We have a lot of expenses coming up in the next few months (wedding, home repairs/renovations, travel, etc.), and because of that we are looking into new credit cards to apply for so that we can take advantage of better rewards and new bonuses.
It seems like using credit cards for a reward/bonus is becoming more and more popular. However, is it for everyone? I think there are advantages to using credit cards, but there are also disadvantages.
Positives of using credit cards:
Credit cards are easy to use.
Credit cards are not hard to use. All you have to do is pull it out of your wallet and the exact amount will be swiped. No need to look for change or carry any coins.
You also don’t have to worry about losing your credit card as much as losing cash (you still shouldn’t try to lose anything though). If you lose cash, then it’s pretty much just lost forever. However, if you lose your credit card then you are mostly protected as long as you report it right away.
You also have credit card protection. You can dispute a charge with your credit card company if the place where you bought something from won’t refund your money.
You can earn points for normal spending.
Using your credit card means that you can gain points and get things for free or cheap such as airplane tickets, gift cards, hotels, cash, etc., all for using your credit card. If you are going to pay for something anyways, then you might as well get something for free out of it, right?
Credit cards can be used to pay for many things – almost everything you can think of besides your mortgage. We have a lot of expenses coming up, and using credit cards can be a way to get something back in return.
We have around $10,000 in wedding costs that can all be put on our credit cards, a few thousand in expected travel, and probably a few thousand in home repairs/renovations. All of that adds up very quickly!
Easier way to track your transactions.
I like credit cards because I can easily track my transactions and see where my money has gone. With cash, I always find myself wondering what I spent all my money on.
Disadvantages of using credit cards:
Credit cards are easy to use.
Yup, I have this on both the advantages and disadvantages side of my debate. Credit cards may mean that you spend more because it’s there. It can be easy to get approved for a really high balance on a credit card.
Recently, I was approved for a high limit on a credit card – $30,000. I don’t even know why I was approved for such a high limit.
Can I afford $30,000 worth of credit card debt? NO! I don’t want that either. If someone who can’t control their credit card spending had a $30,000 limit, they might go crazy and buy everything.
Increased use to reach spending levels.
Many people find themselves spending more in order to reach a bonus, such as if you have to spend $3,000 within the first 3 months in order to qualify for a bonus. If you weren’t normally going to spend $3,000, then the bonus is not worth it.
Some stores charge a fee for using a credit card.
Not many places do this, but some companies do charge a fee if you want to use a credit card for purchases. The fee is usually around 4% or 5%, which then makes using a credit card almost always pointless (unless you have an amazing rewards program) because you won’t be earning the same amount in rewards back.
Also, some places will even give a discount on purchases if you use cash, so in these cases cash would most likely be best.
Possibility of hurting your credit score.
If you don’t use credit cards correctly, it can lead to it decreasing and possibly ruining your credit score. There are correct ways to use your credit card:
- Always pay your bills on time.
- Try to pay the full balance each month if you can.
- Watch your utilization rate.
Do you have any rewards credit cards? Why or why not?
Kasia says
I’ve had one for the past year and am thinking of cancelling it. It’s gotten me in to a bit of trouble and the points just don’t seem to be enough. It can be worthwhile if you pay the balance off each month though. After a year, you can get vouchers to cover Christmas gifts for example which can be a huge saving. It also depends on the type of points you get, if you’re a traveller credit cards with frequent flyer points would be useful. The key is to finding one that works for your financial situation.
Michelle S. says
Yeah, if it gets you in trouble there is no point in keeping it.
DC @ Young Adult Money says
I use credit cards whenever I have the opportunity. You brought up pretty much all the reasons already – easy to track transactions and rewards are the biggest ones for me.
Michelle S. says
How many cards do you have?
Brian says
I live in a cashless world. I have some “emergency” cash with me at all times but I pretty much never use it. I figure that if a bank wants to give me something free for being responsible I am all for it.
I have yet to encounter a place that charges more for credit because up until recently that was a violation of their merchant agreement. On top of that, it is a bad business practice because it will drive some customers to go somewhere else where they can use their cards.
Michelle S. says
Yeah, I hate when businesses charge more for using a credit card. I don’t believe they are supposed to do that.
Dave @ The New York Budget says
I definitely use credit cards to accumulate awards (travel, specifically). However, for me, there were two big issues I needed to make sure were in check before I did: 1) I needed to have a spending plan to make sure I wouldn’t spend more money now that I was chasing reward points. 2) I needed to make sure I would remember to pay on time, because late fees cancel out your rewards QUICK (I have set up automatic payments, which works well).
Michelle S. says
Sounds awesome Dave. Have you gotten any amazing rewards?
Dave @ The New York Budget says
I have used points on some small, domestic trips (probably use points for FinCon this year!), but I am mostly in the accumulation phase. I have about 100k United miles currently, so I will definitely be planning a bigger trip in 2015 or 2016!
Michelle S. says
That’s awesome Dave! Thanks for sharing 🙂
jane savers @ solving the money puzzle says
Credit cards with bonus points are very important for me. I paid for my big Christmas groceries with bonus points and I got several tanks of gas with cash back on my Visa this winter.
Dog food and toilet paper with the Costco Amex reward cheque and all I have to do is pay as I go. I don’t usually charge unless I already have the money in my chequing account. The only exception to that is health care expenses because if I pay them with my credit card I can get the reimbursement cheque before the credit card bill is due.
If you can’t pay it off then just don’t use it.
Michelle S. says
Yup, if you can’t pay it off, you definitely should not use it. Interest fees would make the rewards absolutely pointless.
Holly@ClubThrifty says
We probably have 20 cards between us….solely because we use them for rewards. We just pat them in full each month, or several times each month. It’s an easy way to get free flights and hotel stays!
Michelle S. says
Hey Holly! Thanks for sharing. I do have a question – Do you plan on closing some of the credit cards, or are you going to keep them open? I’m debating closing a card of mine that has an annual fee.
Holly@ClubThrifty says
Close it! I close them all the time, usually right after I open a new one. Just make sure to space your cancellations and new cards out some…and make Wes do some of them. I usually alternate applications between me, Greg, and the business. I keep a spreadsheet of when the annual fees hit so I can close them on time.
Michelle S. says
Good to hear! I plan on doing that 🙂
Lauren Thompson says
I never pay annual fees on credit cards unless the fee will easily be worth it in the rewards. (so it is really rare that I do) Otherwise I find deals where I can get the first year without the annual fee and then cancel it after that.
My husband is really good at playing the credit card game which at first I was skeptical of. I thought that we would have to spend lots of money and overspend to get rewards and such. But we are on a tight budget, we don’t spend a lot and we have been able to afford to travel with the credit card rewards.
John @ Frugal Rules says
We use them whenever we can to earn bonus points. Now that we’ve started to churn some, it only makes sense to do so in order to earn free trips. I think as long as you can handle using the cards and not be tempted to overspend, then it’s a no-brainer.
Michelle S. says
I agree John!
Amanda says
I’ve had my credit card for 10+ years but hardly ever used it. When I was working on a post last summer about rewards points, I noticed that I’ve accumulated a lot of reward points on said credit card. I’ve been keeping an eye on what I could use these points for, and last week I noticed that I can actually redeem these points for cash! Well – sort of. I was able to turn the points into a $225 TFSA account!
After my recent move, I’ve been carrying a small (under $500) balance on my card, thanks to various deposits and lingering moving costs. So, I haven’t been using my card for any new purchases until I can get it back to a $0 balance each month (which should be by next pay day). I will, however, go back to using my credit card more like a debit card to rack up more points when I can do so responsibly. 🙂
Michelle S. says
$225 is a nice reward!
Andrew@LivingRichCheaply says
I’m a big fan of rewards/bonus credit cards. I haven’t gotten bonus ones recently because we might be taking on a mortgage in the near future and I don’t want any dings on the credit report. As for the rewards…I probably need a spreadsheet to keep up with the 5% rotating categories. I think I pretty much get 5% cash back for most of my purchases.
Michelle S. says
We haven’t gotten a new credit card recently either because we are still on the fence about buying a new home. We most likely won’t buy until next year though, so we might just go ahead and apply for new cards.
Lauren says
I think rewards cards are great for responsible spenders. We currently have one, and I’d like to get another for travel rewards, but we just don’t spend enough! Hitting those limits for bonuses and such would be tough right now since we stick to a tight budget.
Michelle S. says
Yes, if we didn’t have so many wedding expenses coming up, it would be hard for us to hit those limits.
Stefanie @ The Broke and Beautiful Life says
I use a rewards card because I always pay off the full balance. I’m flying to Europe in two weeks all on rewards from ONE credit card.
Michelle S. says
That’s awesome Stefanie!
Kasey @ Debt Perception says
I have one rewards credit card but it’s paid off and I don’t use it very often. My husband has a credit card (I am a user of it) and the rewards are better and will hopefully pay for my mom to visit me for a month or two while my husband is on deployment later this year.
Michelle S. says
Sounds like a great plan Kasey!
GamingYourFinances says
We’ve done a bit of credit card churning in the past. That’s actually how we paid for our flights to Japan last year. We’re aware of the risks and keep an eye on our credit rating. The good thing is that this is only one part of the calculation. We’ve found the impact to be minimal.
Michelle S. says
That’s good that you found the impact to be minimal. That’s what a lot of people say so that makes me happy!
Dee @ Color Me Frugal says
We’ve just started becoming more savvy about using credit cards in the last few months. Now we use the cards for most expenses to rack up the rewards and a few weeks ago we got a free rental car (for a week!) on rewards when we went somewhere in the mountains and needed 4 wheel drive to get there. I think as long you you pay your cc bills on time, rewards cards are totally the way to go!
Michelle S. says
That is a nice reward!
Jason B says
I have 2 credit cards but I’m not using them while I’m paying this debt down.
Michelle S. says
Sounds like a good plan.
Carlos @ TheFrugalWeds says
My wife and I definitely take advantage of credit cards for travel rewards. It all comes down to maintaining current spending habits and paying in full each month. Since we are comfortable doing this we pretty much put all our spends on credit cards now. We are planning a trip to Hawaii in the fall and the flights and car rental will be covered by credit card rewards (hopefully hotel nights too but we are still working on that).
Michelle S. says
That sounds like an awesome trip! I am so jealous. I hope to be able to do that at some point.
Grayson @ Debt Roundup says
Being a big credit card debtor, I was scared of cards for about 6 months. I paid off all of mine, but then I realized the power of the rewards. I have now successfully earned great rewards and never paid a dime in interest. They can be used wisely, but you just have to understand your spending mentality.
Michelle S. says
The power of credit card rewards is great! 🙂
Caleb says
Many think that credit cards are necessary evil. The truth is that they are not evil at all when they are used correctly, they can actually be financially beneficial. With all of the rewards, cash back options and bonus rewards that credit cards offer there are many ways you can help your financial situation. The best thing to do is compare credit card offers to see which one can help you and fit your situation as well as your lifestyle.
Sam says
My question is, when do you know WHEN to spend your points? Do you personally save up a ton and then spend or are you still saving them? We’ve racked some up but I never know when the right time to actually use them is.
Michelle S. says
I just spend them as I need them 🙂