5 Ways To (Responsibly) Make Credit Cards Work For You

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I have been an avid reader of TFD for over a year now, and I absolutely love it. I appreciate that it generally does a good job of presenting several viewpoints on financial issues, because let’s be real: personal finance is not black-and-white, and what’s best for one person doesn’t mean it’s the Gospel Truth for everyone.

But recently, I’ve been noticing that many (maybe even most) articles pertaining to “How I Saved Impressive Amount of Money in Short Time Period” or “X Secrets to Paying Down Debt” include putting a moratorium on credit cards. The takeaway I get is that credit cards are Evil Incarnate, to be avoided unless absolutely necessary, and I don’t think that’s true for everyone. It’s definitely not true for me — and it may not be for you, either.

There’s a lot of misguided information thrown out about credit cards, especially warnings to young people about their potentially life-ruining consequences. I don’t mean to discount these consequences, or diminish the slippery slope of living your life on credit. But I also see far too many of my friends and peers — who could immensely benefit from having their own credit card — shying away for fear of incurring insurmountable debt, sky-high interest rates, and getting tricked by evil companies. They see no benefit to them, or are under the impression that there is no earthly reason to open a credit card account besides taking momentary leave of your mental capacities. I’m here to argue the opposite, so below find five reasons credit cards might actually work to significantly improve your financial health.

1. Build your own credit history.  

This is probably the most oft-cited reason by young people who do take the plunge and open up their own credit cards, and it’s pretty self-explanatory. By opening and maintaining your own line of credit, you are able to build up your credit score, which is important for things like getting a loan or a mortgage. The interest rates offered to you for these major life-event loans often depend on your credit score (i.e. if banks see you as less reliable, they’ll charge you a higher rate to offset an increased risk).

Paying your bills on time shows your dependability, but what some people don’t know is that your credit score also depends on how long you’ve had that line of credit (i.e. how long you’ve had a particular card). That means that, even if a mortgage is the last thing on your mind right now, don’t wait until it’s only a couple years off to open your first card. When you walk into the bank to apply for that big student loan or that big mortgage, you want to have the longest, cleanest credit history possible.

2. Think of it as an interest-free loan.  

INTEREST-FREE LOAN, PEOPLE. Need I say more? Actually, I think I do, because this is not how many people think of credit cards.

Think about the way in which a credit card works. You use your credit card to pay for whatever you want for thirty days, at which point your statement period closes, and you now have a balance you owe for that month. The credit card company will then send you a statement showing your balance and the time you have to pay it — it varies by company, but it’s usually a month. So, if you bought an expensive set of tires at the beginning of September, your monthly statement will close at the end of September, and then you’ll have until the end of October to pay that balance: that’s an almost two-month interest-free loan on that money.

Of course, this advice comes with the important caveat that you must pay your balance off in full at the end of that time period. Say your new tires cost $200. Depending on your credit score, the statement that you get at the end of September may have a “minimum payment” of as low as $20 or $30, and it can be very tempting to just make that minimum payment. If you don’t pay the full amount (and are thus “carrying a balance” on your account), the credit card company is now giving you a longer loan…but it’s no longer interest-free. Don’t let this happen to you, but don’t be afraid to take advantage of that one-month grace period, either.

3. Get rewarded for spending money you’d spend anyway.  

There is no prize for paying with cash. But, if you pay with a credit card, you’ll get to enjoy all sorts of perks, depending on which company you choose. For example, my cards give me 1% cash back on everything, and 5% cash back on groceries and gas. That means for every $100 I spend buying food, I get $5 for doing absolutely nothing out of the ordinary. And 1% on everything else may not seem like a lot, but it does add up! And when deciding on a card, you can choose the type of reward that’ll be most beneficial for you. Maybe you’d rather get rewarded in the form of airline miles, or maybe you’d like a store credit card at your favorite shopping spot. There are a huge variety of reward programs — take advantage of them!

4. Credit cards make it incredibly easy to track your spending habits.  

I am a firm believer that you can’t really be in control of your finances until you understand them — you can’t sit down and write a helpful budget without taking a comprehensive look at where your money’s been going. Apps like Mint are enormously helpful with this: tracking your spending in different categories becomes absurdly easy when you do the bulk of your spending on credit cards, because Mint is able to automatically categorize almost all of your transactions. I almost never pay with cash, so on Mint, I can track my spending down to the last dollar with no effort on my part — no squirreling away every receipt, or laboriously updating Excel spreadsheets.

5. You can build your financial self-discipline.  

If you use them irresponsibly, credit cards can wreak havoc on your finances and on your life in general. This is a fact, and I understand that some people purposefully choose to avoid credit cards for this exact reason.  But to counter, I believe that developing financial self-control is an important step in becoming an independent and self-reliant member of society. Check your statements regularly (I log on to Mint almost every day), and don’t kid yourself about the purpose of a credit card.

My personal credit card use philosophy is this: Mentally, I equate swiping my plastic with going to my bank and withdrawing that same amount in cash. In other words, I don’t use my credit cards to live beyond my means or to spend money that I’ll have “in a couple days, once my paycheck comes through.” I use credit cards as a convenient way to avoid constant trips to a bank/ATM and to reap the benefits I’ve outlined above. If you don’t yet have a card, or if you do and don’t use yours much, consider getting one, or swiping the one you have a bit more often — then start planning what you’ll do with all that 1% cash back.

Lex Erath is a recent economics graduate currently working in health care consulting. She enjoys writing, riding, and Celtics games.

Image via Unsplash

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  • Meg

    I’ve JUST started this with my second credit card. I have historically only had one very low interest card that I’ve carried a balance on, and I’ve finally started paying that down in earnest. I was terrified of opening a new card because I didn’t want to abuse it like my first card. I just recently realized I could use the new card like a check card (of course paying it off in full) while reaping the cash back benefits. So I’m actively paying down the low interest one, but using the other like an interest free loan, as you mentioned, while earning cash back. It feels good to have been able to re-frame my thoughts and feelings about credit.

  • Mary Harman

    THANK YOU!!! It sometimes seems like I’m surrounded by people chanting that credit cards are evil!

    I understand that they have their risks, and I understand that some people don’t seem to have the discipline to not use them inappropriately. Similar to alcohol, it’s something that can be used in moderation and enjoyed, but definitely has a slippery slope if you have a certain disposition and/or aren’t monitoring yourself closely.

    Credit cards have been hugely helpful to me, though, so I’m so grateful to see the other side of the issue here. I have an awesome credit score and am very excited for when I go to finance a house and can show them an 800+ score and snag a lower interest rate. Like the author, I use my credit card for pretty much every purchase possible to help me track spending, and I use it exactly as I would a debit card. Never have I once carried a balance. And the points payoff, with patience, is worth it. This year we were able to book flights from Chicago to England for Christmas at my in-law’s home using only points. It took about a year of waiting, but so worth it, and all for doing nothing but grocery shopping and buying gas.

    If you can get in the mindset of the credit cards only having access to your money, not a line of credit, you seriously can get so much out of them.

    • Summer

      Yes yes yes, all of this! I am also an avid credit card user with an awesome credit score, and it pains me to see credit cards constantly showcased as these evil things that must be avoided. I use my Venture card whenever possible, and the 2x points I earn on every purchase end up being free money when I decide to redeem them. I knocked a cool $400 off my statement balance in September simply by letting points accumulate. I don’t look at my card as $10,000 worth of “free money” just sitting there, I see it as a tool that not only rewards me for purchases I’d be spending on anyway, but one that also makes it easy to track my spending. The added perk is the security of a card, if the data falls into the hands of someone with untoward intentions, I’m very well protected. And yes, regular banks and credit unions also have fraud protection, if someone defrauds your checking account, it can be a rather lengthy process for the bank to complete their investigation and refund the money you lost.

      There are many advantages to using credit cards. It’d be great if the trend would swing towards how to use them to your personal advantage rather than “DON’T EVEN THINK ABOUT APPLYING FOR A CARD BECAUSE THEY WILL RUIN YOUR LIFE.”

    • NL

      My boyfriend and I moved in together 2 years ago (I was 24 at the time) and I still didn’t have a CC. I paid cash/debit for most things to the point where I literally had like $2k at any time shoved into my headboard lololololol. He was like…you’re an adult, you can manage your finances, IT’S TIME.

  • Antoinette

    Definitely agree with where you’re going on this. I love using credit cards for all the perks and if you’re vigilant of how much you’re putting down on them and don’t treat your credit card as “free money” then credit cards can help you.