Credit Cards

Can Credit Cards Actually Help You With Being Frugal?

This is a guest article by Hugh Tyzack.  If you are interested in contributing to Debt RoundUp, please follow our guidelines.

Credit cards are often vilified as one of the worst evils in our society, but while it is true that they can lead to unmanageable debt, when they are used appropriately they can actually be very useful in helping you to be more frugal. Here I will share with you some examples of the great ways that your credit card can be used to save money!

Earning Rewards and Bonuses

Cash Back credit cards The credit card market is so competitive that there is no shortage of attractive offers and reward programs out there that you can take advantage of. The key to manipulating these offers is to make sure that you have chosen a rewards program that suits your lifestyle. Two of the most common types of rewards offered are cash back and travel bonuses.

With a cash back rewards card, you can earn back up to 2.5% [Editor’s Note: I actually get 6% back with my Amex Preferred Card or you can check out the Discover it card] of whatever you charge to your credit card. If you pay off your balance in full each month you will not have to pay interest, therefore you will have the opportunity to earn cash without it costing anything extra. Let’s look at a basic example:

  • You set a monthly grocery budget of $200.
  • Use a rewards card to purchase the groceries with 2% cash back.
  • Earn interest for leaving the $200 in the bank.
  • Pay off the $200 bill in full before interest in accrued.
  • Earn $4 cash back!

This might seem like hardly anything, but if you are using your card daily your rewards can soon mount up. Think of it as a savings account! In addition, many cards offer bonus rewards on rotation from month to month so that while earning 2% on your other purchases, those in the spotlight category earn 5% cash back! Popular categories for these bonus include fuel, groceries and eating out. As long as you pay off the bill in full every month you will come out better off.

Travel rewards can also be used in much the same way to rack up air-miles which you can trade in for flights and hotel accommodation. Travel rewards credit cards also tend to offer additional perks such as insurance or free baggage checking which sweeten the deal. The key  to success is to use the credit card like cash – only spending what you already have in the bank, then paying it off before interest kicks in.

Reducing Your Debts

If you already have debts, perhaps an existing credit card account, which you are trying to pay off then you might want to look at finding a card which offers interest free balance transfers. This allows you to stop incurring interest, helping you to pay off the debt faster since all of your repayment will go towards the debt. If you still have a balance at the end of the interest free period, simply transfer it to a new card until the debt is settled.

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These are just a couple of the many ways that a credit card can actually help you to be more frugal. If you are careful and sensible with credit, it can help you to not only save money, but to manage your finances more effectively. However, if you feel you would struggle to control your spending then this method is not for you. Credit cards are great, but only in the hands of someone with restraint who can stick to a budget!

Author Bio: Hugh Tyzack is the founder and Managing Director of no fee Guarantor Loans specialists  GBP Loans. There is additional information found on his website. Aside from blogging about finance related issues, Hugh enjoys music and loves to play the piano. Join Hugh on Twitter @GBPLoans and also on Google+ .

Editors Note: I use my Amex Preferred card for every purchase each and every month.  With a great rewards structure, I earn a good amount of cash back with every purchase.  Though I used to be in credit card debt, I decided to use credit cards to pay me instead of me paying them.  This takes responsibility.

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  1. April 2, 2013 at 7:14 am — Reply

    I use my credit card whenever I can because of the cash back rewards. There really is no reason to use my debit card or cash when using my Discover card is an option. If you treat it the same as a bank account (i.e. avoid balances month over month) you can really win! Plus stores jack up the prices to compensate for the credit card fees they get charged, so you really are losing money if you don’t use a credit card.

    • April 2, 2013 at 10:28 am — Reply

      I rarely use my debit card anymore because I just want to earn the rewards each and every month. Why not get money back for spending what you normally would. It does require discipline though.

  2. April 2, 2013 at 7:57 am — Reply

    We use our two cards quite a bit, mainly for the rewards. In fact, our bathroom remodel will be paid with our Amex card which will basically cover a good chunk of a trip we’re taking next year! I think if you’re wise with how you use them and pay them off each month they can most definitely help you be frugal.

    • April 2, 2013 at 10:28 am — Reply

      I use an Amex card and a Mastercard for all of my purchases both on and off line. They provide great security and make it easy to get rewards.

  3. April 2, 2013 at 9:13 am — Reply

    We sign up for credit cards all the time. Whenever we find a card that gives us a higher percentage of a cash back for any category, we’ll sign up for it. I have 5 major credit cards in my wallet right now. They all offer at least 3% cash back in categories where we actually spend money.

    • April 2, 2013 at 10:29 am — Reply

      That is a lot of card JM. I don’t think there is anything wrong with it because I know you can keep up with the rotation of them. Nice job maximizing your rewards.

  4. April 2, 2013 at 9:19 am — Reply

    We use our credit cards for everything that we buy in order to take full advantage of the rewards. However, we pay them off immediately. I think this is a great strategy for somebody with laser-like discipline. For those who are struggling, stay away.

    • April 2, 2013 at 10:30 am — Reply

      The key is to pay them off. If you don’t, then you will be in the hole. There is no point in getting 3% back when you pay 12% in interest.

  5. April 2, 2013 at 11:26 am — Reply

    We use our cards all the time because it’s easy to track what we spend our money on, and I also like the rewards 🙂

    • April 2, 2013 at 12:13 pm — Reply

      Yeah, I like being able to track everything. AMEX gives me the ability to add tags to each purchase, so I can easily track what is going on. I like the rewards too.

  6. April 2, 2013 at 11:53 am — Reply

    I wish I had a CC with such great rewards like you have in the US. Mine has no withdrawal fees abroad which is a key feature for my lifestyle, so it’s pretty good. Used properly, credit cards are great to keep finances simple and earn rewards.

    • April 2, 2013 at 12:14 pm — Reply

      Sorry to hear that you don’t get rewards like we do Pauline, but I would take your lifestyle any day over the rewards that I get from my CC.

  7. April 2, 2013 at 12:12 pm — Reply

    If you want to be frugal, you can make anything work for you. On the other hand, if you’re looking for ways to avoid being frugal, credit cards are poison. (Kind of like a friend on a diet asking the server: I’m ordering the skinny chicken on rice, but bring me the lasagna by mistake!)

    • April 2, 2013 at 12:14 pm — Reply

      Quality point William. Credit cards can be good and very bad. You have to have dedication in order to make them work for you.

  8. Sicorra
    April 2, 2013 at 1:06 pm — Reply

    We used our credit card points to buy 2 tablets a few years ago. I really wish we had 0% cards up here that we could use for balance transfers while we work on paying off our debt too.

  9. April 2, 2013 at 2:42 pm — Reply

    I agree that the right credit card, along with a healthy dose of self control, can help one in ther quest for frugality. If you have a good cash back card and do most of your routine shopping with it the rewards can add up pretty quickly. It’s like getting paid interest for money you spend!

  10. April 2, 2013 at 4:50 pm — Reply

    I am using cards for the sign up bonuses, but I like using my Chase Sapphire Preferred for 2x points on dining out. I don’t like following category bonuses, so I’m going to keep playing the churning game, but if I have to pick one card, I’d probably still stick with my Chase. The rewards are good for travel, hotels, and discounted online purchases, or cash back.

  11. Justin
    April 2, 2013 at 10:22 pm — Reply

    I don’t like the whole, credit cards are evil, approach. Do they get people into debt? yes. However, it’s because of habits not the tool. People who are responsible should use them wisely. But those who cannot control themselves really shouldn’t have them.

    • April 3, 2013 at 11:13 am — Reply

      Right on Justin. I completely agree. My credit cards didn’t get me in debt, I did.

  12. April 3, 2013 at 3:55 am — Reply

    I use my credit card to pay utilities bill online and buying plane tickets online. I earned the rewards by buying other stuffs and previously I bought some apparel and clothes from the earned points alone. Just lately I bought my wife a gold earring (dangling) out of my rewards points.

    • April 3, 2013 at 11:09 am — Reply

      Reward points are awesome. It is nice to get stuff just for spending like you normally would.

  13. Jenny @ Frugal Guru Guide
    April 6, 2013 at 2:55 am — Reply

    Even better, I turn my cash back into more money by using it to buy discounted gift cards through the card’s cash back program.

    • April 6, 2013 at 10:39 am — Reply

      Good tip Jenny. Thank you.

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