Credit card whenever used wisely can be a very effective financial instrument. They are easy to use, secure and can even have rewards but on the flip side they can create debt and financial problems if mishandled.
This paper aims to assist consumers in the United States who frequently use credit cards to comprehending the best ways to benefit from their cards as well as reduce the expenses that are incurred. The following are the tips on how to save money using credit cards.
Understanding and utilizing rewards programs
Rewards programs for credit cards are a great way to save money especially if you know how to use it to the max. These programs provide points, miles or cash back on each dollar spent, which can be used to get different items or services.
First of all, it is crucial to select a credit card that corresponds to the consumer’s spending patterns. For instance, if you are a frequent traveler, a card that provides miles for airlines or points for hotels may be useful to you.
On the other hand, if, for instance, you shop for groceries frequently or fill up your car with gas, it will be more beneficial to find a cash back card that rewards you the most in these categories. Choosing the most appropriate card is beneficial in a way that one gets to earn rewards on the things they spend their money on.
Secondly, know the available redemption options and the benefit you can get from the same. Certain cards deliver higher value if the rewards are redeemed for travel instead of getting cash back or gift cards.
Knowing the redemption rates will assist you in getting the most out of your points or miles that you have earned. For instance, using the points to get flights or hotel bookings will help you get a better value for your points as compared to getting a statement credit.
Last but not the least, always look for the promotional offers and sign up bonuses. Most credit cards give a lot of rewards if you use it and meet a certain amount of spending in the first three to six months of use.
These bonuses can be used to quickly amass a big quantity of points or miles. Nevertheless, it is necessary to check that you will be able to cover the required amount of spending without exceeding the set limit or having debts.
Avoiding interest and fees
Fees and interest paid on the credit card can easily offset the rewards and put the consumer in a lot of debt. This is therefore to say that by making the right moves with your credit card, you can be able to avoid these charges and in the process save some dollars.
There is no way you will be charged interest if you ensure that you clear your balance at the end of every month. If you are allowed to roll over your balance to the next month, you incur interest charges which can accumulate to a large sum if you have a high interest rate.
It is also recommended that you sign up for automatic payments so that you will not miss a payment and get charged for it. Another one is to use balance transfer. It means to transfer the balance to another card with lower or no interest rate.
Moving a balance with a high interest rate to a card with an introductory interest rate of 0% can help you save a lot of money in interest. Nevertheless, be prepared to the balance transfer fees, which can vary from 3% to 5% of the transferred sum.
Also, it is necessary to consider other charges linked with credit cards. The annual fees, foreign transaction fees, and cash advance fees are some of the fees that one has to be careful about. Select a credit card with charges that are worth the money as per your understanding.
For instance, if a card has an annual fee, but it comes with good rewards and features that can be more valuable than the fee, then it could still be a good card to have. Nevertheless, if the fees cannot be compensated for by the rewards, go for a no-annual-fee card.
Strategic spending and budgeting
The use of budgeting in the expenditure of credit cards and the implementation of sound strategies in the use of these cards can go a long way in helping one save on costs. Thus, if one is careful with spending and uses the credit card to control spending, then rewards can be gained and costs reduced.
First of all, it is recommended to make a detailed budget of the monthly income and expenditure. Divide into subcategories of spending including food and grocery, eating out, leisure and recreational, and transportation.
For such planned expenses, it’s better to use the credit card and at the same time earn rewards while maintaining your budget. It also avoids a situation where one is using a lot of money to acquire the rewards that may end up creating debts which will defeat the whole purpose.
Also, it is recommended to have more than one credit card to take advantage of rewards offered in various categories. For instance, one card could be giving high cash back on groceries while another card could be giving high cash back on travel expenses.
When you plan to use each card in the respective category, this will help you to get the maximum reward and save your money. However, do not engage in applying for too many credit cards as this will not be good for your credit score.
Conclusion
Credit cards have various pros that include saving money and getting rewards but come with cons that include accruing debt and expenses. It is therefore possible to use the rewards programs, avoid interests and fees, and strategically use the money on the credit cards to get the desired savings.
Remember, the use of credit cards is not a problem if one knows how to handle them wisely, ensuring that they can leverage the financial benefits, such as building credit history, earning rewards, and managing cash flow effectively.