Yes. There are times when credit cards can save you money. But, before you start celebrating, think about this:
- Using your credit card separates you from the reality of how much money you are spending. It can be easy to charge for purchases that you can’t afford because you don’t feel the pain of taking cash from your pocket. It’s easy to lose track of your spending and fall into debt.
- Credit card debt will ruin your credit score. In fact, according to the Consumer Credit Market Report, total consumer credit card debt is on the rise.
- Carrying high balances on your credit cards will cost you hundreds of dollars in higher interest rates and fees.
- Not paying your credit card bills on time or skipping payments will also tank your credit score. More than one-third of your credit score is based on your payment history.
If you use your credit cards responsibly and don’t fall into any of the traps listed above, you can save money.
Here are 5 ways that your credit cards can save you money.
- Travel Awards
If you do a lot of personal or business travel, owning a travel rewards card can be a great idea. You can save money on flights by accumulating points on your credit card. Some travel rewards cards even come with special perks such as no checked baggage fee, a real bonus if you travel for extended stays and check a lot of baggage.
- Price Protection
Many credit cards today offer price protection. This means that if you make a purchase at a certain price, and then you find the exact same item somewhere else for a cheaper price, your credit card will give you the difference.
- Cash Back
The majority of credit cards offer cashback credit of 1-2 percent on your purchases. But if you shop around, there are some credit cards that offer as much as 20 percent in cashback rewards, depending on where you make your purchases.
- Car Rental Insurance
Insurance coverage from a car rental agency can add as much as $20 to your daily rental rate. If you are renting the car for a week or longer, their insurance is going to cost you quite a bit of money. Pay for your rental with your credit card, decline the coverage offered by the rental agency and save your money.
- Balance Transfer
Balance transfer credit cards give you the option to transfer balances from other credit cards that have higher interest rates and fees. The balance transfer card typically offers an introductory APR of 0% on the balance that you transfer. BUT it is for a limited time only. If you can pay off the balance on your new card within the introductory time, it might be worth it and this would be a great way to use your credit cards to save you money. The danger with this strategy is that many consumers are not able to pay off the balance within the timeframe. Once the introductory period is over, the APR tends to jump up to a very high level. This reality can completely derail your financial objectives.
Do Your Research
While there are ways that credit cards can save you money, such as the ones we discussed above, all credit cards are not created the same. Some offer much better cash-back rewards, others are great for travel savings and perks, some will save you money if you shop at certain retailers. Before you jump into adding credit cards to your wallet, be sure that it makes sense.
Keep Your Balance at Zero
Remember, the only way your credit cards can save you money is if you keep the balance low. Even better is to make a commitment not to charge anything if you cannot afford to pay the balance in full.