Credit cards are often seen as the root of all financial evil. This is largely down to the fact that, until fairly recently, credit has been so easy to come by and credit cards are usually the most convenient way to carry out a transaction. Problems can then arise when people become irresponsible and let balances build up at the end of each month as that is when the high interests rates can begin to take their toll and the debts can mount up.
But providing that you are sensible and use your cards correctly then they are a great way to manage your personal cash flow and can save or even make money for you!
You just need to have the right cards and use them in the right way.
Managing cash flow
Interest free credit cards are a great way to manage your personal cash flow as you can make a purchase, or several purchases, and genuinely spread the cost over a number of months. And, when it comes to managing your cash flow, it is easier to factor in a number of smaller monthly payments rather than one large up front payment.
But it is important to remember that this way of managing your cash flow only works with those cards that have an interest free period as this is the only way to genuinely spread the cost over a number of months without incurring any interest. If you try to do this with a card that has any sort of interest rate then you will start incurring extra charges at the end of the first month and this can quickly become unmanageable.
Save money
Credit cards can also be a great way to save money if you choose one that offers an incentive such as loyalty points or airmiles. Many of the larger grocery stores now offer credit cards that are directly linked to their loyalty reward schemes. This usually means that for every dollar spent you earn a certain number of reward points that you can redeem against future grocery purchases. In addition, some supermarkets offer coupons that can be redeemed at gas stations and so can help you cut down the cost of running your car.
Furthermore, credit cards can help you to save money on vacations as some lenders, particularly those affiliated to airlines or travel companies, will offer discounts when you use their credit card to pay for your flight, hotel or your entire vacation.
Make money
As implausible as it sounds you can actually make money from your credit card company provided that you have a card that offers cash back on new purchases. Some lenders have offers on cards that will give you up to five per cent cash back on new purchases and, provided that you pay the balance back in full at the end of each month, this is essentially free money!
A great way to take advantage of this is to use your credit card for everyday purchases, ensuring you pay off the balance at the end of each month. So, for example, if you spend $400 per month on groceries and $200 per month on gas and put these outgoings on your cash back credit card, then you will be rewarded with cash back on purchases that you would have made anyway. Once again though, it is vital that you pay off your credit card balance in full at the end of each month.
So far from being a sure fire way into financial oblivion a credit card can be a great ally when fine tuning your finances. But it cannot be stressed often enough that great care must be taken when using credit cards and reckless spending must be avoided at all costs. Furthermore, to take advantage of any money saving offers you must make sure that you do not incur any interest charges on your purchases and so must be in a position to pay off the full balance at the end of each month.
Article written by Les Roberts, credit journalist.