The Best Way to Use Credit Cards

Consumers use credit cards for different reasons, some use them to accrue points and bonuses, while others use them more for the extension of credit and because they might not necessarily have all the available cash to make a purchase. The best way to use a credit card can vary depending on your purpose. Credit cards are typically not a good option for borrowing since interest rates tend to be higher on them then many other borrowing options however they are good in acting as a buffer and insurance plan on larger purchases and can provide some benefits via points.

Credit Card For Points

Many consumers love using credit cards simply for the act of attaining rewards and racking up credit card points. These rewards will typically either go towards vacations or can be used as a statement credit towards their balance. Points provide a nice benefit for many users but they also motivate spending which isn’t always a good thing. When consumers get credit card rewards they often feel happier with their credit card company and issuer and are more inclined to use the credit cards. Some credit card memberships come with great perks and are a main sticking point for many consumers, however the rewards systems can change and so can consumer sentiment.

Credit Cards as a Buffer on Purchases

When you use a debit card for everyday purchases its akin to making purchases naked. If you are subject to fraud and your card gets lost or stolen you won’t be able to do much about charges that may have already been processed. Anyone with access to your account that makes charges can leave you with irreversible activity that will be very difficult to reverse. The reasoning is quite simple, if you make a charge with your debt card there is no buffer between your bank account and the transaction. Credit cards are great as acting like a buffer between payments and transactions and this is one of the many benefits of their utility in modern finances. Without this buffer, charges are much more permanent and irrevocable.

Can You Use Your Credit Card for All Applicable Purchases?

You should feel free to use credit cards for all applicable spending; if you always pay your balance at the end of the month. This way you won’t pay interest on your credit cards and will always stay within the grace period. In this scenario you can absolutely feel free to swipe away. Take advantage of your credit card rewards and maximize your points. This is when you as a consumer are winning—as opposed to the credit card companies.

When It Might Not Be a Good Idea to Use Credit Cards

If you maintain a revolving balance and pay interest charges on that balance. In this scenario, the opportunity cost of using your credit cards is not worth it! Any charges you make will accrue daily interest and always outweigh the benefit of any rewards you may receive. In this scenario its really important to be mindful of the charges you make and try your best to restrict credit card usage.

Financial Discipline

Depending on your financial discipline, you should feel free to use credit cards for everyday purchases. Credit cards are meant to be vehicles for short term borrowing. So as long as you are paying what you charge in the short term you are fine to use them as you please.

For Maintaining Credit

In terms of maintaining a low utilization and therefore a good credit score, it’s recommended you pay your credit card statement off little by little. Ideally you want to have the lowest possible balance, for whenever payment activity gets reported to the credit bureaus each month. However, if credit isn’t a concern, some consumers may prefer to just pay the statement balance off in full at the end of each month.

The best ways for consumers to use credit cards is by making sure they remain within the grace period and therefore pay no interest throughout the course of the billing cycle. Ideally, you should strive to live within your means. Unfortunately, this is going to be a viable option for every consumer. In the case that it isn’t, you want to make sure you are paying more than you are charging each month. All too often, consumers make substantial payments on their accounts but do not realize that the charges they make throughout the month are essentially offsetting all payments made. This slowly adds to their total revolving balance and can leave you stuck in place.