Why I Use Credit Cards for Everything

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Did you grow up hearing the old adage, "Cash is King"? I sure did, just about every week in my house. It wasn't until I was older that I learned that in reality, "Credit is King." Credit is far superior to cash in many ways, and my wife and I use it for everything. If a company accepts a credit card, we always choose that option. There are only a few items that I currently don't use a credit card to pay, which are our mortgage and electric bill, as neither currently accepts credit card payments. I also donate to my church with a check instead of opting for a credit card because it avoids the credit card fee, maximizing the donation amount. We keep debit cards as a backup just in case something happens to our primary cards.

Credit card accounts and balances are both on the rise. According to Experian, there was a dip in balances for about two years, but from 2021 to 2022, the average credit card balance jumped 13.2% to $5,912. While the pandemic reduced help motivate consumers to pay down their debts and spend less, the return to normalcy brought back old habits. Increased spending and a much higher interest rate increased balances and utilization rates.

There's always room for improvement - the best way to use credit cards to your advantage is to clear out your pending balance at the end of each billing cycle. Let's take a closer look.

 Make your money work for you

Rewards, rewards, rewards. The best reason to use a credit card over cash. While every rewards credit card is built differently, most offer some kickback to using their card for purchases. This is a great example of the beauty of the free market. With so much competition now in the credit card space, there are better choices for you to pick from based on your lifestyle. Cash back and points are the two biggest hooks - you receive a percentage of each transaction back into your account.

A lot of our friends prefer to earn points, as it's a great way to save for a vacation and have a goal in mind. Credit cards that offer points have a ton of options to choose from, everything from airline flights, to hotel stays, and coffee makers. There's usually something for everyone. My wife and I prefer the cash-back option, it offers more flexibility than points and I'd rather get cash to use towards investing than anything else.

Some credit cards offer a blanket percentage across all purchases (the best offers are typically between 1-2% off each purchase), while others offer different percentages across various categories. For example, a credit card may offer 2% back from groceries, 5% from gas, and 1% on everything else. Most credit cards also offer enhanced offers from their partners, where a retailer may provide a 5% kickback if you shop with them by a certain date. These offers are great if you are planning on shopping there anyway but make sure to avoid extra purchases just to get a kickback. It's always cheaper to buy nothing at all than get a discount on something you don't need. Another thing to consider is how often you receive your rewards, some cards are based on how many cash or points you receive (for example, every 50 points), or on a specific schedule (monthly, quarterly, etc.). Determine what works best for you and your family before choosing a new credit card.

Another great reason to use credit cards over cash is that you postpone having to use your cash until later to pay for things. If done properly, it's like playing with house money and getting paid for it (maximizing those rewards!). Just make sure to pay your monthly bill on time, every time. You do NOT want to carry a balance if you can avoid it, this is how credit card companies make money. If you are currently carrying a balance month-to-month, consider where you can tighten your belt and start working on paying down this debt. Credit cards typically carry higher interest rates than other debts, such as personal loans, home equity loans, and mortgages.

Wondering what to do with your cash during the month? If on a tighter budget, I'd play it safe and keep it in a high-yield savings account. These carry a much higher savings rate versus a standard account and you still have instant access to your money, all while being FDIC insured. Everyone's situation is different, have a conversation with your bank about what options are available. If you don't mind some risk, you could consider short-term peer-to-peer lending or investing in an index fund through a brokerage account. There's always the risk that you may lose your money, but fortune favors the bold!

The final reason using credit cards for everything is that it simply will help you establish or build up your credit scores. You've got to use credit efficiently to have a great score. Most lenders will give the best deals to those who have a 740 or better. This can lead to incremental savings as your take on large purchases, such as purchasing a car or taking on a mortgage.

When not to use credit cards

Let's be honest - some of us are not the best with the shop now, pay later way of life. If this sounds like you (or your partner) - it may not be a great idea to use a credit card for everything. Any unnecessary purchases should still be avoided - the long-term goal is to better your financial position and retire early. If shopping is your biggest temptation, you may want to consider a cash system budget, which provides you with a cash allowance each month that you must stick to. While this is my least favorite type of budget, it can be helpful.

Credit cards typically carry high-interest rates, so be mindful of any balances you carry over each month. The goal should be to pay off your expenses each month. If you are currently paying down credit card debt, focus on paying off the cards with the highest interest rate first, and keep working until you are out of debt. This will require sacrifices but will do wonders for your family's future.

A few basic types of credit cards

There are several types of credit cards to choose from, below are three of the most common that you'll see advertised.

• Unsecured credit cards: defined by their revolving credit lines and lack of security deposits, unsecured credit cards are the most common type you'll see. 

• Secured credit cards: requiring a security deposit, these cards are really great when you need to build or improve your credit history. Your limit is set by the issuer based on how much money you deposit up-front. 

• Store credit cards: tied to specific retailers, these cards typically offer increased rewards for loyal customers.

Of course, there are others to consider. If one of your kids is starting college soon, consider getting them a student credit card. Keep in mind that not every student will qualify for a student credit card. Don't fret if this happens, get started with a secure credit card and once your credit is in a better spot consider getting an unsecured credit card. If you are looking at turning that hobby into a lucrative side hustle, there are plenty of great business cards to choose from to help get your business off the ground.

Use credit cards for everything

The power of credit is real - but with it comes responsibility. Credit cards are one of the many ways to make your money work for you, giving you the freedom to live your life the way that you want it. Focus on the big picture and fight off any temptation to make purchases simply because you know you can pay for them later. Crush your financial goals, and the next time that you hear someone say that "Cash is King," consider stopping and kindly educating them on the power of credit.