Are you using your credit cards the right way?
21 May 2008
Credit cards can be extremely beneficial to your finances, despite what people say about their ability to put you into debt. All it takes is a little control and some know-how for you to get on the road to making a profit from your credit cards. You do have to work at it in order to benefit, but all it really takes is a new conception of credit cards.
The first thing you must do is to stop thinking of credit cards as lines of credit, as this is the weakest way to think about them. They should not be used to provide you with extra funding, as using credit cards in that manner is the fastest path to debt. Instead, think of credit cards as an alternative means of payment, one that can reward you where money cannot. If you think this way and always repay all purchases before the interest free period expires on them, then you can avoid credit card debt and gain from your normal expenditure. Remember that it is vital you avoid interest charges, so do not use cash advances and always be sure to pay within the interest free period on purchases.
The next step in profiting from credit card usage is to choose a credit card that will reward you for spending or repayments. It should be mentioned that you will need to spend a significant amount per year to cancel out your annual fee, but if you can get your whole family to use credit cards responsibly, then everybody's spending can contribute to profiting from credit cards by using multiple cards on the same account. You will need to decide how you want to be rewarded, as different rewards have bigger or smaller payoffs.
If you would like to be rewarded with cash backs, then you may want to consider the Citibank BP MasterCard. Offering discounts at BP of 5%, it also gives 1% cash back on any other purchases you make. While the fuel savings could easily negate the $79 annual fee, if you spend and repay at least $7900 per year, any other spending you repay on your credit card that year will mean a small profit, up to a limit of $60,000 in spending.
For airline rewards, you will want to consider a credit card specialising in converting reward points to frequent flyer points or else credit cards that only earn frequent flyer points on purchases. This can be especially handy if you have to travel often, and if combined with a credit card offering travel insurance to you and your family, it can be an especially large saving.
Most reward programs will offer you a decent selection of reward gifts from a varied catalogue, so if you would merely like to be rewarded with discounts and products, you have many options. Browse the redemption costs of reward programs before choosing a credit card, however, as sometimes you may not be able to use your credit card enough in a year in order to cancel the value of your annual fee with rewards.
Please visit our comparison pages to find many excellent potentially budget helping credit cards.
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