Amongst some financial gurus out there today, credit cards get a bit of a bad rap. There’s almost a sense of pride in cutting up ones credit cards and swearing to never use them again. Stats are thrown around of how credit cards lead to more debt and more spending. I personally don’t buy into these ideas and view credit cards as a powerful tool that can be rewarding. For a while there, I was earning $900 annually from them. I thought I’d explain a little of my position on why I think credit cards are good, and cash and debit cards are dumb.

First of all, pay them off

I would like to go ahead and call out that although credit cards can be a powerful tool for good, they can also be a slippery slope leading to financial ruin. The whole key to keeping credit cards in the positive benefit side is to avoid paying interest. Credit cards work by lending you money to pay for things. You have until the end of the statement cycle to pay for them, otherwise you get charged interest. Interest rates can be as low as 0%, or a few percentage points, or as high as 25% on some of the more premium credit cards. As soon as you don’t pay your balance off in full before the due date, you’ll be hit with interest, and this interest can add up fast. Don’t pay interest and keep credit cards as a good thing. 

Keep your budget

Assuming you have a budget that you keep up with (spoiler alert, you should), credit cards won’t let you overspend. You’ll know that you have $250 to spend this month on restaurants and $150 on new clothes. With those limits in mind and assuming you stick to your budget, you won’t overspend just by using a credit card. Keep good records and keep your budget up to date and you won’t have to worry!

Spend and earn 

Assuming you follow the preceding two rules of using credit cards, you’re good to go using credit cards. Whether you’re using a cash back card to accumulate cash to be used at a later date or earning airline miles for your trip next summer, spend and earn those points! If you don’t have one, here’s a link to a few questions you should be asking yourself before picking one. Debit cards and cash don’t provide those rewards, and some rewards can be as high as 2% cash back. Try to estimate your spending per month, multiply by 12 and then figure out what 2% of that is. It’s likely a lot and definitely more than you’d get by using a debit card. 

Best of luck with your spending and earning! PS – follow us on Twitter for all the latest personal finance goodness!