Credit Cards often get a bad rap from a lot of the financial gurus out there. It is true that if you charge more than you can afford, you can easily find yourself paying a high interest rate on your outstanding balance and get yourself into trouble.
However, if you have the discipline not to overspend and pay your balance in full at the end of each month, you will find that using credit cards responsibly, can actually save you some serious cash provided you pick the right card. Maybe $50 or more a month! – Read on for an example
For example, say you have an American Express Blue Cash or the Discover More card (my personal favorites). These two rewards card offers you up to 5% Cash Back on all your purchases. So you effective can save 5% of all your purchases, right? Well yes, but read on because it gets even sweeter!
So yes you save 5% on all your purchases but by using your card you also extend the amount of time you actually have to pay for the item(s) you purchased. Example, say on the first day of your billing cycle you make a trip to Wal-Mart and purchase $1,000 worth of goods. 30 days later your billing cycle ends and you receive a bill from the credit card company for the $1,000. Most cards typically come with a grace period of 20 days or so. That means that the $1,000 is actually due 20 days after your statement generates, or a total of 50 days after you made the original purchase.
How does this benefit you? Well if you had that $1,000 set aside to pay your bill in an Online Savings Account (HSBC Direct for example) that was earning 4% interest, it would have earned approximately $5.48 in interest over that 50 day period. How much does the actual $1,000 worth of goods cost when the time comes to pay your bill? How about $944.52! ($1,000 less 5% cash back less $5.48 in interest). That is a savings of $55.48 that would have been nothing if you used a debit card or wrote a check!
Every extra dollar you save gets you one step closer to achieving financial freedom and using a cash-back credit card (responsibly) is one more tool you can use to get there.