Use Credit Cards to Save Money

That just doesn't make sense, does it? Using a Credit Card to Save Money? Or does it make sense...

First a quick DISCLAIMER - the following ideas are for readers who have the financial ability to pay their bills in full every month. If you are in credit card debt paying minimums, please review your current buying habits, make cutbacks, and commit to paying down your debt every month with a deadline for being debt free. Please seek advice on handling your own personal situation.

That said, there's actually 2 ways this works.

One way to save money using a credit card is through the card's Reward Program. It is fairly common to find a credit card that will pay back the holder 1% of your total transactions.

Let's say a person makes $50,000 (after taxes) and is able to put away 10% for retirement. After rent/mortgage payments (20%), the vast majority of the remaining $35,000 of life's expenses can be paid for by credit card. Cell phone bills, cable bills, clothes, groceries, gas, transportation, dinner, drinks - all can go on plastic. Just think, if you were able to put all $35,000 on your credit card, you'd have an extra $350 cash in your pocket to treat yourself to that new TV or a relaxing weekend away. But don't be deceived...

Be careful: Some credit cards will charge you an annual fee for their Rewards Program. You shouldn't have to pay a fee, so keep your eyes peeled for a free program.

The behavior of using a credit card to save can be counter-intuitive. We've been trained that Credit Cards are bad, that they'll suck you in and make you spend money you don't have to spend. But for financially responsible folks like yourselves, they give you a financial advantage.

The second opportunity to save is through a little financial trick called the Time Value of Money (TVM). Investopedia defines TVM as, "The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity." (http://www.investopedia.com/terms/t/timevalueofmoney.asp) Since credit cards only require you to pay once every 30 days, think about a lifetime's worth of spending where you can delay your payments every 30 days as opposed to spending the money at the time of purchase.

REWARDS:

Look for a program that gives a CASH reward. While free flights and gift certificates for electronics are great, nothing, I MEAN NOTHING, is better than CASH. You can buy anything with it - flights, electronics and all.

So the next time you go to pull a bunch of cash out of the ATM or use your Debit card to pay, think again! Every $100 spent with Cash or Debit Card is another dollar lost!

Here's a quick tip...to use at the BAR!

1. Ask the server if the bar has a credit card minimum. If you can't reach the minimum, have another!

2. Instead of paying cash every time you get a drink, put down your card and open a tab. This will help you avoid over-tipping (how many times have you tipped $1 on a $2 beer? - that's a 50% tip!) Unless you're trying to hit on the server, take my advice and open a tab.

3. Not only are you saving your cash and delaying payment, you're racking up those Rewards points to treat yourself for being so smart!

In short, solid knowledge of a Credit Card's advantages will change the way you think about money. But just be careful...make sure you read that devious fine print...it pays!

Cash in the Couch