Make Your Credit Cards Work for You

For modern day Americans, the credit card is just a part of life. And with most people swimming in debt, these plastic ball and chains are an every day reminder that we better keep swimming, or that debt will pull us right under. But what if there was another way. What if there was a way to make your credit cards work for YOU.

The key to all transactions in life is ending up better off then you started. Whether you trade your labor for payment, or your cash for goods and services, the end of the trade is your goal. But with credit cards, most people get caught in the abyss of lose-lose. Credit cards eat up your future cash flow, and they make everything more expensive (adding interest… and lots of it). So how can we reverse this and make these little plastic cash-suckers work for us?

Here are five ways to show them cards who’s boss:

  1. Don’t buy things you can’t afford. Just because we’re using plastic doesn’t mean we should break the golden rule: spend less than you earn. I’ve gotten good at buying on credit by having the cash to back it up. And if I can’t afford it, I put the card away.
  2. Buy everything with cards that get points. The Chase Freedom card is one of the best rewards cards out there. It has no annual fee and gives you 5% back for select purchases (every quarter it changes, some times its gas, sometimes its restaurants, last winter it included Amazon). All other purchases get 1 percent back. We use Chase as our primary checking and savings account and the Chase Freedom as our primary credit card. Everything we buy goes on the credit card and we pay it off every month.
  3. Open cards with great incentives. Last winter we opened a Chase Sapphire card that was offering a $400 bonus after spending a certain amount, 2 percent back on travel and restaurants, 20 percent off travel bought with points through Chase, and no annual fee for a year. We just switched our normal monthly spending to this card and had no problem hitting the spending amount. We used the points to buy airline tickets to Hawaii and got the additional 20 percent off. We’ll keep this open until the year is up and then close it before we have to pay the annual fee. Then maybe we’ll try an airline card for awhile.
  4. Never pay an annual fee. Just like I mentioned above, we’re happy to open a card with an annual fee so long as we don’t have to pay it. If it’s waived for a year, that gives us enough time to reap the rewards before shutting it down. There are plenty of great programs out there, so it would have to be compelling to convince me the fee is worth it. So far, we’re staying away.
  5. Stop paying interest. You may still have too much debt to pay your cards off completely, but make getting out of debt one of your primary goals. We use our cards for cash flow but pay them off in full at the beginning of each month. We haven’t paid a dime in interest since I got out of debt. If you’ve got debt you’re still rolling over each month, it’s certainly worth finding a card with the lowest interest (or a zero introductory rate) while you get out of debt. Once you’re out of debt, the interest rate doesn’t matter, because we’ll never pay it.

Most people wrongly believe that you have to keep a balance on your credit card to build credit. That’s far from true. Balances on revolving accounts (like credit cards) don’t help your score at all. It’s far better to have a low debt to credit ratio (less debt and more credit is better). Olga (my wife) has never paid a dime of interest in her life and her credit score is impeccable.

What’s your favorite way to earn points?