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A Financial Strategy for Managing a Credit Card

Using Credit Cards in the Optimum Way to Save Money and Reduce Debt

Sep 18, 2009 Bruce Iliff

If used well, a personal credit card can be a useful tool for managing money. And if used properly, the credit card can provide some extra benefits.

A credit card can be a person’s nightmare with excessive debt spiraling out of control as the little plastic card seems like a great source of funds. In this situation the credit card is evil.

However, a credit card can be a useful tool in reducing debt and saving money.

A Credit Card Should Earn Loyalty Points

The first thing a shrewd credit card user should do is get hold of a credit card that has some form of loyalty points attached. The basics of how these work is that for each dollar spent on the card, one loyalty point accumulates. The value of these points is usually a bit below one percent, so for every $100 spent the value of one dollar is credited to the points account.

Over time these points build up to a reasonable size and can be redeemed for a range of rewards such as goods, airline frequent flyer points and even services such as financial planning advice. Some credit card providers with loyalty point schemes offer to redeem the loyalty points for donations to charity.

Also, there are some credit cards that have the facility to redeem points for credit off the credit card balance. In this way the points earned are as good as cash.

Put all Purchases on the Credit Card

All purchases should be made on the credit card to get the optimum number of points. Then incoming cash, such as salary and wages, can be parked in a high interest earning account to make a bit more money until the credit card needs to be repaid. Or even better, available cash can be put on a mortgage redraw facility, or in a mortgage off-set account.

Pay Off the Credit Card Each Month When Due

The credit card balance must be paid off in full when it is due. This is most important, as any interest paid on an outstanding balance on the credit card will be much more than the value of the points earned.

Bonus Points Offers on Credit Cards

Some providers and retailers offer bonus points as an incentive. For example, a retailer selling car tyres may have a deal with a credit card provider that gives five or more points for every dollar spent.

This is obviously an enticement to get customers in the door. And for credit card holder this can be a benefit. However, the quest for points shouldn’t override the purchasing decision. That is, the holder of the credit card shouldn’t be enticed to buy a product because of the points, when there could be a better price at another retailer.

Financial discipline and a budget are the tools needed to make this strategy work effectively.

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