Why You Should Use Credit Cards for Almost Everything
Use your rewards credit card for most purchases—but be smart about it.
Since more businesses than ever now accept credit cards for payment, you can use your rewards credit card to pay for almost anything. But, should you? Now, that is the likely hundred-dollar question. You could rack up good points for travel or cash-back if you used a rewards card to pay bills, but there are potential pitfalls to be aware of if you do.
First off, you will expose yourself to the potential to rack up debt if you can’t—or won’t—pay your bill in full each month. Further, using credit can make it harder to stick to a budget since you can charge purchases now and worry about payment later. Several studies have also shown that using credit causes some people to spend more than they would otherwise. For these reasons and others, some people are better off sticking to cash or debit and eschewing credit card rewards altogether.
Still, you could be the exception. If you want to get the most out of your rewards cards, you need to agree to a strict set of rules. You should also take steps to help yourself and make the process easier to manage. Tips that can help you benefit from rewards cards include:
Use your cash-back or travel credit card in conjunction with your monthly budget.
Using credit cards without a plan is probably the worst idea ever, but you can stay on track if you use your credit cards as part of the monthly budgeting process. Let’s say you budget $700 for groceries every month and $300 for gas. Using a cash-back credit card for these purchases could net you 2 percent back or more, but you have to make sure you don’t overspend due to the convenience of credit.
To make sure credit is working for you and not against you, you could use your credit cards for these purchases to earn rewards but “check in” with your budget periodically to make sure you’re on track.
Pay your credit card bills more than once per month.
One way to make the suggested strategy above work even better is to pay your credit card bills more than the required once per month. Doing so will cause your money to leave your bank account sooner, which will make it easier to stay on track with your monthly spending plan.
As an added bonus, paying your credit card bill regularly may help your credit since keeping a low balance will lower your credit utilization—one of the main factors that determines your credit score. So, even though you are making a lot of purchases with credit each month, the fact you pay your bill multiple times per month should keep your utilization lower than it would be if you paid your bill just once per month.
Fortunately, the bulk of rewards credit cards come from banks that offer easy-to-use online portals where you can check your balance and pay your bill any time you want. So, if you decide to pay once per week or every few days, you can.
Track your spending religiously.
Another way to get the most out of your rewards cards is to use credit to track your spending. While it can be difficult to track purchases when you pay for everything with cash, using credit creates a paper trail you can use to your advantage.
If you use a monthly budget especially, having a record of each of your purchases will make it easy to watch your spending and ensure you’re not straying from your plans as the month goes on.
Make sure you’re only using credit for purchases you plan to make anyway.
Another tip to ensure you’re actually earning rewards is making sure you’re not using credit as an excuse to overspend. If your new rewards card has you tempted to update your living room furniture or dine out incessantly to rack up extra points, that’s a sign credit card rewards may lead you astray if you let them.
Ideally, you’ll want to use credit as if it were cash and only for purchases you planned to make anyway.
Take advantage of valuable consumer protections.
Another big benefit of using credit people forget about is the fact you get so many consumer protections with certain cards. Most rewards cards offer zero fraud liability for starters, meaning you’re entirely off the hook if someone uses your card or card numbers to make any fraudulent purchase.
Some rewards cards also come with perks like extended warranties, purchase protection, and guaranteed returns. Last but not least, the best travel credit cards tend to come with travel-related benefits such as trip cancellation/interruption insurance, auto rental coverage, baggage delay insurance, and travel accident insurance.
Make sure you’re paying all bills with credit to rack up as many points as possible.
Finally, the key to getting the most out of your rewards credit card is using it for all the bills you can think of. While groceries and gas may immediately come to mind, you may also be able to use credit to pay for bills such as:
- Health insurance
- Auto insurance
- Homeowners insurance
- College tuition
If you can pay your expenses and bills without a fee for doing so, pay your credit card balance in full, and avoid debt, you will end up ahead thanks to the points and miles you earn over time. Of course, this is only true if you can use credit to your advantage and avoid all the ugly pitfalls of credit we’ve outlined in this post.
Can you benefit if you use credit for the bulk of your purchases every month? Absolutely. Will you benefit? That depends on whether you have the self-discipline to pay your bills religiously and never use credit as an excuse to overspend.
Only you can decide whether earning 1-5 percent cash-back or travel rewards is worth the trouble and the risk.