Are you someone who pays cash or uses debit for all your purchases?  This can be an admirable trait for some; but for people who are disciplined, it is not the most efficient way to handle your finances.

The Advantages of Using Credit Cards

Using credit cards has many benefits:

• Purchase protection on things you buy
• Interest free grace period.  You can use the cash you would have had to pay down debt or keep it in a savings account
• Easy tracking of your expenses
• It’s safer in most cases, no cash to lose, no worries about PIN theft, etc.  Disputing a charge is much easier with a credit card than with debit
• You can get rewards or cash back from your purchases
• No fees (if you avoid cards that charge fees, of course!).  Cash and debit both require a banking package with unlimited or heavy transactions, which can be expensive
• Nearly everything can be put on credit now, including cable/phone/internet bills, home and auto insurance, groceries, even donations!  The more you can put on, the larger your benefit.

Transitioning From Cash/Debit to Credit Cards

For someone just switching to putting all their monthly expenses onto credit, the interest free grace period is especially attractive, as you effectively ‘push’ a months worth of expenses forward by whatever amount of time your grace period is.

A Hypothetical Money Saving Example

For example, say your current monthly expenses that could be switched to credit from cash/debit amount to $1500/month.  The month you start the switch, you will now have $1,500 in your pocket that would have gone to cash expenses, but is now not needed to be paid until your credit card due date the following month.  At that time, you’ll have next months $1,500 ready to pay it off.  Take this months $1,500 and apply it against your mortgage, car loan, etc.  If that debt is at 5%, you’ll save $75 for every year you stay on credit.

Watch Out For These Pitfalls!

Just keep in mind that if you ever switch back to cash for whatever reason, you will now have two months of expenses to pay for in one month.

The other pitfall, of course, is that you must be disciplined, not only to not spend more on credit than you would have with cash/debit, but also to ensure that you pay off the balance in full each and every month.   Failure to do both of these will result in this being a very bad deal for you!

The Lowdown

For those with the financial control, this is a great way to save money.  In my case, I get around $600 cash back on my annual spending, plus $100 benefit from the grace period push, plus all of the other intangible benefits listed above.  I’ll never go back to cash!

Stay tuned for a future article on the best Credit Cards for rewards. You may also enjoy the following article on using Credit Cards to Make Money.