Here at SavingAdvice.com we harp on credit card debt a lot. The reason for this is quite simple. With the average credit card carrying family having approximately $9,000 (2004 -
www.cardweb.com) in debt, credit cards are the main obstacle for most people to get on sound financial footing. It's difficult to save when you're constantly fighting to get out of debt. This being said, for those who have the self control to pay off their credit card bill each month, credit cards can have some nice saving advantages.
Those who have the discipline to pay off their credit card bill each month are, in essence, receiving an interest free loan from the time you make your purchase until your credit card bill arrives. Since you will be paying off this bill as soon as it arrives, you can switch the money that is going to be used for the purchase and place it into an interest bearing savings account. All the interest you gain in that account is pure profit from using your credit card.
Many credit cards also protect purchases from damage or theft for a certain time period after the purchase is made. Airline tickets purchased with credit cards often include free life and baggage insurance during your vacations. Many also provide insurance for your rental car that allows you to skip all those extra fees the car rental company tries to add onto your bill. (since all cards vary, check with your particular credit card company to find out exactly what it does and doesn't cover). A number of specialty credit cards will allow you to earn points for a variety of goods and services with every $1 you purchase. Others will give you "cash back" of up to 2% when you make a purchase and can be found with no annual fee .
Credit card companies can afford to give you these interest free loans and cash back or other services for two reason. First, every time you make a purchase with a credit card, the store where you buy the item must pay the credit card company anywhere from 3% to 7% of the price charged. The other way they can afford to do this is by lending, at high interest rates, credit card holders the money when they don't pay off their entire credit card bill each month. Therefore, the cards are only a great deal if 1) you always pay off your balance each month and 2) you buy only things you would have bought with cash had you not had the credit card.
Probably the most popular of the specialty cards are the airline credit cards. With these, you usually earn a point toward free tickets or upgrades with each dollar you spend. In addition to plane tickets, the airlines have partnerships with a wide variety of other companies where you can earn points toward tickets when you use the partner's services. Almost all airline credit cards have annual fees, but these can sometimes be waived if you use your credit card quite a bit and are considered a top customer. When the statement comes with the annual fee charge, call up the credit card company and ask for a manager. Explain that you are a good customer that buys a lot with their card, but you may have to cancel if you are forced to pay the annual fee. They will look at your records and if you truly do buy a lot, the card company will often be willing to waive the fee for that year.
There are a wide variety of other credit card programs besides the airline cards. There are cards that will pay a certain percentage toward your home mortgage loan. There are credit cards that donate a certain percentage to your favorite charity. There are cards that help you earn money toworad your next car purchase. These programs have become quite specialized and you can find cards linked to almost anything you can imagine these days.
Credit cards are a curse for most, but if you can maintain self control and use them exclusively for your advantage, they can be an excellent way to actually save money...and that is most definitely the best way of using them.
Credit Card Advantages
