To the smart investor, a credit card presents new opportunities and possibilities – and that doesn’t just mean picking out the best rewards credit cards. Clever use of a credit card forces you to reevaluate your spending, to budget, and to build responsible habits. This in turn leads to better rewards, credit scores, allowances, and so on. Using your credit card wisely puts you firmly in the realm of investors and money managers while also giving way to pleasures like free plane tickets and cashback.
Here are our 6 Simple Ways To Get Your Credit Card To Work For You:
Compare card for maximum rewards
Match your rewards to your lifestyle
Keep an eye out for better offers
Read the fine print
Check your statements every month
Use the card for the bonuses, not a bigger budget
1. Compare card for maximum rewards
If you’ve seen the latest offerings, you’ll know that credit cards are a competitive market. Each bank is fighting to keep customers interested, and that means broader and better options for buyers. Sign up bonus can range from a usable 60,000 points to a juicy 120,000; One card might offer only travel insurance, while another might offer six separate insurance types. It’ll certainly take some time to sort through the many banks and their many card types – business, everyday, premier – but the upside is a year of tailor-made benefits.
2. Match your rewards to your lifestyle
The big selling point for a credit card are the bonuses and rewards. Whether that’s a bundle of loyalty points upfront, discounts, or travel insurance there’s something for everyone. The mistake is thinking that this is enough to change your lifestyle. Instead it should supplement it. If you’re the type who holidays often, you’ll want to choose a travel-centric card – one that pays back with travel offers and hotel discounts.
And if you’re not the type to holiday, why jump for those when you could be getting loyalty points and discounts at stores you’re using daily? For example, credit card points can be spent on general goods like furniture, gifts, and appliances – so by consciously using your card you can be paid back with a new washer or refresh your wardrobe. And beyond that, cards can offer complimentary insurance on things like transit accidents, rentals, and purchase protection.
But besides these great bonuses, it’s important to align the rates and required spending amounts with your current spending. Often there are criteria for which purchases are eligible and there are always minimum spending amounts placed in the first three months of owning your card.
3. Keep an eye out for better offers
Cancelling cards too quickly can hurt your credit score or future applications, but getting too comfortable with a card has its own issues. After the first year annual fees often go up, and sign up bonuses run out. Like the flowers in spring, new cards and offers appear each year. When they do, it’s time to consider a new card.
Just remember that during this switch there will be roadblocks. You may spend a week or two without a credit card, and you’ll have to switch over any recurring payments you’ve set. It's these inconveniences that keep many credit card users from hopping on to the next deal, but keep in mind the bonuses are often worth hundreds of dollars or more and the second year of using a credit card often costs hundreds more.
4. Read the fine print
The more you know about the terms and conditions of a credit card, the safer your spending and use will be. You should always do your research and reading when signing up for a card so that you’re not surprised by lesser known fees or drawbacks. Before you apply, learn the interest rate, how many interest free days the card offers, which payments are exempt from these days, and whether there is an impermanent introductory rate.
5. Check your statements every month
Knowing your spending habits and watching for discrepancies is key to managing a credit card. No one else can do it for you, so pay attention and keep your payments within your budget. If you do miss a repayment, your statement will tell you when the interest will roll over again, and allow you to prepare.
And in the case that you do find a discrepancy or unusual purchase, it’s always worth flagging it with your credit card provider as you don’t want to be paying a premium on items you haven’t bought.
6. Use the card for the bonuses, not a bigger budget
A credit card does not give you any real purchasing power, nor does it instantly give you financial independence. But it can help you get there – so long as you’re spending conscientiously and strategically.
The primary benefit of credit spending is that it allows you to coordinate your spending without planning around your payday. If you treat it simply as a rewards card for your current lifestyle, you’ll not run the risk of racking up credit card debt or buying outside of your earning. Keep in mind that credit card rates run up to 20%p.a., and whenever you spend more than you earn that rolls over into debt.
The key to all credit cards is paying on time. If you can do that you’ll be earning points and enjoying benefits with no downside. Choosing the best rewards, and changing cards when it’s beneficial are secondary to this because the debt incurred by failing to pay for even a month takes a major bite out of your bonuses. $1,000 compounded at 20% p.a. becomes $1,219 by year end, and will only continue to grow. If you consider a credit card too great a temptation then simply use a debit card or look into lower interest lending methods.
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