This is a tool available to all social classes, but only the rich seem to take advantage and play the game.
Those that still use cash and debit cards to pay for goods are missing out on tax-free rewards like cash that would positively impact their financial situation.
I’m not encouraging people to go and apply to the first offer they see. Those usually are the worst. Riddled with high interest and no rewards except for the free t-shirt or koozie.
When people have had bad experiences with credit cards, they may not want to ever have one again. Perhaps they cosigned for someone that got into debt and didn’t pay it off, so the debt fell on them. Maybe they thought it would be good to buy furniture and do home upgrades using a credit card. Now they are paying a mortgage and high credit card bills every month leaving them stressed out instead of enjoying their home.
We all have made some financial mistake or another. The key is to learn from it and focus on being better. It is no different with credit cards. If someone has had bad, high-interest debt in the past it doesn’t mean that they cannot become responsible credit card users as they transition to being good with money.
Using credit cards responsibly
- Less is more. Carry only 1 or two cards. One major card to charge most items on and carry another card to a place that you shop at a lot like a grocery store or clothing store to get specific rewards to that store.
- Pay your card off monthly. Not paying off your card monthly defeats the purpose of getting rewards. It does not balance out. You end up losing.
- Do not open credit cards if you currently have high-interest debt. Pay off your debt first. Once you pay off your debt, follow a budget for a few months while staying out of debt. Take note of what you spend most of your money on. Find a credit card that will meet your spending needs best. For example, if you spend a lot of money on groceries then find a card that gives back rewards for groceries.
- Don’t let fees scare you. The rewards outweigh the costs.
Why I love credit cards
Rewards are tax-free. You can cash out rewards without worrying about being taxed on income at tax time. There have been attempts to pass laws that would tax one on rewards they receive from credit cards, but so far that has not happened. Take advantage of tax-free rewards before that changes.
Cash-out to invest. You can cash out rewards and invest in your Roth IRA or save up to invest in other assets.
Use cash rewards for fun experiences that you otherwise may not be able to afford like plane tickets, restaurant meals, and gift cards. Think of it as a sinking fund for fun and giving.
Don’t start off wrong
Reward cards usually have a promotion to get you to sign with them. It comes in the form of thousands of points, which in some cases is equivalent to over $500. To earn those points, you must spend a certain amount of money within a short amount of time. Do not overspend just to meet initial spending requirements.
The amount is not a lot unless you are single. Then it may seem a bit daunting. However, I know single people that have been able to meet the spending requirement by asking family and friends if they could pay for large expenses they had coming up. They would pay for the purchase and then would be reimbursed promptly.
Stop using cash and debit cards to fund your life. They are keeping you poor. Only use cash and debit cards if you find that you are unable to pay off your credit cards monthly and if you have bad debt. Learn to spend less than you earn before trying to use credit cards again.
Do it the right way. It’s worth it.