Credit Cards: Friend or Foe?

Despite the advice of nearly everyone in my personal life, I applied and was approved for my first credit card on the day after my 18th birthday. The reason I ignored what everyone told me was not because I was young and irresponsible, but because I had done my research on the subject and knew both the pitfalls and the benefits very well. The people in my life that were telling me that credit cards were awful were the ones that had fallen into the trap of carrying a balance on their cards and paying astronomical interest rates. Luckily for me, I knew that this was not the only way, and that if credit cards are used correctly, you can avoid the traps while reaping the benefits. The key is to always pay your statement balance in full each month. If you do this, there are no fees or interest that can be charged. I first began reading and learning about credit card points, cash back, and sign up bonuses, mostly from personal finance forums and blogs, when I was 16 (I guess I was somewhat of an odd kid, right?). From my time spent reading, I knew what most people in the mainstream seem to not understand or are unable to exploit due to their own poor personal finance skills. When credit cards are used properly they are a very powerful ally in wealth accumulation and they also offer several other benefits.

Whether or not credit cards are good or bad depends completely on the mindset and understanding of the person using them. Since turning 18, I have been approved for well over 50 credit cards. At this point you are probably thinking that I’m the one that doesn’t understand and that I have probably lost a lot of money in interest and fees over the years, but that is not the case at all. In fact, I have never paid even one penny of interest or fees to any credit card I have ever had. Instead, I have earned approximately $15,000 between cashback, points, airline miles, and free hotel stays. Some of these are from the sign up bonuses offered by the cards, but a lot was just from my everyday spending over the past nine years. The reason that is an approximate estimate is that the number can change drastically based on how you redeem the “points” for each program (i.e. cashing them in for money vs. gift cards vs. airline tickets, etc.), but that number is definitely a conservative estimate at this point.

If you are an individual that has, or has had, running credit card debt currently or in the past, then credit cards are not for you. Before you think about earning cashback on anything make sure that you are able to pay your balance in full each month, because that is by far the most important part of the whole process. Earning 2% cashback while paying 18% in interest each month is ludicrous. Credit card debt is utterly awful and makes student loan interest look like child’s play. Paying fees and interest on credit cards is not at all what I am proposing and is not the path that you should take. Get your financial house in order and look at credit card rewards later when you are more responsible with your money.

Since I started applying for credit cards, almost ten years ago now, my thoughts on what is most important when choosing a new card have changed. At 18, I didn’t realize how lucrative sign up bonuses could be and cared much more about getting cashback on my everyday purchases. For this reason, my first four or five cards were all cash back cards that offered at least 1% back on all purchases and usually an increased amount in a certain category. As I mentioned earlier, I had done my homework and looked at all the available cards before I turned 18 and knew exactly which cashback card would be best for me. I analyzed my budget and determined where most of my spending was going, and it turned out at that time, it was restaurants and gas. I got a card that offered 3% cash back at gas stations (a card from Chase, I can’t remember the actual name) and then later that week was approved for another that offered 5 points/dollar at restaurants (Citi Forward). In addition, both of these cards offered 1% cashback on any other purchase that I made. A year or so later, I was lucky enough to be approved for a card that offered 2% cashback on any purchase before it was discontinued (Barclay Priceline). It wasn’t until I was in my senior year of undergrad that I really began to understand how huge some of the sign up bonuses for credit cards can be. For example, a card that I was approved for in August of 2015 offered 50,000 points after spending $1,000 in the first three months of having the card (AMEX Premier Rewards Gold). The value of the points are debatable, but at a minimum, they are worth $500 when redeeming for gift cards, but can be worth much more than that when transferring the points to airline or hotel partners (some claim to get 2-3 cents/point in value when transferring). This card is only one of over a dozen that I have used to my advantage in the past year alone. The processes for redeeming points and meeting minimum spending requirements can be topics of future posts if there is interest in them.

So what does all this mean? Since I turned 18, every purchase that I have made, no matter how large or small, was made with a cashback or points earning card (if the merchant accepted cards of course). For the majority of my adult life, I have earned a minimum of 2% back on every purchase that I have made and, depending on the category of the purchase, up to 5%. Is this a huge amount? That depends on your perspective, but I consider it substantial and one of the factors that will ultimately help me achieve financial independence just a little bit sooner.

Hopefully at this point I have convinced you that, if nothing else, credit cards may not be as terrible as you have always heard; but if not, there’s more. Many cards offer such benefits as: free credit score monitoring, enhanced fraud protection, roadside assistance, rental car insurance, price protection, and emergency travel assistance along with many more depending on the card. I can discuss these benefits more in a future post if they are of interest. Luckily, most of these things have not been of much use to me (except credit score monitoring), but I have no idea what life may have in store for me in the future.

In summary, if you are responsible with your finances, including paying your statement balances in full each month, credit card sign up bonuses and rewards can be an amazingly valuable tool and have served me very well over the years. If you are not responsible with your finances, then don’t even consider it. What are you thoughts and opinion on the subject? A few of the cards that I mentioned in this post are no longer available. Would you like a post with my current credit card recommendations? Thanks for reading!