Welcome to the 11th Smart Money Debate at ReadyForZero! To see the other side of this debate, read Kristina’s post: Why You Should NOT Open a Credit Card for the Rewards. And then let us know which argument was more convincing!
This is a guest post by Andrea Travillian, a blogger, author and personal finance and development expert. She writes on money management, investing and other personal development topics at TakeASmartStep.com. You can find her on Twitter and FaceBook.
To say credit cards are a highly debated part of personal finance would be a bit of an understatement. Most personal finance bloggers and experts have a strong opinion on credit cards and whether you should or should not use them.
I understand both sides of the debate and also know the research behind the credit card statistics. I realize that credit cards have benefits, and I get that some people believe that card companies are evil; I also understand that many Americans are in over their heads in debt.
Yet ultimately the appropriateness of opening a credit card for the rewards depends on the individual. If you are disciplined with your money, then rewards credit cards are a great way to get perks and more money. Credit cards don’t have to be evil if you know what you are doing with your money.
I have personally received great benefits from my airline rewards card. In one year alone, it has given us over $2,000 in value. After annual fees, I am still ahead $1,900, and this is just a quick estimate off the top of my head – it is actually probably higher.
Now before you get all excited that someone said “go get a rewards card,” you should focus on the words I said above – “if you are disciplined.” The entire point of having a rewards card is that you end up further ahead by using the credit card. There is no benefit to having the card if you are not actually getting benefits and instead harming your financial health!
So what are these “disciplined” tasks that must occur before you get a rewards card? Keep reading to find out!
Pay off Balance Every Month
First you must pay off the balance every month. Racking up interest charges only eats away at the benefits and eats up any money you could have been using to save for retirement. Carrying a balance on a credit card is a bad idea; if you don’t have the cash to pay off all balances today, then don’t get a credit card.
This is especially true when you are trying to get out of debt. It is hard to determine where you are in your debt repayment plans if your balances are constantly changing. Use a rewards card only after the debt is gone and you have mastered your finances.
Spend Less Than You Make
Second you need to make sure you are spending less than you make. It is easy to run up expenses to get more perks, but again it counteracts any benefits you are getting. My husband and I actually took seven years off of using credit to learn how to manage and budget on a cash basis then began using credit cards again.
Additionally, I now monitor our spending so that we know exactly where we are. In fact the difference between our spending this year over last year with a credit card versus not having a credit card was actually lower. We spend because we have a need and have budgeted for it, not because we get perks with our credit cards.
Select the Right Card
Third, make sure you are using a card that is actually providing a reward that is useful to you. If you hate to travel don’t get an airlines card. Instead get a cash back card, or one for your favorite sports team; whatever you get make sure it is good for you. Don’t get a card just because someone else loves travel cards! If you don’t like the rewards don’t mess with the extra paperwork a card does require. A rewards card is meant to benefit you, not stress you out and give you nothing that helps you!
When you responsibly manage your money a rewards credit card is exactly that – a reward. If you manage your money badly it is anything but a reward. So if you manage your money responsibly, then go for it – get a rewards card today and start racking up the rewards (but not debt)!
To see the other side of this debate, read Kristina’s post: Why You Should NOT Open a Credit Card for the Rewards. And then let us know which argument was more convincing!
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