Growing up, even hearing the word credit card immediately brought a negative connotation when it came to making purchases. Not that it was a bad thing, but even in recent years, using cash, real actual paper money, was a normal transaction, and then using a debit card, which takes from your bank account, yet still sort of resembles cash. Using a credit card though, it sorts of implied that you didn’t have the money at the time of the purchase, but were buying the item anyway even though you could afford it. Now whether or not that was true, who knows, those that used a card could have been paying the full balance each statement, and being young and not having a card of my own, maybe it was just perspective, but it must have come from somewhere.
That leads to an important thought of note, is paying the full account by the balance. You can charge up as much as you want, even getting to wait a month before the payment start to roll in, and as long as you pay the full statement balance by the due date, you do not have to pay any interest. That is great, provided you can pay the full balance. It happens to many of us, myself included, getting into a rough spending patch where I may have (no, I did…) overextend myself, taking years to pay off. Why do I mention this? Well that is where interest comes into play. Unless you are on a promo rate deal, have an employee card, or just plain great credit, you could face APR of 16% on your card, so depending on your balance, could be huge money. The minimum payments are useless to you, just the minimum you have to pay to be in good standing with the lender, because if you only pay the minimum you will be only covering the interest payment will do little to chip away on the principal balance. Let’s just say, if you only pay the minimum payment, you can still be paying on that balance as you approach retirement age.
So, with all of this, why is a credit card a benefit? Well for one thing as mentioned, you can charge and pay a month later, again, if used responsibly. If you have ever checked into a hotel or rented a car, they will ask for a credit card to keep on file in case of incidentals. Well, use a debit card, and not only will they put a huge hold on your account that will immediately remove funds from your checking account, it could also take a week to return those funds once the hold is over. Sort of along those lines when it comes to taking out funds, well if you ever have fraudulent charges, not only will those funds be wiped from your account, they will remain away until you recuperate the money back. The main reason why a credit card is a great benefit, and why mentioned on a passive income site, is quite simple: rewards.
I have recently opened a Citi Costco card along with my membership as to try out their rewards program. Not only are the Costco hours accommodating to my busy work schedule, but their program offers anywhere from 1-4% cashback on purchases. Now sure, that does not seem like a lot of money, but when you get your rewards check in the mail a year later showing $500, that is a big chunk of change to come out from the middle of nowhere. Now sure, you do need to use this money at Costco, however when you make your normal purchase at the register you can present this check and they will give you back the difference in cash, so it is a win-win there, being able to not only spend at Costco, but use the remaining cash elsewhere. Now this is just this type of card, there are others that offer airline miles while others offer points that add up to redeemable gift cards.
The rewards piece to a credit card is the best feature in my opinion, and even if you are one that is nervous about using a credit card for the fact that it means that you have to worry about paying, try using it to purchase your normal monthly expenses as you would normally use cash/debit for and you will be gaining free money just by making your normal purchases. Once you see those rewards dollars start to add up though, you may be tempted to put every charge on a credit card!
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