We often think of credit cards as a source of expenses – or at best, as a necessary evil. But there actually are ways credit cards can save you money. That not only makes a strong case for having one or more credit cards, but also for periodically searching out those providing the best benefits.
Here are some of the more typical ways credit cards can save you money.
Cash back rewards
Many credit cards provide you with cash back rewards of anywhere from 1% to 3% of your purchases. If you dig a little deeper, you can even find cards that offer higher rewards. For example, the Discover it card offers “5% cash back in categories that change each quarter offered to all card members”.
As an example, let’s say you have a credit card that pays you back 2% on all purchases. If you use the card to pay most of your expenses and purchases, at an average of $1,500 per month, you will accumulate an extra $30 each month – just for doing what you would be doing anyway.
After a full year of using the card, you will earn $360 in cash back rewards. It adds up!
Just be sure that if you are using your credit card that frequently, you are paying the balance off monthly and not rolling it into ever larger balances. That will prevent you from paying interest charges that will at least partially offset the cash back reward benefit.
Car rental insurance
Car rental insurance has become prohibitively expensive. I recently rented a car in Boston at a rate of $27.99 per day. The car rental insurance charge was – are you ready for this – $29.99 per day. That was higher than the daily rate for the basic car rental.
If you have a credit card that covers your car rental insurance at no extra charge – as I did – you don’t have to pay that fee .Taking it a step further, if I had to pay $29.99 to rent the car for a full week, it would have been $210. My credit card saved me that much money on a single purchase. If you have a need to rent a car several times per year – you can do the math – the savings can be substantial.
One more point about car rentals and credit cards…most car rental companies prefer that your car rental reservation is made with a credit card. It’s not that it’s impossible to reserve a rental car with a debit card or even cash, but it is virtually effortless using a credit card.
If you buy a product or service that turns out to be deficient, or downright fraudulent, credit cards offer you buyer protection. That is a feature that you will not have if you pay with cash, check, money order, or even a debit card.
This can be especially important with major purchases, say over $500. Hopefully this is not a situation that you run into very often, but it only has to happen once on a large purchase to justify having a credit card.
I’ve only needed to use the option twice, and it was well worth it both times. The first was a $460 charge to by a company that turned out to not even exist, and the second was a $1,000 charge to one of those questionable vacation packages – yes, I was dumb enough to believe it up front, but American Express saved me from my folly – after the fact. We all need that kind of extra protection.
Zero percent balance transfers
Most credit card issuers today will offer you 0% balance transfers from time to time. This can enable you to get out of interest-bearing credit card arrangements, or even to payoff a small installment loan like a small car loan.
The interest free period typically lasts anywhere from six months to one year, but that gives you time to payoff the balance so that you never have to pay any interest at all.
Interest-free introductory offers generally tend to be more generous when they come from the credit card company that you are not using. They will use 0% transfers as a way to entice you to do business with them.
Of course, you always have to carefully consider what the permanent rate on the credit line will be once the introductory rate phase ends. All 0% offers are not the same! Also, any time you take one of these offers, be certain that you have the ability and the willingness to pay the credit line in full before the introductory period ends.
Improving your credit scores
This isn’t a direct cash benefit that comes from credit cards, but it can affect your overall cost of borrowing. If you have one or more credit cards and manage them properly, they can increase your credit scores. You can do this by making timely payments on a regular basis, and by maintaining a low outstanding balance to credit line limit ratio (credit utilization). Proper management of both of these factors can raise your credit scores.
Higher credit scores not only get you more favorable interest rates on other credit cards, but they can also result in lower borrowing costs on other loan types, such as car loans and mortgages.
And beyond credit, higher credit scores can also improve your ability to land a job, or to get more favorable pricing on various insurance policies. Employers and insurance companies now routinely check credit reports and credit scores, and the results will have an effect on your ability to secure a job, or the premium that you will pay for your insurance policy.
It all makes you want to go out and sign up for more credit cards, doesn’t it?