Credit Cards can either be friend or foe. It’s all in how you use them and how disciplined you are. I’m going to lay out some tips that can help you save big money!
Credit Card Discipline - Avoiding Accruing Interest Fees!
Card cards are typically the worst way to finance anything. Interest rates are generally high. That’s why you must avoid credit card interest at all costs. Pay those cards off every single month! The appropriate amount of credit card interest to pay each year is zero dollars and zero cents. If you don’t have the discipline to do avoid paying credit card interest then you should probably avoid using credit cards.
Cashback is King!
Many credit cards offer cashback, points, or miles. I highly recommend credit cards that allow you to get cashback. Points and miles that can be redeemed for merchandise or airfare don’t help you as much as cashback. In fact, some rewards might actually hurt you financially. When you redeem your miles for airfare you end spending money on a vacation that you might not have taken or maybe you would have choose a less expensive option.
A friend of mine’s credit card gives her points she can redeem toward a Disney vacation. She builds the points up and is able to use them toward subsidizing a vacation to Disney. However this friend goes to Disney 1-2 times per year. Now granted, she really does love Disney vacations, but her credit card is motivating them to spend $5,000 to $10,000 per year on expensive vacations. Her credit card might be hurting, not helping her financially.
Cashback is king. You can take your cashback and get whatever you need or even just stuff it in a savings account.
Avoid Rotating Categories and Special Deals
I recommend avoiding credit cards with rotating categories or special deals. Some credit cards will offer a low cashback rate in general, but will offer a higher cashback rate for rotating categories. This is done to incentivize you to spend money in ways you otherwise would not have. It doesn’t matter if you got 5% cashback at Outback Steakhouse if you otherwise would have ate your leftover pizza for free.
Some credit cards might have special add-on deals. “5% cash back this month at AMC Theaters!” might be a tempting special deal, but if it incentivizes you to take the family out to a movie when you otherwise wouldn’t have, then you’re losing money, not saving it.
Don’t let these companies modify your behavior. Choose credit cards that you know will help you make good decisions.
Avoid Credit Cards with Annual Fees, Unless You’ll REALLY Use the Card
If the credit card doesn’t have an annual fee there’s usually no downside to holding it, even if you don’t use it. However, when an annual fee is involved you must do a lot of thinking as to whether or not you want to take on that card. Some cards with an annual fee are worth it, but many are not.
If you have a credit card with an annual fee that you don’t use, call up their customer service and ask if you can convert the card to another program that doesn’t have an annual fee. This way you don’t hurt your credit by shutting down the credit card and also avoid the annual fee.
Recently while paying online for my upcoming vacation at a Hyatt hotel I was offered $300 off for opening up a credit card account. This was very tempting to take my $800 stay in Nashville down to a $500 stay. However, I started reading the details and I saw that the credit card has a $95 annual fee. Combine that with a credit check and eventually needing to close out the account it simply wasn’t worth it. If the card had no annual fee I probably would have went for it and then threw it in my box of rarely used cards.
Find Your Default Card!
The first step is to find your “default card”. This is going to be the credit card that you use almost all the time. This is a card that should offer good cashback with NO categories.
I highly recommend the Citi Double Cash Card. It offer 2% cash back with NO categories and NO annual fee. Here’s a link (I don’t benefit from this link): Citi Credit Cards – Find the right Credit Card for you – Citi.com
There are other options as well. I currently use the Alliant VISA, but there are a lot of hoops to jump through with that card. I get 2.5% cash back. However, I have to maintain $1,000 in an Alliant checking account and also do monthly transfers into it from another institution. However, when all is said and done I’m disciplined enough and it’s worth it enough for me to jump through the hoops.
Layer on Special Purpose Cards
After you’ve found your “default card” it’s time to find other cards that fit your situation. Still try to find cards that won’t incentivize you to spend money. The goal is to not change your behavior but also save money. These additional cards will be cards that have static categories with higher cashback than your default card. If the card doesn’t give you better cashback than your default card it shouldn’t be considered.
Here are some examples that I carry as special purpose cards:
American Express Blue Cash
- 6% Cashback at supermarkets and on select streaming services
- 3% Cashback at gas stations
- 1% Cashback on everything else (I never use this card at the 1% level)
- $6 off the Disney Streaming Bundle
- $95 annual fee (waived for the first year)
Prime Rewards Visa Signature Card
- 5% cashback on all Amazon.com purchases
- 5% cashback at Whole Foods
- 2% at restaurants and gas stations (I don’t use this card for this purpose)
- 1% cashback everywhere else (I don’t use this card for this purpose)
- No annual fee
- Make sure to use the card for CASHBACK, don’t use the cashback as a credit toward an Amazon Purchase. Otherwise you’ll be skipping out on earning 5% on the Amazon purchase!
Now USE Your Credit Cards!
So you’ve got a great “default card” and a couple special purpose cards. Now make sure you use the appropriate card when making purchases. Avoid using cash, debit cards, or checks for purchases unless you get special “cash” pricing.
My parents are in their late 60’s and are adverse to using credit cards. They feel like the McDonald’s cashier will judge them for using their credit card to pay for their cheeseburger. I’m here to tell you as a former retail worker that they PREFER YOU USE CREDIT. Retail workers don’t want to touch your money or count change to give back to you. There is no shame in using a credit card. When my mother pays cash for her cheeseburger it costs her $2.12. When I buy the same cheeseburger I only pay $2.08 because I use my credit card.
All of these little purchases add up. Don’t think of it as saving four cents on a cheeseburger, think of it as saving thousands of dollars over a year.
Stop using checks and bank transfers. Most utilities allow you to use a credit card. I spend about $1,200 a year on electricity, but I get $24 cash back for using my credit card. Insurance companies, cable providers, doctor’s offices, my city and county property taxes, almost all places take credit cards. If they don’t charge you a fee that is greater than 2% for using credit, then you should use those cards!
My Wallet
My wallet is pretty simple. I have three different credit cards I use.
Amazon - I get 5% off using my Amazon Rewards Signature Visa
Supermarkets and Gas Stations - I use my AMEX to get 6% or 3% cash back
Everything else - I use my default card, my Alliant Signature Visa to get 2.5% cash back
I’ve had a credit cards for 22 years and I’ve never paid a single cent of interest.
Discussion
Please let me know if there are any great cards I didn’t mention. Do you know of any other great “default cards” that offer good cashback with no categories? What are your special purpose cards you use?
(I do not receive any financial incentive from giving this advice.)