Use your credit card…and pay off every month
Using your rewards credit card for all purchases and paying off the balance every month can generate some decent savings for you, as well as providing side benefits of convenience, better credit, more security, and monthly spend tracking!
The first step is to select a good rewards credit card. Compare cards and choose one that will give you the largest amount back in rewards based on your personal spending habits. My financial style is to keep things simple, so I prefer a card that offers straight cash back rewards at a fixed rate.
Now that you have selected a good card, NEVER purchase anything using your credit card for which you do not already have the money. The order needs to be: have cash, use card. Not: use card, hope to have cash in a month. You should have at least a small savings cushion, and ideally have an emergency savings fund in place before purchasing items on a credit card. This is a huge rule that is at the center of financial security and will keep you out of credit card debt.
Once you have chosen your card and have money in the bank, use it for all purchases big and small. By using the card, you are essentially getting a discount on each item, and the savings add up! Say you normally spend $2,000 each month via cash, check or debit card. By switching to your rewards card instead, you would earn $30/mo ($360/year) in rewards just for switching payment methods! Now this part is key and goes along with having money in the bank; in order for savings to be realized, the account balance ALWAYS needs to be paid off in full or all savings will quickly be wiped out by interest and fees. Tip: put your payment on auto pay so it’s never late. On a side note, I have noticed more businesses up-charging for credit card use. If this is the case at a particular merchant, you should do a quick calculation to decide if cash or credit is best.
The savings are pretty great on their own, but there are some other benefits to be realized by using a rewards credit card:
Convenience: this is an aspect that I particularly enjoy (and might even override an up-charge). The checkout process is generally quicker and you don’t need to deal with coins! There is also no need to safeguard and keep track of all that cash, or always make sure that you have a certain amount on hand.
Monthly spend tracking: all of your spending is itemized on a statement at the end of the month! What a great way to see where your money is flowing and spot the areas where you might be able to realize some savings.
Security: credit cards generally offer a level of protection over debit cards. If a fraudulent transaction occurs on your debit card, the money is drawn from your bank account and you might be out of that cash until the fraud is resolved. With either debit or credit cards, I recommend turning on email and/or text notifications so that an alert is sent to you each time the card is processed.
Better credit: You might also benefit from a bump in your credit score by using your credit card and paying off in full each month.
Now that you are using your rewards card and paying off the balance in full each month, enjoy saving money on your everyday purchases!
This blog is for general educational purposes and does not constitute financial, tax, or legal advice. Please contact our firm for specific advice applicable to your personal financial situation.