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
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.
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.