Sunday, April 22, 2018

Save Money Using Credit Cards

There's a well known person giving financial advice that says that you should avoid credit cards at all costs. The reason he says this is that when some people get credit cards, they immediately buy a ton of things that they can't afford and then get stuck in credit card debt. Thus, he says that credit cards should be avoided and you should immediately cut up the ones you have.

I don't agree with this advice. In fact, credit cards have many good benefits and can even save you money. However, in order to benefit from them, you must be someone who does not do as mentioned above and overspend and go into debt. In that case, you should probably just cut up your credit cards and use cash.

Credit cards give you a couple good benefits. You get very good consumer protections. If a merchant rips you off, you can complain to your credit card and they will often fight on your behalf, often times crediting you back the money. Many credit cards offer you perks such as cash back, airline miles and discounts. Some credit cards cover you for rental car insurance.  I have a credit card (amex I think) that gives me an extra year of manufacturers warranty. These are all really good benefits to have. However, repeating for the third time, if you end up spending more money with credit cards than you would have if you only had cash then you are better off not using a credit card. The value of the extra money you spend will probably be more than the benefits of the credit card.

One more thing. Credit card companies often give you these great benefits because it gives them information on you. They know where you shop and what you buy and yes they do profit off your information. I recently read how Facebook is able to attribute an advertisement (that you saw on facebook) to a sale that you made in a brick and mortar store. This can only be done with either a relationship with the credit card company or the store. Its a bit scary actually so if you are worried about being tracked like this, you might want to consider cash (and not signing up for those store membership cards).

As long as you are not going to overspend, I personally would recommend that you use credit cards. I personally sign up for multiple cash back cards because they often have rotating 5% categories (I have 3 of these, not going to link, just do a search). Thus I can use the card with the most cash back depending on what I am buying. My default card ends up giving me 2% on everything.

These little bonuses add up over time and I really like the consumer protection of these cards. Just make sure you stay disciplined.