Credit cards can be a touchy subject but I still think it’s an important to have an open conversation about them. Often when the topic comes up in conversation, someone will say to me “Oh credit cards… I don’t have one of those because I don’t want to go into debt” or “I maxed out a credit card so I only have a debit card now.” Those are both valid concerns and whether you choose to use a credit card or not is ultimately a personal decision. Personal finance is personal! However, I believe that credit cards have a lot of benefits when used correctly. And I think that a lot of young people miss out on some major upside due solely to fear or misunderstanding.
Now here’s where I have to put a disclaimer because I will inevitably offend someone. First, I am sharing my personal experience and opinions. You should ALWAYS do your own research before making any financial decisions. Second, this post will not apply to every single person in every unique financial situation. This isn’t a book; it’s a blog post. Most of my followers, friends, and personal experiences relate to people in their 20s and 30s who are making an average income. Third, this post is in no way sponsored by any credit card company. Now, let’s get into it…
I treat credit cards like debit cards.
We all need to have one credit card or at least a debit card, especially now with the movement towards cashless due to Corona. Ok you might be able to get by without one if you really tried but it would probably be a huge inconvenience.
I think a really simple way to avoid overspending is to treat your credit card just like a debit card or like cash. I would never put anything on a credit card that I wouldn’t also pay for in cash. I always pay my balance in full. I have all of my credit cards set on auto pay so I never miss a payment. I still look at the statements but I don’t risk forgetting to pay.
I did have a lot of financial education prior to getting a credit card. I learned to find more joy in saving than spending so I don’t have the tendency to live above my means. I would never say that I haven’t made a purchase that I regret. I have. But overall, I have never spent more than I can afford to pay on a credit card.
I get that it’s about self control and it’s easier said than done. But if you have that self control – it’s a choice – then credit cards can open up a world of benefits.
I saw a post on Instagram that I thought was really great so I’ll just plop it in here. Click on the little arrows to see some little known benefits of credit cards.
If you don’t use a credit card to pay for expenses, you’re leaving money on the table.
The fact of the matter is that if you spend $1,000 a month (for example) on expenses – food, entertainment, travel, etc. you could be getting something back for that. If you use a debit card or cash to pay for those $1,000 worth of expenses, you get nothing. Let’s take it a step further and multiply that $1,000 X 12 months and you get $12,000 for the year. This is just an example and I’m guessing most people who read this post actually spend even more, but still the 12K is a good chunk of change. You could use a cash back card and maybe get 2% back which would be around $240 in this example. I prefer a travel rewards card over cash back because travel points or miles are worth more than what you would receive in cash. More on that next.
Credits cards that I use
I have a few different cards. The one I use most often is the Marriott Bonvoy American Express. Marriott is the largest hotel chain in the world so it gives you a lot of options to redeem points. In addition, the hotel points can be converted into airline miles. This credit card does have a $95 annual fee however that automatically gives you one free hotel night per year so it pays for itself. The best rewards cards usually have an annual fee. I accumulate hotel points which can be redeemed for free stays pretty much anywhere in the world.
By putting my expenses on the Marriott card, I will never have to pay for a hotel room. I see lots of people my age dropping $200 a night on Airbnbs when they travel. Airbnb doesn’t have any rewards program that I know of and if they do I doubt it comes close to the value of a hotel rewards card.
I don’t fly a lot so I don’t currently have an airline card. I had an American Airlines card that I actually cancelled because I found that the benefits didn’t even make the annual fee worth it since I flew so little. But, if you do fly a lot, then you might consider an airline miles credit card as your primary.
In addition to my AmEx, I have the Amazon Rewards Visa. I buy a lot of shit on Amazon and I get groceries delivered from Whole Foods. This card gives you 5% back on both. Most cash back cards give 1-2% so 5% is amazing. You get the 5% back each month in the form of Amazon gift cards that are automatically applied to your account. If you also shop a lot on Amazon, I recommend considering this card.
I have a Target card too because I used to live near a Target and they give you 5% off every purchase. Again, this post is not sponsored by any credit card. I’m just sharing what I personally use. I have all of these cards set on auto pay!
Credit cards can help you build good credit.
Someone else asked me how to increase their credit score. I’m definitely not an expert on this topic. There’s a ton of info out there all about the different factors that effect credit scores so I won’t attempt to rehash it.
I really just do the basics. I pay my credit card balances in full and on time every single month. My credit score is close to 800 so I’m doing something right. Age of credit is a factor of your credit score. Like it sounds, this is simply how long you’ve had credit for. Opening a credit card when you’re 18 and paying it on time will help you build good credit. You could even just put a few expenses on it each month to start showing the credit bureaus that you have good financial habits.
That’s really what a credit score is for – to show lenders and landlords that you do what you say you’re going to do. By putting $100 on a credit card and paying it off on time, you show that you have good habits.
By missing a payment, you’re saying that you might not pay on time in the future. Therefore, you are a higher risk to lenders and you’ll receive a higher interest rate if you want a loan on a house or a car in the future. There are some fancy tricks out there to increase your credit score, but in my opinion, sticking to the basics will get you far.
After reading or skimming this post, you might still choose to only use a debit card. I think it’s important to make an informed choice, whatever it is.
Happy to answer questions in the comments!
