This post may contain affiliate links. See our disclosure about affiliate links here.
The Ultimate Guide on How to Use a Credit Card to Save Money
It’s no secret that credit cards get a bad rap. But if you know how to use a credit card to save money, you can debunk that rap.
Lots of folks find themselves racking up balances and then paying outrageous interest charges, so it’s easy to see why some people would rather avoid credit cards altogether. But here’s the thing: they can actually help you save money if you use them strategically.
Instead of falling into the debt trap, you can learn how to use a credit card to save money.
Table Of Contents:
- How to Use A Credit Card to Save Money
- FAQs
- Conclusion
How to Use A Credit Card to Save Money
Credit cards offer many perks and benefits, such as cash-back rewards, travel points, and introductory 0% interest promotions.
Knowing how to use a credit card to save money and leverage these benefits is key.
This article explores these perks and covers some basic principles of credit card use. Things like picking the right card for your wallet, avoiding fees, and budgeting diligently will keep you on the path to financial success.
1. Knowing Credit Card Basics
If you want to become a savvy credit card user, you need to understand the basics. Let’s start with how credit cards actually work before learning how to use a credit card to save money. And when done right, it may even help you avoid taking out a personal loan.
Understanding Credit Card Transactions
A credit card is basically a loan that lets you make purchases. It acts as a short-term line of credit from the credit card issuer, whether it’s a bank (like American Express) or a credit union. They give you a spending limit – your credit limit – and you pay back what you’ve borrowed each month.
Important Terms to Understand Before Credit Card Account Opening
To understand credit cards, it’s good to be familiar with a few key terms:
-
APR (Annual Percentage Rate): This is the yearly interest you pay on outstanding credit card balances. It’s important to compare cards with different APRs as they can drastically impact the cost of borrowing money. A high APR will significantly increase the total amount you have to pay back.
-
Grace Period: This is the time between when your statement closes and when your payment is due. If you pay the full balance during the grace period, you generally don’t have to pay any interest.
-
Rewards: These are the perks of credit card use—cash back, points, travel miles—but make sure the rewards program of your credit card aligns with your spending habits. That way, you can maximize your card without breaking your savings accounts.
-
Fees: This is something we definitely want to avoid. Some credit cards have annual fees, late payment fees, foreign transaction fees, and more.
Paying the Full Balance Each Month
If you want to learn how to use a credit card to save money, this is a rule that you should never break. Always pay the entire statement balance before the end of your grace period; otherwise, interest will start adding up.
Worse? Repeated unpaid balances may affect your credit score.
Debit Card vs. Credit Card
Debit cards pull money directly from your bank account, whether from your checking accounts or savings accounts. While credit cards work on a borrowing and repayment system, a big plus of using credit cards over debit cards is the rewards programs.
2. Picking the Right Credit Card to Save Money
No one credit card will suit everyone’s needs. The card that makes sense for you depends a lot on how you spend and what benefits you value most.
Types of Credit Cards
-
Cashback: You’ll get a percentage of your purchases back as a statement credit. Cashback amounts can vary—anywhere from 1% to 6%, and sometimes even higher. Some cash-back cards even offer increased cash back in specific categories.
-
Travel Rewards: With travel credit cards, you can earn miles or points to use on flights, hotels, and rental cars.
-
Low-Interest: If you plan on carrying a balance occasionally, opt for these credit cards. They have lower APRs, minimizing the interest you’ll pay.
-
Store Cards: Store cards are often linked to special deals, discounts, or rewards at specific retailers. These cards usually offer benefits, but they often come with high interest rates, making them risky for those who plan to carry a balance. But if you want to earn rewards from specific retailers where you frequently shop, then it may be worth a try.
Assess Spending Habits
Before considering credit card offers, take stock of your regular spending habits.
For example, if you spend a lot of money on gas or dining out, consider credit cards with higher cash-back percentages in those categories. If you are an avid traveler, you may be interested in a credit card that offers travel rewards.
That way, you can maximize the credit card rewards while spending.
Look for Great Offers and Sign-Up Bonuses
New cardholders often get amazing deals.
This might include temporary 0% interest, high rewards rates, bonus miles for travel, or straight cash bonuses once you spend a certain amount. Use those offers to really rack up savings, but remember that many introductory offers are temporary.
Evaluate Fees, Rates, and Rewards Structures of Each Credit Card Provider
Check if a card has annual fees because you don’t want to pay a yearly fee if you aren’t getting enough value from the card.
You’ll also want to take a close look at the APR because that can quickly eat away at your potential savings if you don’t pay your balance off in those billing cycles. Plus, remember those reward structures can change, especially with categories that rotate on some credit cards.
3. Getting More From Credit Card Cash Back
Cash back is a favorite for many people because it’s straightforward and really makes those regular spending habits work. Getting cash back is like getting free money, so using a credit card for cash back can be very rewarding.
How Cash Back Rewards Work
Many credit cards offer a percentage back—anywhere from 1% to 5% on common purchases.
This “cash back” often applies to everyday expenses, and certain cards boost rewards even further. For example, the Blue Cash Preferred® Card from American Express offers up to 6% back at U.S. supermarkets (then 1%).
Just think, when you’re loading up the cart for your weekly grocery haul, your card is loading up some cash back for you. Now that’s a shopping trip you can feel good about.
Credit Card Bonus Cashback Categories
Here’s another chance to leverage your card for extra savings.
Some credit cards categorize bonus cashback based on purchases, meaning categories like restaurants, groceries, and even gas stations might get an even bigger percentage back.
You can also find a rotating lineup of bonus categories, with cash-back rates often higher—anywhere from 3% to 5%.
During the first few months with your card, they may bump up rates in a particular category, which is a great chance to use those perks and stack some rewards. Keep in mind that categories with rotating cash-back amounts typically require activation.
Cash-Back Strategy Tips
The first cash-back strategy tip is to pick the right card.
If you drive a lot, a gas credit card is going to save you the most. The same thing goes for spending big bucks at grocery stores or when dining out – get a credit card that works with those habits.
Rotating categories can be a gold mine too, offering the chance to earn higher cash-back rates.
A slightly riskier strategy is to use multiple cards.
This strategy on how to use a credit card to save money lets you optimize savings by tailoring your purchases to specific card perks, but it’s a more advanced strategy. You’ll definitely want to have a solid system in place for tracking your purchases and balances to avoid accidentally overspending or missing payments.
4. Travelling for Free with Your Credit Cards
What if those regular purchases you’re making get you closer to your dream vacation?
Turns out, it’s totally doable with a good travel rewards credit card. That’s the magic of travel rewards. Imagine earning free flights, cozy hotel rooms, and even money off those fun extras just by swiping your credit card.
Earning Travel Points on Credit Card Purchases
It all starts with choosing the right travel rewards credit card. Many of these cards give you points on everyday purchases, much like a cash back rewards card. As you buy your everyday essentials, you also gather travel points that inch you closer to your next big adventure.
Redeeming Those Points for Travel
Each credit card has its own unique redemption system. Some allow for statement credits, effectively deducting the cost of travel expenses like flights and hotels. Others function as dedicated portals, offering diverse redemption choices.
Think airlines, hotel chains, rental car agencies—your options become pretty awesome.
Travel Insurance From Credit Card
Some credit cards give you travel insurance as a perk. This can help you save money and stress.
This is how it works. When you pay for your trip with your card, you might have insurance against things going wrong. This can cover things like:
-
Trip cancellations
-
Lost luggage
-
Medical emergencies abroad
But, every credit card is different. The insurance benefits and coverage levels can be different. That’s why, it’s important to read the fine print. You’ll want to understand what’s covered, how much it covers, and what you need to do to make a claim.
Using your credit card for travel insurance can be a good idea. However, you might already have some coverage. Check your existing insurance policies first. You don’t want to pay for coverage you don’t need.
Travel Credit Card Strategies
Look for flexible rewards points programs. That way, you won’t be tied to a single airline or hotel chain and can make more flexible bookings.
Be smart when planning those redemptions. Research carefully and strategize how to use points for maximum value, especially for premium travel options or upgrades. Travel rewards cards are an excellent option if you’re looking to save money on travel.
Be mindful of “blackout dates,” though. They can mean less value from travel reward cards if your redemption attempts are stifled by unavailable travel options, especially during highly sought-after holiday periods.
But guess what? It gets even better. If you play it right, travel rewards and cashback don’t have to be separate perks.
Some travel cards even let you earn cash back. This allows for a “hybrid savings strategy.”
5. Taking Advantage of 0% Interest on Credit Cards
These short-term deals on credit cards let you save by paying absolutely no interest for a certain time. It’s like getting a small personal loan from your credit card company without having to fork over that extra interest.
However, be sure to review any terms that apply to these offers carefully.
Credit Card Balance Transfers Benefits
If you already owe on another high-interest credit card, you can use this balance transfer to transfer that debt to your new 0% interest credit card.
This gives you a window of time to pay off debt aggressively—student loans, auto loans, business loans, etc.—without getting swamped by that additional interest.
The key is to stay on top of repayment plans. As these promotional periods end, interest kicks back in.
Make That Big Purchase – 0% Interest
This is a huge win, especially if you’ve been looking to purchase a major item like a new washing machine or take an auto loan. Use that 0% interest credit card and pay for it over time without the extra cost of interest.
Just make sure to pay it off before that promo period ends so you aren’t stuck with higher interest charges.
Debt Trap Alert
While 0% interest sounds like a dream, there’s also potential for falling into that infamous debt trap. Set up auto-payments so you can avoid late fees. It’s also good to be diligent with tracking.
These promotional periods will come to an end, and your payments will then include that initial interest rate. If you aren’t prepared for the payments to increase after the promotional period, you may end up with a balance you can’t afford to pay off.
6. Using Credit Cards for Loans
Credit Cards for Auto Loans
Have you ever thought about using a credit card to buy a car? It’s not very common, but some people use this method to finance their cars. However, there are some things you should really think about before you try this.
First, you need to think about credit card interest rates. Credit cards usually have much higher interest rates compared to auto loans. This means you might end up paying a lot more money for your car in the long run if you use a credit card.
This could really hurt your efforts to save money.
Another thing to consider is credit card limits. Your credit card might not have a high enough limit to cover the whole cost of a car. Even if it does, using a large portion of your available credit can hurt your credit score.
But if you can find a credit card that offers auto loans in a much more affordable way, then why not give it a try? Besides, if you can maintain your available credit while taking out an auto loan, then your credit score may even increase.
Credit Cards Can Save Money on Business Loans
Sometimes, you need a little extra cash to cover the costs of running a business. You might even need a business loan. But did you know that using a credit card correctly can actually help you save money when you take out one of these loans?
It’s true! If you know how to use a credit card to save money, you can have some breathing room while you wait for funds to come in. This can be super helpful for things like covering operating expenses or making sure you make payroll on time.
Think of it this way: if you have a big expense coming up for your business but your business loan isn’t available yet, you can put that expense on your credit card. This will give you a little extra time to pay it off without dipping into the funds you need for your business.
But remember, this only works if you can pay off the credit card balance quickly. You don’t want to end up with high-interest charges, which can eat into the money you are saving!
Credit Cards Can Save Money on Personal Loans
Sometimes, you might need to borrow money. It could be for something big like a new car. Or maybe it’s to pay off some higher-interest debts. Personal loans can be a good option for this.
But did you know that credit cards might help you save money on these loans?
This is where a credit card with a 0% introductory APR period can be helpful.
If you transfer your existing debt to this card, you basically get a break from interest for a while. This could be anywhere from 6 to 21 months, depending on the card. Think of it as a chance to catch your breath!
During this time, all your payments go towards paying down the principal balance. This can save you money because you’re not racking up more interest.
FAQs
What is a good credit limit on a credit card for everyday purchases?
This depends on your spending habits and how much you can comfortably pay back each month.
A good rule of thumb is to use less than 30% of your total credit limit. This is called your credit utilization rate and is a factor in your credit score. A lower utilization rate is better for your score.
Is it a good idea to use a credit card for online purchases?
Yes, but be smart.
Credit cards often provide more fraud protection than debit cards. If someone makes an unauthorized purchase with your credit card, you can usually dispute it. However, always shop on secure websites. Look for “https” in the web address and a padlock icon in your browser.
How can I avoid overspending when I use my credit card?
It’s easy to overspend with plastic. Try setting a budget and sticking to it. Consider using your credit card like a debit card.
If you don’t have the cash to pay for it now, don’t buy it. Track your spending with a budgeting app or your credit card’s online tools.
Conclusion
Learning how to use a credit card to save money can be tricky.
Credit cards are like any financial tool—they need to be handled properly and responsibly. By understanding the terms and choosing a card that aligns with your spending, you can boost your savings while racking up perks.
However, don’t let those rewards trick you into spending more money than you should. Always balance your spending habits and the rewards you can gain. Or better yet, have a budget and stick to it while using your credit card.
