Credit cards get a bad rap, and for good reason. They can cause financial ruin if used improperly. However, a little cautious management and careful planning can make credit card use a very valuable financial tool, and it can even be profitable in the long –term. The key is in how you view your available credit. It should not be considered extra available money. You have to rewire your thinking to believe that you have no credit really, and consider it only another means of accessing funds you already have. This means only using credit to the extent that you have funds available in other areas already to pay for whatever you are using the credit for.
This is a simple concept, yet still very difficult to practice practically. Those who have mastered it, however, reap great rewards from credit cards. In essence you are taking advantage of the credit card companies by accepting the advantages they offer without allowing them to make money off of you. This is how you do it. First, choose cards with rewards such as cash back or points. Then use those cards only to pay for things you could pay for anyway. This looks differently for different families and individuals.
It may be that you initially spend up to your budgeted limit on monthly expenses such as groceries and gas on your credit cards and the write the budgeted amount out of your account every month to pay the card off. The secret is to know just how much you can spend on these and not go over that amount. You then do not have a balance or interest fees, and you have earned any available rewards for that period. Whether this is cash back, points, miles, or anything else, you have basically gotten them for free.
You can cash in miles to take a vacation, or points for gifts at Christmas. This directly reduces the amount of your own money that you spend and thus you are essentially profiting off of credit card use. This will not work for everyone, but for those who have the self-control to practice it successfully it is a great tool. It also builds credit, which is essential in today’s economy. Beware of having too many cards though. Keep the game in reasonable proportion to your budget, stay on top of things, and you could reap great benefits from using credit cards in this way.