Use Credit Cards Wisely

Credit cards get a bad rap. There's no doubt they can get you in a lot of trouble. You can use them to your advantage and not the bank's. I've used this technique for years and haven't paid any interest or fees. Think of credit cards as a transactional tool and not a loan. In other words they aren't a line of credit but a way to use someone else's money for free for a time. As soon as you swipe that card think of the money as gone because it is. The three advantages of using credit cards I'd like to focus on are: interest free float, rebates, and more protections than cash.

Interest free float. What a nice idea. If your credit card has a grace period, and most do, you have the free use of the issuer's money until it ends. Let's say you charge something on the 15th and the statement doesn't cycle until the 5th. That gives you 20 days right there. But wait, it gets even better. Once the statement cycles on the 5th you'll have 20 days or so from there to pay the bill. That puts you at the 25th or later for the next month. That's around 40 days that you've had the benefit of money that isn't yours. Oh and it's been interest free for you. This absolutely will not work if you carry a balance of any kind. Once you are carrying a balance your charge works against you immediately earning interest for the bank. The problem with this technique today is interest rates are so pathetic you don't earn much on your money. Even earning no interest it's nice to use money interest free.

Rebates are the biggie for me. Earning a percentage back for each charge is nice. It used to be credit cards didn't have rebates. Now it's hard to find one that doesn't. If you spend the same amount on the card you would using cash, and you're not paying interest or fees, then you come out the winner. It's been argued that people spend more on a credit card than they would using cash. Make sure you don't do this. Easy enough right? Some rebates include frequent flyer miles, gift cards, and cash. I focus on gift cards and cash for myself. Figure out what you'd like to receive as a prize and find the card that gives you the most of that. Another thing to remember is try to find a card without an annual fee. This is hard to do with frequent flyer cards. You can look at it as a little savings account in which you're building your way up to a check or gift card.

Credit cards have more protections than using cash as well. Per federal law in the US you're only responsible for $50 per credit card for fraudulent use of your card. Many card companies don't even charge you that. Also when you charge something, like say an auto repair, if they do a bum job on your car you can contact your card issuer and dispute the charge. Try doing that with cash or a check! So look at charging something on a credit card as giving you an added layer of recourse. There are many people out there who put pretty much everything they buy on a credit card and carry very little cash. You don't have to worry about carrying a wad on you if you do it this way. Plus it makes record keeping easier.

Credit cards can be used to your advantage if used a certain way. You're playing with fire though, so be very careful. I want to add one more thing. I would not take out cash advances. You'll end up paying a fee of 3-5% of the withdrawal amount and you end up paying interest immediately. No grace period on cash advances. Also the interest is usually a higher rate than purchases. The banks want you to pay interest and fees. That's how they make their money. Just say no!