Credit cards have a bad reputation with some personal finance gurus. Some advocate that people should ONLY pay for bills and expenses with cash. I agree with them early on — if you don't have a budget and have credit card debt or loans, you likely should STOP using credit cards immediately until you can take control of your spending.
BUT if you are debt free, and have learned the discipline and will power needed to control your spending and stick to a budget, credit cards can be a tool and a resource. Like Spider Man once said, 'With great power comes great responsibility'. And that's true for credit cards.
Now we've got that disclaimer out of the way, here is how I use credit cards as a tool (a tool that earns free money).
My current credit card set up:
- American Express Blue Cash Card: 3% cash back on groceries, 2% cash back on gas.
- Discover IT card: Revolving 5% cash back categories, adjust use as needed to match category.
- Cash App Card: Rotating 'Boost' categories, including one this month for '5% back in bitcoin'.
- Chase Freedom Unlimited: 3% cash back at restaurants, 1.5% cash back on everything else (use for all purchase that don't fall in other above categories). Came w/ a $200 sign up bonus if I spent $500 in the first 3 months.
A few other rules with my credit cards and their use:
- I ALWAYS pay off my credit card statement balance monthly. In this way, it functions like the old 'charge' cards vs. a credit card. It allows me the benefit of the credit card, without being charged interest or fees.
- I prefer cards with $0 annual fee.
- I prefer cards that match my spending habits. For example, I eat out at restaurants a lot (more than I should), so I have a card that prioritizes cash back on that category since I ALREADY spend on it often.
- I always use cash back to pay off the statement balance or have the cash back deposited into my bank. I don't use points to buy gift cards or other things because the use of those points don't pay cash back. However, if you get the cash and then use your credit card on whatever you were going to buy with those points or gift cards, you earn additional cash back!
- Do NOT spend just to get rewards or bonuses. The whole point of the above system is to get the benefits of credit cards while avoiding the drawbacks (fees, interest, debt). If you're spending just to get rewards or bonuses, it's a lose/lose game. Continue your normal spending habits and plan what cards you will use based off of that to your benefit.
- I always space out any credit card applications by six months (this ensures it does not hurt your credit score when you get new credit).
If you track your spending (which you should) you can look at your spending patterns and do the math on the cash back bonuses to determine if a card is good for your spending. You can also determine if an annual fee is worth it. It usually isn't if you aren't a high spender.
Since I pay off my balance monthly, I never pay interest or fees.
Taxes (not tax advice, seek professional for advice): In general, credit card rewards are treated like a rebate, so they are not considered income. This includes cash back. So, with your cash back you are generating a small income with your spending that you normally do. AND it does not trigger a taxable event.
Lastly, credit cards come with a bunch of bonuses over regular cash.
- If it gets lost or stolen, you get refunded. That doesn't happen if your wallet is stolen.
- Cards often have rental car insurance and buyer protection against fraud. Some even allow returns on purchases if you're unsatisfied.
Credit cards can be an awesome tool as long as you have a strong financial foundation (a budget, no debt).
Are their any cards I may be leaving out that I should consider? Feel free to share your thoughts below.
P.S. If you aren't using Cash App and would like to, feel free to sign up using my referral link. I use it to buy Bitcoin, pay money to friends (like Venmo) and use their Cash App card for the rotating boosts mentioned above (referral code VMXPZJG): My Cash App Referral Link
