Although it can be easy to forget as we’re swiping away, credit cards are a form of debt; the balance you build on your credit card is debt you owe to the issuing bank.
Given that they are debt and, by nature, debt is a negative, it may seem counterintuitive to consider that credit cards may actually help you save money — but they can. Everything from earning rewards to easy access to reusable financing can help you save money simply by using the right credit card.
Of course, it takes smart credit card use and responsible financial behaviors to make the most of your credit cards’ money-saving potential. No matter how strategic your plan, irresponsible use of credit cards will likely cost you more than you can save.
Purchase Rewards Can Be Very Valuable
The most obvious way your credit cards can save you money is through purchase rewards. The majority of prime credit cards — and even several subprime cards — now offer rewards programs that provide cash back, points, or miles on all of your net new purchases.
Most rewards credit cards have a flat unlimited rewards rate (1% to 2% is standard) that applies to every purchase. However, many rewards cards these days also have set bonus categories that provide higher rewards rates for category purchases. For example, a travel rewards credit card might offer triple points for travel-related purchases like airfare or hotel stays.
The best way to maximize your credit card rewards is to choose a credit card that offers bonus rewards for the purchases you make most often. If most of your budget goes toward groceries, for instance, choose a card with a high bonus rewards rate for grocery store purchases.
Although most credit card rewards are paid for by the interchange fees that issuers charge merchants for each transaction, many high-rate rewards cards will also charge high annual fees. Subprime rewards cards can also charge a variety of fees, so pick a credit card with no or low fees.
You’ll also want to be sure to pay off your purchases well before you start accruing interest fees to ensure your earnings stay in your pocket, rather than going right back to the bank. Even the most lucrative rewards credit card won’t provide enough in rewards to make paying big interest fees a good idea.
Issuer Portals Can Unlock Exclusive Discounts
In addition to purchase rewards, your credit card may also give you access to the credit card issuer’s online shopping portal. Offered by most major banks, issuer shopping and discount portals can contain exclusive coupons and discounts for tons of popular brands, as well as special offers for extra bonus rewards on partner purchases.
How the shopping portal works will vary by issuer. Some portals provide coupon codes to be entered at the time of sale, some portals use trackable cookies to automatically credit your account, while other portals will simply attach the discount to your card account for online or in-store use.
Save On Interest Fees with Credit Card Grace Periods
While many occasions call for a long-term installment loan that you can repay over months or years, sometimes you simply need a small loan to get you through the next two weeks. Rather than turn to expensive payday or cash advance loans, you may be able to use your credit card as a means of short-term financing.
Given that many payday loans can have APRs in the three digits, using a credit card — even a subprime card with a 30%-plus APR — is already a better deal. But, that deal gets exponentially better when you only need a few weeks to repay your balance. That’s because most credit cards offer a grace period on new purchases to pay off your balance before you start accruing interest fees.
Although some cards don’t offer a grace period (most commonly the case with subprime credit cards), cards that do offer one will provide a grace period of at least 21 days, though the full period is generally from the time the transaction posts until the day the bill for that billing cycle is due.
One important thing to remember is that the grace period for interest only applies to new purchases. Other transaction types, such as a balance transfer or cash advances, won’t qualify for the grace period. The interest fees for ineligible transactions will start to accrue as soon as the transaction posts to your account.