The Rewards of Credit

March 6, 2012 - Tom
My life is consistently 1 to 5 percent cheaper because I use credit cards. For many, credit cards evoke negative emotions. We all have heard it, “Credit cards are evil.” And we’ve seen the torrent of people abandoning credit cards in fear of debt. Their fear is not baseless; banks want to make money, and they can be clever about it. Some people fall into the trap, but avoiding the trap can be simple. Let me tell you how.
A couple of years ago my family obtained a credit card with a gas station sponsorship. Each credit card purchase at the station rewarded us with 5 percent cash back. With the rise in the price of oil, the cash-back program actually helped me save. It was so effective (for us and probably lots of other consumers) that the bank stopped it altogether — by myself, I received close to $200 back for fuel purchases in one year! Of course, that meant I was doing a lot of driving.  
Even getting back 1 percent of your total yearly spending could have a substantial impact. Don’t you sometimes wish you had an extra, say $50 to $200? It’s like getting a tax refund or payroll bonus.
With the slow economy, you want to retain as much money as possible. And being responsible with a good line of credit can be beneficial — even rewarding. Earning 1 to 5 percent on regular purchases adds up at the end of the year. So why not pay your bills with a credit card? Pay for everything when possible to get the rewards and an extra layer of insurance on your purchase.
Fire is a wonderful tool but still has the potential to harm, and so it is with credit cards. So before you get the urge to run out and go on a spending spree, there is a trick to participating in a cash-back rewards program. As this Kiplinger article discusses, you must be prepared to pay the credit card bill in full and before the payment due date, in order to avoid paying late charges or interest applied to unpaid balances. That would cancel out the cash-back rewards savings you are accumulating.  
See Al’s article on this site, which summarizes that rewards actually drive people to overspend.  AC: 0911-5067

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