The single biggest reason to take a cash-back or travel credit card is to earn as many points as you can based on your shopping or spending habits. With all of the different options available today, it’s almost impossible not to have a credit card that earns you some kind of benefits or rewards with every purchase.
Key Points
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Spending with a credit card is a great way to finance purchases, so long as it’s done within reason.
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You should have multiple credit cards to take advantage of all the various travel and cashback benefits.
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Don’t be tempted by sign-up offers, as they are not worth it.
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It doesn’t matter if you have one credit card or five, as it’s entirely up to you to know how to stay within a budget. There is no question that the temptation to overspend is always in the back of your mind. Credit cards enable you to buy something you don’t need and worry about paying for it later, which can lead to a giant debt trap.
Picking the Right Card
First things first, the most important thing to do is to pick a card that best suits your lifestyle. Are you a frequent traveler? If so, then you know you need to find a card that offers you great benefits for travel, whether it’s general travel, a dedicated card for hotel brands, or one for airlines.
Alternatively, if you’re someone who enjoys getting cash back awards, then you could look at a card that offers a flat-rate benefit like the Fidelity, Wells Fargo Active, or PNC cash-back cards, all of which offer 2% cash back on every purchase.
The best approach is to review your previous spending and identify your most frequently spent categories, and then select a credit card that offers the most beneficial benefits.
Fees and Interest Rates
Once you have picked out a credit card that offers you the best benefits, it’s time to look at what other expenses you could incur. This likely includes any annual fees, foreign transaction fees, late fees, or your interest rate. Knowing all of these potential charges will not only eliminate any surprises when your bill comes, but you can also work to avoid carrying a high-interest balance by paying your card every month.
Paying Your Balance In Full
While this isn’t always possible, you could follow a policy that allows you to buy only as much as you can afford to pay for every month. Carrying a balance is going to mean interest, and interest on a credit card isn’t going to be inexpensive. In many cases, you could be talking about 20% interest rates or higher, which means that for every $100 you owe on a credit card, it could really be $120 based on interest.
Impulse Versus Intentional Purchases
There is no question that credit cards can be incredibly tempting, especially when you randomly come across something while out and about. This is arguably one of the most dangerous situations, and it’s on you, as the credit card holder, to remember that just because you can buy something, it doesn’t mean you should. Yes, the opportunity to earn credit card rewards and buy more undoubtedly earns you more points, but you could also use the money you would otherwise have spent on something to pay off your balance.
There is no question that it can be tempting to overspend, and it’s the impulse purchase that is the biggest culprit of being drawn into a debt trap. Yes, the whole idea of earning 2-6% cash back on various categories sounds great, but spending more just to get a small piece of that back in cash is exactly how credit card companies “get you.”
Strategically Use Multiple Cards
The point of having multiple cards is to ensure that you are a savvy spender, allowing you to take advantage of various rewards and benefits. In some cases, you might want a credit card that gives you rental car coverage, while another card might provide you with cell phone protection. Using credit cards strategically can help you spend wisely, but it’s still up to you to avoid overspending.
Don’t Get Tempted by Promotional Offers
It should go without saying that one of the most important callouts for any credit card user is not to be just tempted by promotional offers. Most credit cards will offer you $200 in bonus points if you spend a certain amount within the first 90 days. This means that you would need to pay upwards of $500 to $5,000 to earn just $200 with a cash-back card. In other words, it doesn’t make any mathematical sense.
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