Swipe, tap, or insert – your credit card is always ready for action. You might be wondering, “Should I use my credit card for everything?” From your morning coffee to your monthly rent?
In this plastic-or-cash showdown, we’ll explore the pros and cons of putting everything on your credit card. Buckle up as we navigate the slippery slopes and hidden perks of credit card mania.
MoneyLion can help you explore a wide variety of credit card options tailored to different needs and preferences.
Benefits of using a credit card for everything
The benefits of credit cards are major. You can possibly earn free flights, cash back, build up your credit score, monitor your spending better, and even potentially gain access to fraud protection.
Here are some of the perks to giving your credit card the VIP treatment and using it for everything.
1. Credit card rewards
Credit card rewards can be significant and even add up over time. Pay for everything with credit cards and you could eventually earn rewards for a free vacation or extra cash when you need it.
In addition, some popular credit cards offer high rewards in certain categories, like 6% back on groceries, 5% back on groceries and restaurants, or 5% back on travel. Even basic cash-back rewards cards offer 1% on all purchases and 2% on certain purchases.
Rewards work as long as you don’t overspend to get the rewards. If you spend $300 per month on groceries, with 6% cash back you could get $18 back per month or $216 per year in normal expenses alone.
2. Convenience
Credit cards are convenient. Making purchases on credit makes it easier to track your spending. These days, you don’t even need to insert a credit card into the machine — wireless card terminals let you put the card near the machine without touching it, pay and go. Unlike cash, if they are lost or stolen, you can cancel or replace a credit card in real-time.
3. Consumer protection
Credit cards offer exceptional consumer protection. If a charge is unauthorized, the credit card company can advocate on your behalf or immediately refund the charge.
Some credit cards also include purchase protection for a specific amount of time.
With this coverage, consumers can be reimbursed for an item or receive a replacement if their purchase is damaged or stolen, usually within 90 to 120 days after making purchases on credit.
4. Easy to monitor spending
Paying for everything with credit cards may give you more insight into where your money is going. With a credit card, any charges you make are usually reported onto your statement balance and monthly bill.
Some credit cards even generate spending reports by category. Giving you a clear and comprehensive view of your charges.
5. Build credit
Credit cards report to the major credit bureaus. If you pay credit card bills on time and keep your balances low, it can work towards increasing your credit score across credit bureaus.
The key to building credit while using credit cards is to pay the card bills on time, pay off debt, and keep accounts open, as a long credit history also can help increase a credit score. Making purchases on credit and paying the bills on time each month can help to build a clean credit report and a good credit score.
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Should I use a credit card for everyday purchases?
Using a credit card for everyday purchases can be beneficial if done responsibly. It can help you build credit history, earn rewards or cash back, and provide additional purchase protections.
However, it’s crucial to pay off the balance in full each month to avoid interest charges and debt accumulation.
When it comes to how to use a credit card to maximize the benefits, you have mindful of your spending habits, as you could run the risk of overspending if you’re not careful.
What should I use my credit card for?
Wondering when is using a credit card a good idea? Ultimately, the benefits only apply if you use the card responsibly and pay off the balance in full each month to avoid high-interest charges.
Some of the most common scenarios where using a credit card can be smart:
- Online purchases: Credit cards often offer better fraud protection than debit cards.
- Large purchases: Many cards provide extended warranties or purchase protection.
- Travel: Some cards offer travel insurance, rental car coverage, and no foreign transaction fees.
- Emergencies: Credit cards can provide a financial safety net when unexpected expenses arise.
- Earning rewards: If you can pay the balance in full, using a card for regular expenses can earn cash back or travel points.
- Building credit: Responsible use of a credit card can help improve your credit score over time.
- Cash flow management: Using a credit card can help smooth out your monthly cash flow if you pay it off each month.
How often should I use my credit card?
There’s no one-size-fits-all answer, but regular, responsible use is generally beneficial. Using your credit card at least once a month helps keep the account active and can contribute to a positive credit history.
Aim for a utilization rate of 10-30% of your credit limit. However, only charge what you can afford to pay off in full each month.
The key is consistency and responsible management, not frequency. Remember, it’s more important to focus on timely payments and keeping your balance low than on how often you use the card.
When should I not use my credit card?
As helpful as they are, there are times when you might want to avoid using your credit card.
Small purchases at businesses with minimum charge requirements
You might end up spending more than necessary. This can lead to overspending and impulse buying. It’s often better to use cash for these small transactions or save them up for a larger purchase that meets the minimum requirement.
When a merchant charges extra for credit card use
In these cases, cash or debit might be more economical. Some small businesses or service providers add a surcharge to cover their processing fees. Always calculate whether the rewards you’d earn outweigh these extra costs.
Impulsive or emotional purchases
Credit cards can make it too easy to overspend on wants rather than needs. The psychological distance between swiping a card and spending actual cash can lead to regrettable purchases. Try implementing a “cooling off” period before making non-essential purchases.
Paying college tuition
The fees usually outweigh any benefits, and student loans typically offer better terms. Many schools charge a convenience fee for credit card payments. Federal student loans often have lower interest rates and more flexible repayment options than credit cards.
When you can’t afford to pay the balance in full
If you’re unable to pay off the charge by the due date, you’ll incur high-interest charges. This can quickly snowball into significant debt. Even minimum payments can lead to long-term financial strain, as interest compounds on the unpaid balance.
Gambling or betting
This can lead to significant debt and is often treated as a cash advance by card issuers. The combination of potentially addictive behavior and high-interest charges can be financially devastating. Many credit card companies also frown upon this use and may close your account if they notice a pattern.
Using your credit card for everyday spending makes good sense
So should I use my credit card for everything? The simple answer is that for most everyday purchases you absolutely can. Credit cards can be a convenient, secure, and reliable way to pay for things. The catch is that you have to make sure you’re using them the right way.
That means taking advantage of cashback and rewards programs while also making sure not to overspend and most importantly – pay off your balance every month.
FAQ
Can you use a credit card like a debit card?
Yes, you can use your credit card like a debit card if you pay off your charges as soon as you make them instead of waiting for the credit card’s month-end billing cycle. Also, you can get a cash advance with your credit card from an ATM, though you can expect to pay a fee.
How much should you spend on a credit card?
Utilization rates are an important component of your credit score. To maintain a good score, try not to spend more than 30% of your overall credit limit regularly (for example, a $10,000 credit limit would give you $3,000 for recommended regular spending).
Do you have to use a credit card every month?
No. You do not have to use your card regularly, though some companies may close your account for being inactive if you don’t use it at all. Making purchases occasionally and promptly paying them off is an excellent way to stay in the credit card company’s good graces and maintain a good credit history.
