Credit cards: They can help you or hurt you; it all depends on how you choose to use and manage them
Credit cards can be akin to a sharp knife: incredibly useful for many things, but you need be very careful and avoid cutting yourself with fees and interest. Overall credit cards can be very supportive tools to apply in your journey to Financial Independence, and to achieve this primarily requires the discipline to follow two simple rules:
- Spend carefully on items that you both need and can afford
- Pay your bill on time and in full
Now just because its straightforward, doesn’t mean it’s easy; banks know that many people will fail to follow these rules and in turn become very profitable customers for them. Retailers often gladly accept credit cards knowing that users will generally spend more on credit cards than they would with hard cash. Many credit cards carry interest rates 18% and higher, which can quickly grow your debt if you fail to pay it off immediately.
Having a credit card is often an important part of building a credit score and becoming an adult in the United States, as it can demonstrate that you are responsible paying down your debts.
The benefits of using credit cards: rewards that save your hard earned cash
The primary reason I use a credit card wherever its feasible is because when I follow the rules above, I can generally earn at least 2% back on everything I spend. It’s wonderful when large fixed expenses in my life, such as monthly childcare charges, can be billed to a credit card. When used like this credit cards can support your path to financial independence.
Our family loves redeeming credit card points for two key purposes:
- Summer vacation and general summer spending, when my wife’s teacher income pauses
- Christmas “thank you” gift cards for the many teachers and other people who help our family out through the year (Kids’ teachers, Dog walker, Bus driver etc.)
Redeeming credit card points helps us to navigate those challenging months of the year where income or expenses tend to be a little more challenging than usual.
In 2018 we have become much more intentional with Travel Hacking, which makes the most of lucrative introductory bonus offers that various credit cards will offer for opening and hitting specific spending requirements; when you have monthly childcare bills like us, these targets can be very achievable. You’ll see more about our 2019 trip to Hawaii this coming summer, which will be heavily subsidized from our Travel Hacking efforts in recent months.
There are two cards that have stood the test of time in my wallet, and these are the reasons why I appreciate them so much:
- You can earn 2% back on every single purchase that you make
- You get the best deal when you redeem rewards points for gift cards or choosing to erase travel related expenses (the full 2% of all spending). They have a broad selection of gift cards that are very practical for our everyday needs e.g. Amazon
- There are zero foreign currency transaction fees if you are overseas
- It’s a Visa card, so its accepted virtually everywhere, like the Costco gas station
- They currently offer 50,000 bonus points for new members who spend $3,000 in the first three months, which is equivalent to $500 in gift cards
- The annual fee is $0 for the first year, then $95 annually; Personally, I can make up so much value in gift cards and travel rewards throughout the year that I feel this is fair and manageable
- While most purchases only generate 1% rewards, every three months (quarter), they will have a bonus category with 5% cash back (Restaurants, Gas, Amazon etc.)
- An important point to remember is that you need to activate the bonus category to be eligible for this amount; you usually get reminder emails to support you in this effort or can do it in their very user-friendly app at any time in the weeks leading up to the new Quarter
- I consider this is my “side-kick card” that suddenly takes priority for any purchases that may align with the 5% category. During the last few years Amazon has been the bonus category for October through December, so we take full advantage of this for Christmas gifts
- Keep in mind that the most you can earn with the 5% bonus category is generally limited to $75 for the Quarter ($1500 of spending per Quarter can qualify for the 5% back). This is usually still hard for me to achieve in my day to day spending.
- These rewards can be used in a very broad range of options and many gift cards
- There appears to be no annual fee, and during your first year they will automatically double the number of Cashback rewards you earned
These two have been staples in wallet for years now, and I’ve been very happy with them.
More recently I have been using the Chase Sapphire Reserve card for most of my Dining and Travel expenses, which offers 3% rewards on these two categories, and these can be worth an additional 50% when spent through their own travel center. However, with the $450 annual fee it charges ($300 of which can be covered by an automatic travel category credit, lowering it to $150), I’m still trying to figure out if this card will deliver enough value to stand the test of time in my wallet over the long haul with these other two.
What about you?
Are there any newer credit cards that you think I should be changing to for my default and basic everyday credit cards ? What credit cards are you leveraging on your path to Financial Independence?
Details provided on credit cards have not been provided or commissioned by the credit card issuer. Opinions expressed here are author’s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through the credit card issuer Affiliate Program. Full Disclaimers