Why You Should Buy Everything With Credit Cards

Imagine ordering a coffee and drifting off into a daydream. Are you also hearing Jennifer Garner ask "what's in your wallet?" Well, what's in your wallet is very important. And as for all that talk about

credit

card rewards, she may be right. Most people

should

be able to save at least a few hundred dollars each year simply by using the right

credit

cards

. Whether you travel as much as Peyton Manning or are a die-hard Swifty trying to save on those expensive concert tickets, as these commercials will tell you, there's a card for everyone. And those

cards

will save you money.

Well, that is if you have the funds to make the rewards worth it. They could be really useful or dangerous. I think the most important advice is to know yourself. Love them or hate them, those plastic or metal cards that can instantly purchase anything from a coffee to a car are no strangers to consumers; More than 80% of Americans own at least one credit card. Every time you pay for something with a credit card, you are borrowing money from the card issuer to cover your purchase. While it may seem like it, it's certainly not free, then you have to pay that money back in full at the end of the month or over time, with interest.

The average credit card charges around 20% interest these days. So it is a very profitable business. So first things first. If you're not in a place where you can pay that money back before it's due, experts don't recommend having any credit cards. 20% interest on a balance you've built up and then you pay interest on top of that. I mean, that's a really big hole that you keep digging and it's going to be really hard to get out of if you don't pay off your credit card balance. Credit cards require approval. Once approved, the bank authorizes a credit limit or the maximum amount of money you can borrow.

That depends on factors like your income, your other debts, and how much available credit you have on other cards. But here's the caveat: Approval or not depends on your credit score. Meanwhile, your credit score is determined by your credit report, information related to your credit activity that you may not have if you don't have a credit card. It's a problem 22. How do you build your credit history? Well, the easiest thing is to get a credit card, use it and pay it on time. Credit scores generally range between 300 and 850. The higher the credit score, the more responsible you will be considered.

Credit scores not only affect whether or not you are approved for credit cards, but also your credit limit. And your interest rate on loans, mortgages and the terms that lenders may assign to you. Insurance providers, landlords and employers, may also want to do a check to determine your trustworthiness. If your goals are to buy a house, get a car, get a loan. The first thing you need to do to build your credit history is to get that credit card up and running. Those Jennifer Garner commercials are for Capital One, but there are numerous companies in the United States that offer a wide range of credit cards.

There are the issuers American Express, Discover Bank of America, Citi, Wells Fargo and then there are the networks. They facilitate transactions between merchants and card issuers. The four major card networks are Visa, MasterCard, American Express and Discover. Two of the world's largest card networks, American Express and Discover, are also card issuers. There are standard credit cards, rewards cards, balance cards, transfer fees, secured limited purpose prepaid cards for student businesses, and the list goes on – different options that may or may not be right for you depending on your personal circumstances. Standard credit cards are the most traditional type.

They have an annual percentage rate or APR, sign-up bonuses, annual fees, late payment fees, balance transfer fees, foreign transaction fees, and most interestingly, rewards. In fact, there's an entire industry dedicated to maximizing credit card points and miles. Some people love it and love to go down the rabbit hole and treat it like a game. Bankrate.com Senior Analyst Ted Rossman earned more than $1,700 in rewards in 2022. But getting the most out of your credit cards depends on your spending habits, which perks would save you the most money. So how do you choose? If your family spends a lot on groceries, get a card that gives you 5% or 6% cash back on groceries, like that's a good anti-inflationary.

Maybe consider a second card that's just a solid flat rate, something like 2% cash back on

everything

. Most people

should

be able to get at least $200, $300, $400 a year just by using the right cards. Rossman says the rewards that get the most attention tend to be travel-related flights, hotels, rental cars, airport lounge access, free or discounted TSA PreCheck, priority passes, Global Entry or clearance to skip those long lines at the airport. I think a really good strategy for a lot of people is one of those transferable points cards, something like the Chase Sapphire Reserve or Amex Platinum. Being able to transfer to different airlines and hotels opens up many options.

The next level kind of advice is within that: if you find partner partners like United as part of Star Alliance and American as part of a world. Then there are rewards for meals, groceries, gas, and also complimentary memberships and subscriptions. The big advantages for many are the extended warranty and purchase protection. A couple years ago, I saved $300 on an Apple Watch repair, the credit card covered the replacement. But according to Bankrate, Americans' favorite credit card reward is cash back. Think especially now with high inflation. I mean, who couldn't use more cash, right? Whereas trading for merchandise probably won't get you the most bang for your buck.

Other rewards include sign-up bonuses, fraud protection, and the ability to invest your money and take advantage of interest rates. Another thing to consider is how much work you are willing to do. Are you that person who is going to stick notes on your cards to remember which ones should be used for different types of purchases? I know some people who have 30 or more credit cards, have very good credit, get very good benefits, and constantly fly first class for free. That's not for everyone. Of course, the average American has about four credit cards. But even with four cards, there can sometimes be an element of gambling.

Owning multiple cards and playing that rewards game can net you major sign-up bonuses, like the 75,000 miles from Capital One Venture Rewards credit cards or the $900 in cash back from Ink Business Unlimited. If you're playing this rewards game, which a lot of people like to do, because they like that initial bonus, you get a new credit card and then you close it, you're losing that credit history. So my recommendation is not to do that. Only use a credit card if you can use it responsibly. US credit card balances reached $986 billion in the last three months of 2022. The big fork in the road is whether or not you have a balance.

If you pay off your credit cards in full every month, then yes, I think you should use your credit card for

everything

because the rewards are great and can really add up over time. Although it's simple math, a 2022 survey found that among credit card holders who carry a balance, cash back was more than four times more popular than a low interest rate. Meanwhile, a large portion of those in debt (40%) don't even know the interest rate on the main card they owe money on. One of the biggest things we see about credit card spending and those who use them incorrectly are those who come from low-income households, those who are uneducated in this because no one talks to them about money.

A recent Bankrate survey found that 30% of those without a high school degree did not redeem rewards compared to 16% with a four-year degree and the lower an American's income, the more likely they were to They will leave those rewards too. . More than 30% of those with annual household incomes less than $50,000 left value on the table, compared to about 20% of those with incomes between $50,000 and almost $80,000. And just over 10% with income of $100,000 or more. Anh Tran, managing partner at SageMint Wealth, says culture plays a big role in how people spend. I grew up in an immigrant family, I wasn't taught about personal finance, you just make as much money as you can, go out and build wealth.

Tran recommends having two credit cards, and three if he's a business owner: one for major expenses, a second as a backup, and a third to keep business expenses separate. She says you should also think about your credit card limit and your spending rate. Let's say you have a credit card, you have a limit of $10,000, and you spent up to $9,000. That will actually lower your credit score because your credit-to-debt ratio is not good because you have used up most of your credit. So the general rule of thumb is I would say try to stay around 30% and use your available credit.

And that's why having a second card will give you a little freedom and more credit to spend. For those with credit card debt, while experts don't recommend opening multiple credit cards and trying to maximize your rewards, that doesn't mean you shouldn't look for ways to build your credit so you can get there. If you have credit card debt, it's no shame that a lot of people do—about half of cardholders—but you should put your interest rate first. So maybe look for a 0% balance transfer card or go for the lowest fee card you can find or just use cash or debit until you're debt-free.

There are many cash back rewards cards that have no annual fees and will give you 1% back on all your purchases, and that's probably the simplest. Now let's say you get to a place where you have plastic in your hand and you feel good about those rewards. The work doesn't end there. She says you should continue to reevaluate your debt and credit cards at least once a month. Keep track of your finances, whether it's in an Excel spreadsheet or using an app like mint.com, something that will track all your assets, all your debts. and the passive ones are there so you know where everything is.

And if you're racking up those points, use them. Nearly a quarter of rewards credit cardholders did not redeem any rewards in the past year. And that's an improvement over the 31% of those who didn't in the previous 12 months. It does not become more valuable over time. In fact, many times these programs change their rules in ways the industry calls devaluations, like basically, it costs more points or miles to get the free flight or the free hotel stay. So use them sooner rather than later. And then the cash back can lose value due to inflation. Most people are afraid of money and you shouldn't be.

If you know the facts and understand how money works, it can be really empowering.