Using a Credit Card: Minimum Risk, Maximum Reward

Posted on 05. Oct, 2011 by in Wealth Essentials

Credit card rewards

How good are credit cards, it’s like free money right?

I’m sure that this is a pretty common reaction for most people that get a credit card for the first time. Many can’t wait to take the shine out of that plastic by swiping it through as many machines they can and stocking up on clothes, shoes and toys to fill their wardrobes and their lives.

Then the first bill comes in and reality hits, yep you have to pay for all that spending. For some, this is enough of a deterrent to be more cautious next time. They pay it down and then take a more subdued approach to their use of plastic. Others however, decide that they like the added freedom that an extension of credit brings and enter into a lifelong battle with ongoing debt.

A Credit Card Does Not Increase Your Income

It is very tempting to use your credit card to extend you means and enable impulse buying on a whim. Unfortunately this is a very easy way to fill your instant gratification need and sets you on a path of poor money habits. It’s really no wonder that people tell you that credit cards are evil and should be cut up, never to be used again.

Lets face it, cutting up a credit card might be the only solution for the hardcore spender. If you really can’t control yourself, then don’t allow yourself the potential to do harm. Even if you are super good with a credit card, there is always a chance to dig yourself a very big hole, one that could take a very long time to get out of.

Nothing in Life is Free

Credit cards can be a fantastic resource if you know how to use them, these days you can get all kinds of cool perks for buying with plastic too. There are reward programs to suit just about any one’s taste, but at the end of the day you still end up paying a price to get something for ‘free’.

I completely agree with the smart use of a credit card, but probably not in the ways that most people use them. Some people tell you that you just need to pay the balance of your card off by the end of the month, simple as that. Unfortunately this approach is a little too scatter gun for me. If you aren’t tracking you spending very closely, then it is likely you are going to find a few little surprises at the end of the month, which means you end up carrying over debt.

How to use a Credit Card

The safest way to use a credit card is to treat it more like a debit card, whereby you have already saved the money you intend to spend and you transfer it as soon as the purchase is made. Why wouldn’t you just use a debit card then, or pay cash? Well you could, some debit cards even have rewards programs attached to them, but the truth is they are lousy!

If you are going to spend your hard earned money on something, then you should be trying to maximise every dollar. Those rewards aren’t really free, but if you are clever about using your credit card, you can still take advantage of the offers available to you and make it as worthwhile as possible.

There are some really great reward programs available these days and you don’t need to be a frequent flyer to benefit. In fact, I recently changed my rewards program from flyer miles to reward points because it will save us more money in our day-to-day spending. The chances of my wife and I flying somewhere with our toddler are pretty slim at the moment, but the opportunity to get store cards in return for money we spend anyway is very appealing.

I spent some time weighing up the options to find what works best for us and I suggest you do similar for your situation, it just so happens that I have listed some handy resources for you to get started.

Credit Card Resources

Before you commit to a new credit card or change rewards programs, check and consider the following:

  • Does the card have an annual fee?
  • Do they cap their points past a certain monthly spend?
  • What is the points Vs dollar value and what are the cash out amounts?
  • Do the points expire after a certain period?
  • Do they offer a joining bonus? (you may get close to a free flight or store card just for joining)
  • Do they offer special deals to members, like discounts in stores, free travel insurance or extended warranties?

You may also like to consider the rate, but if you use the credit card correctly this really shouldn’t be a big factor. In fact, there is nothing stopping you from having multiple credit cards if you use them the right way. Even if it is just to get yourself some joining bonuses, if you plan on keeping them though, you might like to try this handy tool to keep track of all your points in the one place.

Australian Rewards Cards

Unfortunately we just don’t have the same level of competition in Australia so the range of programs and benefits are not nearly as generous. There are some decent programs available, try either of the following sites to compare credit cards side by side:

  • Credit Card Finder
  • Credit Card Compare

American Rewards Cards

There are literally thousands of credit cards and rewards programs available in the USA and the competition is fierce. Here are a couple of sites to compare credit cards with rewards programs attached to them:

  • Bankrate
  • Money Supermarket

Rewards Cards in the UK

As you would expect, there are also thousands of reward cards in the UK.  The best site to review these is Finance Choices.

Making the Plastic Work

The thing I love most about the Internet is that it allows clever people to share the secrets they learn through their own experiences. There are a ton of people all over the world going to great lengths to squeeze every drop out of rewards programs and most of them are nice enough to share this with the world. If you live in Australia, then the resources aren’t quite as significant, but they are out there. To get some great tips on maximising your points using Australian credit cards check out this forum.

If you live in the states, you have a lot more choice. To get great tips on maximising your reward points you might like to try this forum, or this one instead.  You might even like to check out The Points Guy if you are thinking about traveling or even join the Travel Hacking Cartel if you are really serious about flying on points.

There are stacks more resources available if you start searching online, but what I’d really like is for you to share you favourite credit card, rewards tip or online resource right here in the comments. It would be great to have as many useful tips as possible in the one place, so please share your best tips and then share this article with a friend to do the same.

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