Credit cards allow you to earn interest
While the interest rates on credit cards can result in costly borrowing for those consumers who revolve a balance, paying with your credit card may actually enable you to earn interest on the money in your bank account.
Since credit cards offer a "float" -- or the time between when you pay for an item and when you must pay back the borrower -- the funds in your bank account are given added time to grow.
Consumers who pay for nearly everything with a credit card and then pay their balance in full each month will be able to leave their bank account virtually untouched during the month, since they will not be taking out cash at the ATM or writing checks.
When your credit card statement arrives each month, you generally have a few weeks or so until the payment due date. Although you want to make sure your payment arrives on time or in advance of the due date to avoid late fees, going online to make a credit card payment often helps you know more exactly when the payment will post from your bank account to the credit card issuer.
During the time between when you use your credit card to make a purchase or pay a bill and when the card statement is due, you are paying 0 percent interest on your debt. At the same time, the money in your bank account is allowed to sit untouched, accumulating interest.
If you use a cash back or reward credit card, these added earnings will be on top of what you already get from the credit card issuer. Used in this manner, your credit card lets you earn interest on money you have essentially already spent.
While interest-free debt is a great deal, it can be dangerous for consumers that are living paycheck to paycheck or who may otherwise have difficulty paying their credit card bill. Such consumers would be better served using a prepaid debit card in place of a credit card to avoid getting into debt.
Published: May 10, 2007
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