The best investors know that either they work for their money or their money works for them. The reality for most consumers is that they have to work for most of their money, but that doesn't mean that having the mind of a professional investor can't be profitable. One investor said that credit cards are a place to send money to die and the way most people use their credit cards, that's true.
It doesn't have to be that way. There are ways to make your credit card work for you instead of you throwing money at it.
Pay It Off
Of course you know that you need to pay down debt, but before you can make your credit cards work for you, you have to eliminate the interest you're paying. Interest, sometimes at rates as high as 20% or more, equates to big money thrown away to make purchases that could have waited until later in most cases. Before considering any other strategy for your credit cards, address your interest payments by paying down the debt and finding a new card with a lower long-term rate.
If your credit card doesn't offer you rewards points for all of your purchases, you need to get a different card. Although some credit cards charge an annual fee to enroll in a rewards program, many do not. Don't pay an annual fee, but do find the rewards program that fits your lifestyle. If you spend a lot of time in your car, find a card that awards double points to gas station purchases. If your purchases are more family oriented, you need a more multifaceted rewards card.
When you pay your card in full and avoid interest charges, the credit card company is essentially paying you to use their card. Your card use is generating income for the card company from the merchant which makes it worth the card company's while to encourage you by giving you rewards points.
Are you the warranty type? If you purchase extended warranties for your electronics or other items, you may not be aware that your credit card may give you that coverage free of charge. American Express gives some of its card holders a minimum of an extra one year of protection. Along with American Express, Visa offers similar protection on some of its cards. Not all cards are eligible for extended warranty coverage and some items, including power tools, pets and many other items are excluded from the coverage.
Car Rental Insurance
Did you know that most major credit cards include insurance if you rent a car and get into an accident? Those high fees that rental car companies charge for the optional insurance can be completely eliminated thanks to your credit card, right?
Actually, it isn't that simple. Your credit card company offers coverage, but there are limitations. The primary renter has to be the person who was driving during the accident, some cards won't cover pickup trucks, the rental period has to be less than 30 days, and the rental has to be 100% with the card offering the coverage, to name only a few of the exclusions. This coverage could save you a lot of money, especially if you're a frequent renter, but don't decline the rental company insurance coverage until you have a complete understanding of your credit card company's coverage.
Pay Your Balance With Points
If you have a card with cash rewards or your points can go towards a wide variety of nice merchandise, say no to spending those rewards. Most rewards cards will allow you to put your rewards points towards your balance. This increases the value of the rewards points because they are not only paying down the debt but they're also reducing your interest burden. Don't use your points to purchase more stuff. Make those points work for you by paying off debt.
The Bottom Line
Generally, avoiding the use of credit cards unless you're highly financially disciplined is well-advised. Remember that before any of the above perks of using a card actually become perks, you have to cut out those interest payments. There are very few ways for the consumer to make more money than to pay off existing debt.
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