future purchases, effectively giving you a discount on your spending.
​ - Travel Benefits: Some credit cards offer travel-related perks such as airline miles, hotel discounts, and access to airport lounges. My wife and I have flown for free many times because of the travel perks racked up from our credit cards. Nothing like free flights (and hotels), eh?
​ - Introductory Offers: Many credit cards offer introductory 0% APR (Annual Percentage Rate) on purchases and balance transfers for a limited period. This can be a great way to save money on interest if you need to make a large purchase or if you’re carrying a balance on another high-interest card.
​ - Consumer Protections: Credit cards often come with consumer protection features like extended warranties, purchase protection, and fraud protection. That means you might not need to fork out extra money for that “extended warranty” that so many stores reaaaaaally want you to buy.
​ - Budgeting and Tracking: Credit cards can make tracking your spending easier since most issuers provide detailed statements. This helps you identify where your money is going and potentially find areas to cut back and save money.
​ - Building Credit: A strong credit history can lead to better interest rates on loans and mortgages. Using a credit card responsibly and making timely payments every month can build and maintain a good credit score, saving you money in the long run.
​ - Emergency Expenses: Having a credit card can provide a financial safety net in case of unexpected expenses or emergencies. It can help you cover immediate costs and give you time to manage your finances without resorting to high-interest loans.
​ - Discounts and Offers: Some credit cards provide access to exclusive discounts and offers with partner merchants. These deals can help you save money on everyday purchases and services.
​ - No Foreign Transaction Fees: If you travel internationally, using a credit card that doesn’t charge foreign transaction fees can save you money on currency conversion costs.
Clearly, credit cards provide a ton of benefits, provided you:
- Pay your balance off every month
- Don’t spend extra money just for the points
- Be aware of annual fees that some cards charge
If you’re responsible with your credit card, use it. If you aren’t sure what benefits your credit card provides Google your card and find out.
Chat next week,
– Steve
