We are the path to becoming debt free, so we don’t take the use of credit cards lightly. However, there are times using credit cards is a good option. If you are not careful, credit cards can be dangerous to your financial health. Keeping an eye on your budget and not charging more than you can pay each month is key to using credit cards successfully.
When It Makes Sense To Use Credit Cards
We like to use a credit card instead of our debit cards because of security. We have had our debit cards compromised. If you have a significant amount of money in your bank account linked to the debit card, it could leave you with a gut-wrenching feeling.
Using a credit card instead of cash or a debit card requires discipline when making purchases so you can be sure that you have the resources to pay the full balance due each month. If you are able to do this, the benefits can be wonderful. You can accumulate rewards and have some special benefits. For example, many cards offer travel insurance up to a certain dollar limit along with other little-used benefits. You can select a card that offers rewards for something that will provide a benefit to you. You can get rewards for everything from cash to airline miles depending on the card.
Use it like a debit card
If you are going to use a credit card for purchases on the road, use it like a debit card. In other words, keep a budget of what you are charging on the card and do not exceed the amounts in your budget. If the credit card is used in this manner, you will never exceed your budgeted cash and can avoid paying any interest by paying the bill in full every month. If you do not have good credit card discipline, cut-up the cards and do not use them. Using a credit card at that point would be like telling an alcoholic they could have one drink and be okay. It’s not going to happen. It will end up costing too much money through interest payments.
Get a rewards card
If you can live with the first rule above, my recommendation is to get a card that has some type of rewards associated with it. We have two different rewards cards that make sense for us. One earns us Hilton Honors points when we make purchases with it. We have amassed almost 1 million points with the help of this card. We feel like these are good for us to have because if our house on wheels is ever in the shop for an extended period, we have the ability to stay in a hotel for very little to no money for quite a few nights. It is insurance for unfortunate situations. We also use it when we want to take a vacation away from the RV.
The other card gives us reward dollars in our investment account. This card provides a cash deposit in to our investment accounts after we charge a certain amount of money. Since we have stopped adding as much to our investment accounts until we pay off the RV, this helps keep a little cash going in those accounts. If you can, find rewards cards that suit your needs and do not charge an annual fee.
Find a card with no annual fee
We think annual fees are ridiculous. The banks are already making a ton of money on interest payments from people who carry a balance. Annual fees are just away to get those of us who don’t, to pay for the rewards. It is possible to find rewards cards without an annual fee, but it can be difficult. There are a couple of ways to avoid paying the annual fee if the card you choose has one. The first, and easiest option, is to ask for the fee to be waived. Believe it or not, this works. Another option is to ask for the non-premium version of the card. The rewards may be slightly less and you will have to do the math to see if the difference is worth paying the annual fee or not. The last way is to see if the fee can be paid out of the rewards. This avoids spending money on the fees, but causes a loss in rewards points earned. If the fee will not be waived, cancel the card and find another one.
Pay off the balance as soon as possible
Although we get a monthly statement for our credit cards, we usually send a payment twice a month. For us, this is a good practice because it forces us to look at the transactions online frequently, which detects any fraud faster, and we reconcile with our budget more often to avoid accidental overspending. Sticking to a budget was the main thing that helped us pay off $91,000 in debt last year.
Check the benefits
While searching for the best card for you, make sure to check the additional benefits available with the card. For example, the two cards we use have roadside assistance benefits. One is good for an emergency when we need assistance and cannot find another method. The other is better and will cover some towing, tire changes, 5 gallons of fuel, and many others. Many credit cards offer a wealth of additional benefits for travelers that are never used because the credit card holders fail to read the fine print that comes with the card. Those little booklets, that require a magnifying glass to read, contain information on all of the miscellaneous benefits that can be handy for those of us that like to travel. It is important to include these benefits in your selection of the best card for your lifestyle.
The Bottom Line
We hope these five tips will help you be on your way to using credit cards responsibly, while also earning rewards and other benefits. Using credit cards should not be taken lightly. Paying the bill to avoid interest charges and checking the statements regularly for fraud are important. We use credit cards almost exclusively and have not paid any interest in several years.