Sensible Uses for Credit Cards

On a website dedicated to asking and answering questions, called Quora, someone asked me:

What are sensible uses for credit cards?  


The question stemmed from the belief that credit cards only lead to impulse spending which seems to be a common thought among many.  Included in my reply are ways to avoid overspending and late payments.  I felt sensible uses for credit cards might interest you too.


Below is my response to the question, "What are Sensible uses for Credit Cards?"


It's not true that credit cards are only used by people who make impulse purchases.  There are ways they can provide you with good ROI.


First, you need to be brutally honest with yourself to find the answer to your question.  The answer depends on your spending style.  If you'd be inclined to buy something you can't afford - meaning, you're charging something to your card because you don't have the money yet, there is NO sensible use of a credit card.  If you're this type of person, the credit card company's marketing efforts are meant for you. 


Credit cards aren't in existence to help you build wealth, take vacations and supply you with things you've always dreamed of, although their advertising efforts contradict this.  If you think you'd be tempted to fall for their 'bait' you will face a brutal, difficult road ahead.  If you are this person, stay away from credit cards.


If however, you are disciplined with your money, there are many ways to benefit from credit cards.  Some of the benefits include cash back, travel points, merchandise rewards, and additional insurances on your purchases.


If you pay your balance regularly and spend money that you physically have sitting in your bank account - CHARGE AWAY!  I use my credit card for nearly everything.  


When operating within the confines of a budget and tracking all expenses, it is nearly impossible to spend money I don't have. 


Here are questions I'd ask myself before making a decision about using a card regularly when spending:

  • Do I regularly carry a balance on my credit card?  If the answer is yes, there may be no sensible use for a credit card.

  • How much is the annual fee for this card?  If yes, you need to calculate how much you're likely to charge on the card each year.  Then you need to ensure you receive equal to or more than the annual fee in rewards from the lender.


A few tips for ensuring you never overspend or miss a payment:

  • Work with a budget.  If you're disciplined with a budget, you know that your money is figuratively in one big pot, every time you spend, you reduce the size of your money pot.  It doesn't matter where you spend from so long as you deduct what's spend from the money pot.
  • Keep receipts as you spend and transfer the amount spent DAILY against the card when you get home each night.  There is no limit to how often you can pay your card off - there is nothing wrong with making daily transfers from your checking account to your credit card.
  • Alternatively, make a recurring reminder in your calendar to transfer money to your card, once a week, or twice a month.  This ensures you never pay interest and are never late paying the balance.


Again, if you choose to use a credit card, you have to mentally work with the card as if it's debiting (or reducing) the amount of available funds you PHYSICALLY have - not money you expect to have, but that which you actually have NOW.


If you doubt yourself, finding the 'credit remaining' too tempting -  stay away from credit cards.