Hey guys! I've teamed up with Navy Federal Credit Union and their MakingCents website to help spread some personal finance awareness with an education post on credit card use. Hope you enjoy! ~M$M
Credit cards. Scary, right? 🙂 Not really. There's a lot of talk out there in the personal finance community on both extreme sides of credit cards. Some people use them to such a fault that it creates a horrific financial situation and years of high interest debt. Others think that they're pure evil and opt for cash only. I'm one of the personal finance bloggers that actually likes them.
Just for a bit of background, my wife and I put almost all of our purchases on credit cards. Dinner, groceries, movies – you name it! We also live completely debt free and have never paid a dime in interest charges.
I truly believe that there is a good balance to be found with credit cards. Whether it's points, developing responsible money management, or even a better credit score; there are definitely some advantages to paying with plastic over cash sometimes!
Here are some ways you can have a healthy relationship with credit cards:
Use Them to Build Your Credit
I haven't brought this up on the site too much (mostly because it's embarrassing), but once upon a time I actually had a horrific credit score. After I graduated college, one of my grants turned into a loan because I didn't teach in a low socioeconomic school district.
Like a lot of people unfortunately experience from time to time, I had a major illness in my immediate family and just missed a payment. I was absolutely crushed. Instead of paying an expensive credit repair company, I decided to use my credit card to raise my credit score back up by aggressively manipulating my utilization rate (the amount of credit you use versus how much you qualify for).
For example, if I had a $1,000 credit limit, I would keep a $100 balance on my card to maintain a 10 percent utilization rate. I waited until the day after my statement was finalized and made the $100 payment in full to avoid interest charges.
Waiting until the day after allows your card company to report your utilization rate to the three major credit bureaus and show up on your credit report! This strategy helped me go from a 540 credit score to a high 700's score that I have currently.
Use Them to Stay Safe
As we all know, there are a lot of crooks out there. Advances in technology are helping them commit crimes even more, but credit card companies actually do a great job of helping consumers keep their personal information AND money safe.
Debit cards can be an incredible tool to avoid debt, but they don't always carry the same consumer protection that credit cards do. Here are just a few of the advantages of using your credit card for everyday purchases:
EMV Chip Reader Technology: You've probably noticed the chip cards that have been rolling out across the country lately. While it still takes a little longer than the old swiping routine did, it is MUCH safer from a fraud/theft standpoint. Magnetic strips contain “static data” from all of the swipes on your card, which is pretty easy for crooks to use when creating counterfeit cards. The new EMV cards store every transaction's data separately, which makes it much harder to replicate.
Zero Liability Purchase Protection: The major credit card companies offer killer consumer protection for transactions made on credit cards. This protection applies to ALL transactions (in-store, online, over the phone, etc.). If you think something suspicious has happened, just give your card company a call and you won't be held accountable for fraudulent charges.
Fraud Alerts: I've dealt with this first hand. After going out to eat at a restaurant, someone ordered $150 of pizza with my credit card information! Luckily, a representative from my card company called me immediately, told me about the order (we both laughed), and then denied the transaction before it ever hit my account. That obviously left a lot of people hungry, but my bank account full! 🙂
Use Them for Points
Easily my favorite one on this list! Because my wife and I use our credit card for all of our daily purchases, we tend to rack up points for travel pretty quickly. In addition to the credit boost and the added security, getting what amounts to free money every few months doesn't hurt. 🙂
Ultimately … Do What's Best for You
One of the biggest tricks to excelling at personal finance is understanding your comfort zone. If you want to switch over to credit cards like my wife and I have…that's totally cool. If not, that's cool too. Want another resource for tips on credit cards or any other personal finance topic? Head over to MakingCents and take a look around!
Live differently. Your bank accounts will thank me later. ~M$M
This is a sponsored conversation written by me on behalf of Navy Federal Credit Union. The opinions and text are all mine. Navy Federal is federally insured by NCUA.
I’ve always thought it odd the aversion to credit cards. Used properly, they are a great way to basically protect yourself from fraud, get some return on your purchases, and build up your credit. I pay for everything I can using a credit card.
I got my first credit card back when I was 18 years old. I remember confirming with my mom exactly how it works (“Ok, so if I pay my bill on time, there’s no interest, right mom?” “Right”).
The only negative I can think about using a credit card is that, since it’s not cash, your brain can have a tendency to feel like you’re not spending “real money.” I know studies show that it hurts more to actually give up physical hard cash. Still would argue the benefits of using a credit card outweigh just using cold, hard cash.
I agree – we almost never use cash or debit cards anymore. They’re pretty shockingly easy to manage, and I think a larger percentage of people understand how high the interest rates can be if misused.
I totally agree with you! I barely use cash now, because I feel like I don’t track expenses as well as I can with a credit card. I think as long as you realize that the card doesn’t equal “free money” and only spend what you know you can afford to spend, then a credit card can be really great for building credit. The cash back card I have is also great for getting a few dollars back here and there!
Awesome! With the rate of inflation nowadays, cash sucks haha. At least I’m getting a little bit of “return” on my purchases when I use a credit card. For me the safety is the biggest deal – the card company I use has really good fraud protection.
I’ve had a fraud issue with a debit card in the past, and it was just so much harder to get everything straightened out (they went to the pet store and bought toys and dog food haha).
There is so much “YAS!” in this post!
This is the exact approach Mr. Picky Pincher and I use for our credit cards and it works beautifully. And that’s after being slaves to $14,000 in credit card debt before our frugal overhaul! 😉 We managed to pay off our debt in a year and have created a healthy relationship with our rewards credit card.
Our card offers 1 point for $1 spent. We put all of our monthly expenses on the card and plan to cash out our points to buy Christmas presents this year. It’s money we were going to spend anyway and we pay it in full each month, which means it’s basically “free money” for us once a year.
I also like the extra security of a credit card. Ours offers the fraud coverage, but it also DOUBLES the store warranties of any items we buy it with. So since we just moved into a new home, we’re putting all of our appliances on the credit card to extend their warranties. Score!
Granted, this approach does require being free of credit card debt and paying off the balance each month. A year or so ago, we wouldn’t have had the money or self-control to do this. Credit cards are tools that can be used for good or evil–you just need to know how to use them.
Hahaha thanks for the Yas – made me laugh. 🙂
I love that good or evil thought, so true. If you have a hard time managing money, cut them up and walk away. I’m obviously way into personal finance and understand how to use them to my advantage (and I’ve found a lot of my readers are the same way). But there’s no straight yes or no in my opinion.
If you can’t pay the balance in full every month then don’t get a Credit Card. I do agree with the rewards but for me personally I can’t use a Credit Card because I know myself and I would end up buying more than I can pay per month.
I never had any fraud issues with debit. I have had fraud on my debit and got my money back as expected, fairly easy. I guess its the Bank you use that matters? I disagree on the fact that Credit Card offers better fraud protection.
That’s cool – I can tell you from personal experience that I’ve had a much harder time with debit card fraud than credit fraud. But if you feel good about debit, keep using it! I totally agree that Credit Card balances should be paid off in full every month. If you can’t handle that, avoid the card completely.
What credit card do you use? I’m currently using ChaseFreedom. This is the only credit card I’ve ever owned (over 3 years). I love it but it doesn’t offer travel points. What card do you use & why did you choose it?
Hey Hanna – shoot me an email and I’d be happy to answer! I try really hard not to give away free advertising on the site. [email protected] 🙂
Good post MMM. I have been a credit card user for over 20 years now, starting with the first Discover card I got in a campus booth! I have always paid my cards in full each month and used them for points. I think I have earned hundreds of dollars of Discover cash back this way. I am yet to learn to do travel hacking. But the bottom line is valid: use cards for rewards and expense tracking only. If you pay even one month’s interest on a balance or an occasional late penalty, it negates all the benefits you get from reward points so use credit wisely and carefully.
Absolutely! I like making sure that I get email notifications/text alerts so I never make a late payment.
I have multiple credit cards working for me to get the best rewards. I love them. However, my personal information got hacked last year and I hope that it doesn’t carry over to my credit cards.. Security is being much more crucial these days!
Bummer on getting hacked! Sign up for any automatic transaction alerts if you can!
My husband and I love our credit card company as they called us immediately when they noticed some fraudulent activity on our account. It is important to have a healthy relationship with credit cards, and work on having a good credit score. I always recommend checking your credit report periodically to make sure there are no discrepancies. Thanks for sharing!
Totally agree! The fraud protection is a great benefit.
i don’t think you can say that you are completely debt free if you are using a credit card… The card company is loaning you the money for your dinner, groceries, and movies. Also, there is no need to worry about a credit score when living the debt free life!
If you’re a person that treats a credit card the same way you do a credit card, then essentially that’s just a semantics argument in my opinion.