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Account management

How to use your credit card wisely

A credit card can be a tool for building credit, earning rewards and budgeting – if you use it responsibly. Here are some tips from experts

Summary

A credit card can be a valuable tool in building up your net worth and strengthening your finances, if you use it responsibly and in the right situations. Read on for tips from financial experts on how, when and why to use your credit card.

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Credit cards can be a valuable tool in building up your net worth and strengthening your personal financial situation.

But a credit card will only help you if you use it responsibly and in the right situations. The cash back, hotel points, airline miles or other benefits of credit card use can be substantial. While many people have received tons of benefits from credit cards, there are plenty of others for whom credit card usage has led to financial ruin.

Read on as we explore some of the best tips from financial experts on how, when and why to use your credit card. We’ll take a look at when you should use your credit card and when it’s best to find a different way to pay.

See related: How do credit cards work?

The basics of credit card usage

Credit card usage has gradually increased since its recession lows in 2010, and many consumers are turning toward more convenient methods of payment. With the rise of contactless payments in the US, expect the percentage of credit card, mobile and other noncash payments to continue to increase.

Banks and other credit card issuers have a financial reason to incentivize ease of payment. Studies have shown that consumers spend more when using a credit card rather than cash, and the easier it is for consumers to pay, the more they will spend.

Banks charge merchants processing and other interchange fees for the privilege of accepting their credit cards and then pass some of those fees back to cardholders in the form of cash back and other rewards.

When to use your credit card

Responsible credit card usage can be a good financial habit, but you must have the discipline and means to pay off your credit card balances in full each and every month. When you miss even one credit card payment, it damages your credit score and you are likely to get charged late fees and have your card interest rate increased.

If you have the financial ability and discipline to pay off your credit card in full, and if the price is the same regardless of whether you use cash or card, there’s no reason not to use a credit card.

If you don’t use a card, you can miss out on valuable points, miles and credit card rewards. In addition, the sign-up bonuses that come on many popular credit cards can provide outsized value.

For instance, the popular Chase Sapphire Preferred card* offers 60,000 Ultimate Rewards after spending $4,000 in the first three months of having the card. We value Chase Ultimate Rewards at about 1.26 cents per point, so it’s like earning an 18.9% rebate on all of your spending during those first three months.

Nate O’Brien, who runs a popular personal finance YouTube channel, suggests using a credit card for fixed costs that you incur regardless of payment method.

“My landlord accepts credit cards as a form of payment,” O’Brien said. “Instead of writing checks or withdrawing money from my bank account, I use my credit card because it allows me to earn rewards for an expense which was unavoidable.”

See related: How to pay rent with a credit card

When not to use your credit card

The No. 1 reason not to use your credit card is you can’t pay the statement balance when it comes due. Avoid spending money on a credit card unless you have money in the bank to pay for that purchase.

As noted, using your credit card to pay rent or other fixed costs allows you to earn rewards or cash back for expenses that you have to pay anyway. But it’s wise to consider if you’re paying extra for the privilege of using a card, says Austin Weyenberg, founder of the personal finance site The Logic of Money.

“Many landlords or other merchants charge huge fees for using a credit card and one fee for paying with a check or an eCheck,” Weyenberg said. “This rule really applies to anything that would require an additional fee for paying with a credit card. Some small businesses offer discounted prices for paying with cash rather than a credit card. In these situations, always pay in cash. Never pay extra unnecessary fees.”

Other tips for using your credit card wisely

One great tip for using your credit card wisely is to take advantage of bonuses that come with spending on different cards in certain categories. Some cards, like the Chase Freedom Unlimited, offer a flat rewards rate on all purchases, while others have a tiered rewards structure, with different rewards amounts in various categories.

Be aware of the rewards amounts on different cards in specific categories, and maximize them where possible. Depending on how many credit cards you have, it may be challenging to stay on top of category bonuses.

One great tip is to create a cheat sheet to store in your wallet or purse. It could look something like this:

  • Gas: Ink Business Cash Credit Card from Chase (2% cash back at gas stations on up to $25,000 in purchases per year)
  • Groceries and dining: American Express® Gold Card (4 points per dollar spent at U.S. supermarkets, on up to $25,000 in purchases per year, and at restaurants worldwide)
  • All other purchases: Citi® Double Cash Card (1% cash back when you spend and another 1% when you pay off your purchases)

Another tip comes from Debra Schroeder, who is the founder of the Traveling Well For Less blog and has used credit card miles and points to travel the world since 1994.

Schroeder suggests knowing the exact date your statement closes. That can give you extra time before your bill is due.

As an example, let’s say that your statement closes on the 15th of the month. If you make a purchase on the 15th, that purchase will be immediately due. Waiting one additional day (until the 16th) to use your card gives you an extra month before that purchase will be due.

See related: How to use your credit card’s grace period to pay no interest

Binge buying can cause a debt hangover

Responsible credit card use can have a significant impact on your overall financial position. The points or cash back from a sign-up bonus, daily spending and other perks are certainly nice. It’s important to know yourself and how you’re likely to handle credit cards.

Personal finance expert, blogger and YouTuber Kelly Smith of Freedom in a Budget says, “credit cards are like alcohol. Some people can use them responsibly: have a drink and a good time, spend responsibly and just use them for the perks then pay off at the end of the month. Other people go into a tailspin. Like one sip of alcohol causes them to binge and get plastered, one swipe of the credit card causes them to spend out of control and go into debt.”

Smith urges you to know which type of person you are and know if you aren’t able to use credit cards responsibly.

Bottom line

Using your credit card wisely can make a big impact on your financial life. Whether you choose to accumulate cash back, travel rewards or other credit card rewards, make sure to pick the best credit card for your needs and use it responsibly. Following these credit card tips can help put you or keep you on the road to financial success.

*All information about the Chase Sapphire Preferred card has been collected independently by CreditCards.com and has not been reviewed by the issuer. This card is no longer available through CreditCards.com.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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Credit Card Rate Report Updated: November 25th, 2020
Business
13.91%
Airline
15.50%
Cash Back
15.85%
Reward
15.75%
Student
16.12%

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