Always Pay With Credit

I love credit cards.  How else can you get a free loan (up to one month) with 0% interest?  Some cards even give you a loan for 6 to 12 months with 0% interest.  

How else can you get paid to spend money on everyday purchases?  


Credit cards throw free money your way.  You just have to take advantage of it.

 

These are the credit cards that I own, and I use everyone of them on a regular basis

Credit cards offer an incredible amount of protection, benefits and rewards. These rewards are so good, that you should be paying for everything that you possibly can with a credit card.  If you are presented with an opportunity to pay for something with either your credit or your debit card, always go with the credit card.  And no, paying for something as a "credit charge" with your debit card is NOT the same as using your credit card.

People who are very good with their finances use credit cards.  These are people who consciously know how much they should be spending, and never spend beyond that.  

Note: people who are REALLY bad with their finances also use credit cards, but I'll talk about them in another post.

The type of person that usually uses a debit card can be divided into 2 groups:

• People who are afraid of over spending because of their poor spending habits.  These people do not track their expenses and really have no idea how much money they have, or how much money they're spending, or how much money they should be saving.  These are the type of people who have had a bad experience in the past with credit and have vowed never to use credit again.  The irony here is that using a credit card can actually help you save money and be smarter with your finances.          
  
• People who simply don't understand or realize the benefit of using a credit card.  I will show you the benefits.           

Credit card Perks

Keeps track of your spending

You can download all of your purchase transactions from the credit card company website, or link it to Mint.com. How often have you had a wad of cash in your wallet, only to notice it gone the next day, having no idea of where it vanished to? If your cash spending habits are disciplined like me, you may be able to be responsible with your cash, but I doubt it.

Free warranty extension and purchase protection

Your credit card will automatically protect most items you purchase up to an extra year beyond the manufacturer's original warranty. Let's say you buy a new laptop, and 13 months later, the hard drive fails. Your laptop's manufacturer's warranty expired 1 month ago after 12 months. You call the number on the back of the credit card you used to make the purchase, and your credit card company will either make sure your broken laptop gets fixed free of charge, or they will buy you a new laptop.  

Let's say you buy a new iPod and within the first 90 days of your purchase, should anything happen such as theft or damage (even if it's your own fault), your credit card company will replace your purchase up to $500.


Let's say you buy a brand new LED TV, then the same item goes on sale within 60 days of your purchase.  Your credit card offers price protection in any retail store and will refund the difference up to $500 per item, limited to $2500 per year.  

Free car rental insurance

Next time the sleazy guy at the car rental insurance tries to scare you into buying their vehicle protection plan, ignore his blabbering sales pitch and just say no. Your credit card may already protect the vehicle up to $50,000 including physical damage to and theft of the vehicle, and towing charges.

Trip Cancellation Insurance

While your airline company may charge you a boat load of fees to cancel and re-book your flight, your credit card has built in trip cancellation insurance, which can cover up to $5000 a year due to things like injury or illness. Let's say you booked a flight to go on vacation. Then you get sick and can't go on vacation. If your airline charges you fees to switch your flight, simply call your credit card company, and they will automatically credit those fees back to your card, no questions asked.

Fraud Protection

Let's say your credit card gets stolen or someone stole your credit card number and made a bunch of unauthorized purchases on your card. Don't worry. Call your credit card company - they will put a freeze on your account, credit back all charges you did not make, won't charge you any interest, and will send you a new credit card right away. All free of charge, no questions asked. Let's say you use your debit card and get your PIN number stolen and your account gets wiped. It may take weeks to get everything (unauthorized charges, overdraft fees) straightened out with your bank.

Flight Insurance (not all credit card benefits include this one, but mine does so I'm including it)

Buying your plane ticket with your credit card can insure you automatically up to $500,000 against accidental loss of life, limb, sight, speech, or hearing. Lost luggage reimbursement will cover you up to $3000.  Travel emergency assistance 24 hours a day 365 days a year.  There are no charges for these services: emergency message service, legal referral assistance, emergency transportation, ticket replacement, lost luggage locator service, translation service, prescription assistance, valuable document delivery arrangements.

Debit cards simply do not offer the right protection, features, and benefits that credit cards do.

Wow this is great, what's the catch?

There are 2 golden rules about credit cards that you absolutely MUST obey:

#1.  Always pay off your statement balance in full.  If you have even a small balance on your credit card, then you are not financially fit enough to continue to use it.  Stop reading the rest of this article and fix your credit card debt first.  

#2.  Never buy something that you can't afford.  The "buy now, pay for it later" attitude is for chumps and posers.  Chumps spend money now anticipating that they will somehow have money to pay for things later. Posers pretend and act like they are rich by buying nice things that they can't afford, and then let their credit card debt build up.  61% of Americans carry a credit card balance every month, don't be one of them.

Use an application like clearcheckbook to see the big picture of how much money you have.  As you switch to using credit cards to make purchases, you will be keeping more money in your bank account.  Clearcheckbook will keep you accountable for your expenses.  You should always have considerably more money in your bank account than what you are charging. 

See my clearcheckbook review here.

When your credit card bill comes via email (go paperless), follow golden rule #1.  Pay your statement balance in full with all the extra money in your bank account that you haven't touched (since you are now using your credit card whenever you can).

Some random tips not to forget when using your credit card:

• Do NOT pay for the entire bill for the table of people paying cash with your credit card.  Don't try to "cash out" your credit card. This is a huge mistake and a terrible idea, unless you can immediately go home to put that cash in the bank and use it to pay towards your credit card balance. You'll end up with a bunch of cash in your wallet that you will end up spending on something forgettable. This is a terrible idea that chumps often do.  If you can immediately deposit that money into your bank account, then this is okay.  

• Watch out for "purchase acceleration" when trying to earn rewards or points on your credit card, by spending more money than you normally would.

Buying your plane ticket with your credit card can insure you automatically up to $500,000 against accidental loss of life, limb, sight, speech, or hearing. Lost luggage reimbursement will cover you up to $3000.  Travel emergency assistance 24 hours a day 365 days a year.  There are no charges for these services: emergency message service, legal referral assistance, emergency transportation, ticket replacement, lost luggage locator service, translation service, prescription assistance, valuable document delivery arrangements.

Maximize your rewards and points.  

Make sure you use the right credit card for the right situation. Most cash back credit cards give you 1% cash back on all purchases but some have extra bonus cash back categories. Here's some of the ways I try to maximize my cash back rewards.  Call your credit card company to send you a full list of their rewards. There are tons of ways to get cash back, points, and travel miles. This is just to give you an idea of some of the ways I use my cards.

• When I go to Target, I use my Target Red Card, which gives me 5% off all purchases at Target, and free shipping at Target.com.

• When I get groceries, I use my Blue Cash Everyday® Card from American Express to get 3% back on grocery purchases. This card also gives me 2% cash back on purchases made at gas stations and department stores.

• When I go out to eat, I get 2% cash back at all restaurants with my Chase Sapphire Preferred Card I also use this card to get 2% back on travel expenses, no foreign transaction fees, and 20% off travel purchases made through the Chase website. This card also gives me a 7% bonus points on all of the points I earn throughout the year. Sounds silly, but I love the way this card looks and feels. It's my go to card for now. Note this card charges a $95 annual fee after the first year, so I'm testing it out to see if it's worth it. For fee cards should usually be avoided unless you are able to maximize the benefits beyond the annual fee.

• When I fill up on gas, I use my Chase Freedom Card to get 5% cash back on fuel and gas station charges. This 5% deal expires in March and comes back in July. The Freedom card has rotating 5% categories that change every few months. After that, I may go to my Blue Cash Everyday® Card from American Express for the 2% cash back at gas stations.  My Chase Ink Cash card also earns 2% cash back at gas stations.  You can read more about getting rewarded for fuel purchases here.

In conclusion: Credit cards good (if used properly). Debit cards bad.