I have a friend that uses his credit cards all the time. When I told him that he was not very smart to use them so much, he said “I don’t use them as credit cards. I use them as charge cards and actually make money when I buy things.” What is he talking about?A man has a car payment that is $400 per month and is due by the 5th of the month. If he pays it before the 5th, he receives a $5 discount. After the 5th, the amount due is $475, the amount of the payment plus a penalty of $75. Every month he never pays it by the 5th and winds up paying the extra $75 penalty. At the end of the year he has paid $900 extra and lost $60 worth of the discount.
When you buy anything on a credit card and do not pay it off, you are doing the exact same thing… throwing money away!
DO NOT use your cards for credit. That means you are borrowing money and are therefore charged interest, charged a lot of interest. You can use the card correctly by treating it as a charge card. You pay a charge card off every month and you never pay a penny in interest.
How do I get a charge card?
If you have a credit card, you have a charge card. The credit card companies do not want you to use your MasterCard or Visa as a charge card because they do not get paid exorbitant interest from you! If you use your credit card to buy things all month and then pay it in full when the bill comes, you are charged zero interest. An added benefit to doing this is that you do not carry large amounts of cash on your person.
There are some cards that actually pay you to use them. Discover was one of the first cards to do this. Now, there are many “reward” cards out there. They pay you from 1% to 4% on all your purchases. For example, if you have a card that pays 2% and your spend $1,000 per month, at the end of the year the card will have paid you $200. All this for doing nothing more than charging items you normally would have used cash to purchase.
WARNING…! This only makes sense if you NEVER run a balance and are never charged interest. If you do run a balance, the interest you are charged will be much larger than any reward cash you would ever earn.
If you have paid off any balances you owe on your credit cards. If you have the strength and commitment to pay them off every month, no matter what. A reward card can pay you money for nothing. You may not get rich from the cash back, but anytime you are offered money for something you would do anyway, take it!