Wise Ways To Use Plastic

Some people like to live on the edge and believe they can “afford” anything they can buy with the amount of plastic credit they’ve managed to fool financial institutions into allowing them. These are the same spend-happy folks who skate by buy paying the minimum balances on their accounts, oblivious to the interest that’s stacking up against them.

Credit cards are an effective tool for those who are smart with money, though. Kimberly the Alpha Consumer suggests some ways you can own credit cards rather than let them own you.

Kimberly recommends using credit cards for as many purchases as possible in order to streamline your cash flow and maximize rewards, but only those who pay balances off in full every month will take advantage of such a lifestyle without cannibalizing any potential rewards.

She also advices avoiding the trap of losing track of your expenditures. If you stop tracking your expenses, it’s easy to lose financial discipline and start spending more than you would if you used cash for everything.

What do you do to make sure you dominate the credit card game?

5 Smart Ways To Use Credit Cards [Alpha Consumer]

Comments

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  1. Thyme for an edit button says:

    I have regular bills autobill to a credit card such as my phone bill, car insurance, and storage unit rent. I pay it off every month and get the points.

  2. CanadianDominic says:

    I switched to buying EVERYTHING on my credit card this past summer. At the time I had a 2000$ balance, but I made some rules. I started by adding the interest+minimum payment and doubling it as “my minimum payment.”

    Everything I bought, I kept the recepit in my pocket and -that very night- I would transfer the money from my chequing account onto the credit card, the catch is I would tax myself 10%.

    For a purchase of 80 dollars, I would pay 88. For a smaller purchase, of lets say 24.99 I would pay 28$ (always rounding up to the closest dollar).

    Since July I’ve halved my balance without barely noticing it at all.

    As soon as its down to zero, I’ll start making microtransfers into a savings account since I have unlimited online transactions with my bank. Its an easy and almost completely painless way to chisel away at your credit card balance.

  3. quoterageous says:

    You shouldn’t pay pay for anything with a credit card, in fact you should only have one credit card for emergencies. Using credit cards for every purchase will almost alway get you in trouble. Use your credit cards to buy small things and pay for it as soon as you buy it. I really do not agree with this or post.

    • NeverLetMeDown says:

      If you want to take greater risks and pay higher prices for products by paying cash, fine by me.

      • AdamM says:

        How are you paying higher prices?

        I’ve never seen something offered cheaper when you buy it with debit instead of credit.

    • tomz17 says:

      Sounds like you lack self control! I pay for EVERYTHING with credit card cards (thousands a month). The trick is that I pay them off in FULL every month (actually have it set up for automatic electronic transfer for the full balance amount) and just enjoy the benefits :

      - Don’t have to carry around cash… no change in my pockets!
      – One month of free interest
      – Faster checkout (esp. on smaller non-signature purchases)
      – Purchase protection (can dispute/chargeback)
      – Stolen card protection (my max liability is $50, and most of the time it would be $0 !)
      – Double Warranty on items purchased
      – Free auto rental insurance

      and REWARDS… i’ve racked up $1000’s in cashback and hundreds of thousands of airline miles in the past few years!

      The CC companies have not made a penny on me… The schmucks that are paying the minimum balance every month and the merchant fees are funding my credit card benefits!

      • zifnab0 says:

        You are paying the credit card companies through merchant fees. When more people use credit cards, retailers will raise prices to cover the increased cost (if 50% of the people use CCs, they raise prices by 50% of the merchant fee, when more people use CCs, they raise prices even more to cover the increase).

        You’re probably getting more out of Visa/MC than you’re paying in, but you’re certainly paying the CC companies.

        I also use credit cards for just about every purchase, and I’ve never paid a cent in interest. But I do know that I’m paying the CC companies when I use my card, if indirectly.

        • Putaro says:

          There’s a cost to cash too you know. You have to count it, secure it, take it to the bank, keep change in the cash drawer. It’s probably cheaper than 3% but it’s not free.

    • balthisar says:

      Why not? What example of “trouble” can it get you into? I only use cash for the coffee club at work, and have been using only credit cards for 100% of everything else for over 10 years now.

    • Gort42 says:

      Only if you are not consistent about paying. I’ve been doing this for 4-5 years now and haven’t paid any interest at all and have gotten hundreds in rewards back. For the financially responsible, it is free money. If you are really worried, just pay into savings whatever you charge on the card and use that to pay the bill.

    • Telekinesis123 says:

      I use it all the time, as long as you’re in control of yourself it is a useful tool so you cannot generalize everyone. If a person has no will power in that area and is unable to control themselves then no they should not use them until they gain that skill.

    • RandomHookup says:

      I think you need to substitute “you” with some other reference, such as “many people” or “I”. I haven’t gotten into any real trouble in all the years of using a credit card. I don’t use them for every purchase, but I do use them for non-emergencies.

    • myCatCracksMeUp says:

      I’ve gotten over $900 back from my CC every year for the last several years by charging every single thing I can to the CC. I’ve even used it to pay for a new $10K heating/AC system in my house. I pay it off in full every month and pay no interest.

      AND I don’t think I spend any more than I would if I used cash only. I certainly save lots of my income.

    • obits3 says:

      “in fact you should only have one credit card for emergencies.”

      I disagree. What if your issuer suddenly drops the credit line, during an emergency? I’ve seen it happen to people (especially at the start of the financial crisis).
      You should have two credit cards for the same reason you should have two or more banking institutions: so you can play them against each other. If one treats you bad, go to the other.

      Also, your view of a credit limit as emergency money is flawed. Why? A credit limit isn’t “extra money.” Thinking that it is extra money is what got a lot of people into trouble in the first place.

      I’m sure you mean well, but there are a lot of good reasons to have a credit card.

    • davidsco says:

      WRONG. You just have to have a brain and sense of control. I pay for EVERYTHING with my credit cards, pay them off every month and reap the rewards. I make about $600 a year in cash back rewards

    • Loias supports harsher punishments against corporations says:

      A comment about never using credit cards ever is, a Troll.

  4. Blow a fuse? I can fix that... says:

    I have two credit cards, and I use ‘em for all my purchases. I recently realized that I hadn’t had a scrap of cash in my wallet for the past several months.

    I pay my credit card in full each month, and never carry a balance. I also don’t spend more money than I can afford to pay off. Doesn’t matter one bit if you pay with cash or credit, and credit happens to be a lot more convenient, and the monthly bill gives you an easy way to get an overview of your spending.

    • Mr. Fix-It says: "Canadian Bacon is best bacon!" says:

      ” I recently realized that I hadn’t had a scrap of cash in my wallet for the past several months.”

      I’ve had this happen to me before, except in Canada, pretty much anything can be paid for by debit card. It actually screws me up when I go to Tim Horton’s, which remains the only institution in Canada I’ve ever seen that does NOT use the nation-wide Interac system. they will take Mastercard, but only on purchases of $25 or better…

      And really, unless you’re grabbing coffee for the whole office or buying gift cards, who drops $25 at a coffee shop?

    • TehLlama says:

      I’ve gone months without realizing I hadn’t used cash… it seemed foreign. To be fair part of this was the cash truck not making it out to our miserable piece of Afghan paradise, but that 8 months stretch mostly in DC was financially unremarkable otherwise.

  5. AdamM says:

    If you’re going to pay it off at the end of the month anyways? Why not just use the debit card? Unless you’re one of those people who live on the edge of between overdrawing and not overdrawing your account.

    Maybe I just don’t understand the appeal to constantly use credit for everything.

  6. Supes says:

    I use a new credit card every month, to pay off the balance to my old one. It’s an awesome cycle where I never have to actually pay back any purchases.

    • AustinTXProgrammer says:

      If you can keep this going till you die than perfect! I know you jest, but it has always been tempting, but I doubt I could keep it going 50+ years.

      Instead I pay them off in full.

  7. LoadStar says:

    The absolutely positively critical key is: NEVER buy something on plastic that you would not be able to buy with a debit card or cash. Period. No argument. Treat your credit card like cash, because it is. It’s not “imaginary money” or “funny money.” If you think when you’re checking out, “Would I be able to buy this with cash?” and have to hesitate to answer even for a second, you’re in danger.

    Second most critical is keep track of your expenditures. Use a personal finance software or a good old fashioned checkbook. Always be cognizant of how much money you have vs. how much you’ve already spent. Again, the second you lose track of how much you have on your credit card at any time, you’re in danger.

    Third: never carry a balance. Period. If you’ve followed rules one and two above, that should never happen.

    • zifnab0 says:

      I’d also add #4:
      Don’t use a credit card to pay for a large purchase with the intent of eventually paying it off. Save up the money FIRST, then use the credit card to buy the item (getting your cash back bonus) and pay it off with the saved money.

  8. valen says:

    I use my credit card for “big ticket” purchases that would have otherwise gone through the debit card system. The purchase is then paid off at the end of that month’s billing cycle. This method maximizes my return on checking and savings account interest rates while allowing me instant access to the purchased item. As an added bonus, I have better protections if the purchase goes badly and I end up having to take adverse action against the merchant.

  9. Telekinesis123 says:

    I always pay off my balance every month so I never incur interest. I use credit cards for cash back rewards and also (my fave) to extend my warranties and increase my rights if there is ever a dispute (ability to charge back). Credit cards have lots of uses, as long as your spending money you already have on them though.

  10. markrubi says:

    By putting damn near anything I can on my Discover and paying off each month Discover pays me to user thier card. Right?

    • Supes says:

      Nah. They still make money, but not nearly as much. It’s just merchant fees. No matter how good your rewards are, they’re not quite as much as the company is making in merchant fees.

      So yeah, it’s pittance they’re making off you, but they’re not paying you to use the cards. The merchants you buy from are.

  11. PaNative says:

    Suckers pay interest.
    Here’s how to do it:
    * Visualize the same amount of cash in your hand before you purchase.
    * Pay the bill in full as soon as it’s available – No excuses.
    * Use it for as many normal expenses (if same as cash) as you can. Additionally for big ticket items (appliances), always trying to maximize the cashback.
    * Get the cashback as soon as the minimum amount is reached (i.e. $40 or $50).
    * Apply the cashback directly to the next balance if available, if not, deposit it directly to your Roth IRA.
    * Never take the promos (i.e. ‘earn more with your cashback’).
    * Profit

  12. jrs45 says:

    Excellent advice. A couple of tips:

    Schwab offers (still?) a credit card that gives 2% back on *everything*. There are many cards that offer 2%+ on gas/groceries, or similar categories. Use them. This has made my life 2% cheaper, and I charge a LOT.

    If you can’t get one with cash back, most still will offer points. Buying gift cards is a far better deal than buying merchandise. You should be able to get 1% net. (Except Bank of America..)

  13. KarbonKopy says:

    I usually use my Amex for everything for the points, then if the purchase is over $100 I just log into my bank when I get home and use bill pay. Might sound lame sending 10 bill pay checks, but it keeps me right on track (only have to pay the small amount left at the end of the month) and Amex doesn’t seem to care. :)

    • East_Coast_Midwesterner says:

      I do the exact same thing. All electronic payments the bill pay feature of principal bank.

      My guess is that Amex is pleased. They get the cash in hand before the payment date.

  14. jp7570-1 says:

    I use one card exclusively for US-based business-related expenses – everything from supplies and dining to travel. That way, all business-related expenses can be easily tracked and documented. All charges are paid in full each month.

    I use another card for international purchases (I travel for business). This prevents me from having to exchange most currency (although I still carry some local currency as needed) and the card’s exchange rate is less than most airports, banks, and hotels. All charges are paid in full each month.

    FInally, I use an AmEx Blue Cash Rewards card for routine purchases. There is a sliding scale of rebates (1% to 5%) based on purchase types. All charges are paid in full each month. At the end of each year, I get a nice rebate – usually ranging between $150 and $300 depending on spending.

    Properly managed, cards can actually save you money, provided all charges are paid in full each month.

    Note – I have not been charged ANY interest charges in over 10 years. I am NOT the credit card company’s ideal customer as a result.

  15. George says:

    Credit Cards are never smart to use. period.

  16. Ragman says:

    Ditching credit cards for cash isn’t realistic for those of us that can benefit from the rewards program*. I don’t think enough people would switch and put pressure on businesses to give at least a 2% (or higher) cash discount. Gas purchases, I get 3% cashback on them, along with the convenience of pay at the pump – that, along with not wanting to carry hundreds of dollars in cash on road trips makes it highly unlikely I’ll switch to cash.

    Not saying I wouldn’t ditch my credit cards. I just run the numbers, and right now, my cashback kicks a$$.

    * Had to qualify that statement – if you are in debt with the CC, ditch that thing and use cash. Financial discipline first and foremost.

  17. Ragman says:

    Put your monthly bills (cell, cable, etc) on a rewards card, even if you don’t shop with it. That way you get cashback on the things you (should) already pay in full. Save the postage, check, and hassle by paying once a month.

  18. davidsco says:

    Nothing new, I’ve been doing that for years

  19. markincleveland says:

    Let’s see. I can pay you cash immediately or I can pay in 25-45 days and get a rebate of 1-5% depending on the purchase or the card.
    Because I’m brilliant, I’ll choose to take the rebate and pay bill credit card bills via autopay in full every month.
    If you have the self control and discipline i doesn’t seem to be a difficult decision.

  20. Nick says:

    You will never get rich from rewards.

    • obits3 says:

      That’s not exactly a reason avoid those rewards. For example, you will not get rich on CDs, but many people use CDs as an FDIC backed savings account (obviously for money you don’t need in the near future). My advise is to get a card with rewards and NO required fees. I have a VISA with 1% cash back on all transactions and no fees.

      • Mr. Fix-It says: "Canadian Bacon is best bacon!" says:

        For example, you will not get rich on CDs, but many people use CDs as an FDIC backed savings account.

        Me and the wife love CDs; I guess we’re just enamoured with the idea of ‘less payout, but safer’. I’m currently looking to see if we have a similar concept in Canada :3

        • Mr. Fix-It says: "Canadian Bacon is best bacon!" says:

          Ah we do, and then some! The Guaranteed Investment Certificate (GIC; not to be confused with the US GIC, the Guaranteed Investment Contract)

          Same basic concept: Deposit X number of funds (minimum $500 I believe) for 6 months to 10 years. Once they reach maturity, you can cash them for taxable income, or renewed for another term. If you withdraw the GIC before term is up, you don’t get the interest, and you may have to pay a fee for it (differs between individual banks, etc)

          We also have Market-Growth GICs. With the MG-GIC, the interest rate of the deposit is determined by a specific stock market index, usually the Toronto Stock Exchange (TSX). The downside is that, if the market takes a downturn, your interest rate is effectively 0%. You don’t lose any money, but you don’t gain anything either; a finanically-‘safe’ way of playing the stock market.

      • Nick says:

        Credit cards = Risk. People say to pay off balance when you get your bill. But what do you do when you get laid off or get sick?

        • obits3 says:

          “But what do you do when you get laid off or get sick?”

          Let me say this again with power: Credit cards are NOT extra money!

          Use your credit card like a debit card. If you get laid off, you should have had enough money to pay for your current spending. In the future, you will have cash flow issues, not credit card issues.

          • Nick says:

            I think an emergency fund is important. Do you think everyone that uses credit cards have the cash to back up their charges? For those that don’t, please be careful.

            • obits3 says:

              “Do you think everyone that uses credit cards have the cash to back up their charges?”

              This is a cash flow issue, not a credit card issue. If they didn’t have credit cards, they would be overdrafting or writing bad checks. At lease a credit card gives you a couple weeks to pay up. Just remember:

              Credit cards don’t mess up finances, Kim Kardashian’s prepaid debit card with all of the fees messes up finances.

        • pecan 3.14159265 says:

          What happens if you get laid off or sick and you have other bills to pay? How is that any different than having a credit card bill? You still need water, food, gas, and electricity, right? Like obits3 said, you should be responsible enough to have reserve money.

          • Nick says:

            Water, food, gas and electricity are things you purchase. You can not buy if you don’t have any money. Credit card bill is debt.

  21. akepp7 says:

    My wife and I have been using the card for everything and paying it off immediately. It’s working out great. In fact, our reward points are high enough where we’re paying for all our holiday gifts for family and friends with reward points!

  22. Peterpan says:

    I use credit cards for everything because otherwise I would really feel poor. My income is below the poverty line and I use all of credit cards to go out with. I have about 12 cards totaling almost 50k in credit and I don’t even make a quarter of that. I don’t care about interest because I don’t intend on paying it off. The credit card companies are stupid for giving them to me and I’m gonna use them. When I default, I default. Then I won’t get any more credit, but in the meantime I’m typing on my new iPad in front of my 60inch tv (one of my 4 flat screens).

  23. MaxH42 thinks RecordStoreToughGuy got a raw deal says:

    Actually, before we were able to build up an emergency fund, I often tried paying for as much as possible with cash so that if any unplanned expenses came up, we could float ourselves the funds by charging things and delaying payment for a month or so. (We usually could pay off minor unplanned expenses fairly quickly.) Not the ideal plan, but it beats paying overdraft and late fees, and we were lucky enough not to have any major expenses while we were working on an emergency fund.

  24. MaxH42 thinks RecordStoreToughGuy got a raw deal says:

    Besides, a peer-reviewed psychological behavior study showed that people spend more when using credit cards, even when all else is equal.

    • mmmsoap says:

      And to the nay-sayers, we’re talking statistically. While not everybody follows this pattern, the point is it’s a significant trend.

      And when you think about it, it does make sense. If I have $40 in cash, and end up with $44 in groceries, I’ll just charge it, because I can afford the extra $4. If I had no card, I’d put something back. I think most people work the same way, except for those with absolutely no buffer in their spending, or those with an iron fist on their own finances. The vast majority of the people are pretty much in the middle.

  25. Fjord says:

    I have over 10 credit cards and I am very credit card illiterate…I don’t even know how finance charges work. I also put every single transaction on them…even a stick of gum. I make 200+/$3k+ transactions every month and haven’t skipped a payment since I was born (10+ years of credit card use).

  26. Donathius says:

    We tried putting everything on the AmEx for a while but we got in trouble a couple times. We’ve switched to the “cash only” route just leaving enough money on the debit card to pay for gas. We’re saving tons of money this way since there’s not really a way to impulse buy stuff.

  27. Jimmy37 says:

    Why is anything in this article new??

    Why do people become stupid when they use a credit card? Or is it that credit cards let stupid people become stupider? Before the current credit crunch, it seemed that the CCCs won because people treated credit card balances like a utility – something they would pay for their entire life without ever paying it off.

    If you only buy what you can afford, then you won’t go into debt. If you gotta have something, just make sure you can pay it off sooner rather than later. Always have at least 2 cards you can use – one for monthly payoff and one for a balance. This way you won’t pay extra interest at the end of the month when you pay off the debt. If you are going to use credit, you may as well get paid a reward for it and never pay a service fee.

  28. knyghtryda says:

    I have always bought most of my stuff with credit card, and I have never EVER carried a balance, even when I was in college. Credit cards are convenient, safe (good luck with fraud prevention on a debit card…) and at least gives you a little bit back, even if its just a couple percent. Just use it like you would cash, and you’ll never run into problems. If you don’t have the cash in the bank to back up a purchase then YOU SHOULD NOT BE MAKING THE PURCHASE!