Not Using A Credit Card Is Financially Irresponsible
Do we have your attention? I am going to be blunt here because you need to hear it. I’ve explained this same principle to friends and family for years and it has changed the way they look at credit cards and now I’m going to say it to you, the CreditSmart readers.
You are being financially stupid if you’re not using a credit card for every purchase. You are very literally LOSING money everytime you pay with cash instead of a credit card. You are doing yourself, your CIBIL score, and your financial future a disservice by not using a credit card on any purchase where using a card is possible.
Are you with me? Let me explain.
Credit card companies want your business and they’ll fight to get it. This is because they make a small percentage direct from the vendor each time you use your card. If you buy something for Rs.3000, the credit card issuer might get 2% or 3%. They want you spending so in effort to get you to use your card more, the banks often incentivize you by offering a percentage of that money back to you in the form of cash back rewards, points, or airline miles. There’s literally hundreds of cards in India with as many rewards programs. Plenty of those cards are reviewed right here on the site, but go read those later.
The point is, credit cards are desperately trying to give you money either directly or though points, so why aren’t you taking it? These points and miles can be quite valuable, and even if you don’t plan on taking a trip soon it’s still better to actually be earning points and working towards something with every rupee spent instead of gaining nothing. If cash back cards sound better to you, then it’s instant gratification! Most cards credit your cash back immediately each month. This is absolutely free money just for using your card. Effectively a discount on everything you buy. Only a fool would turn free money away, no matter how big or small. Especially when it requires nothing more from you.
Another Great Reason To Primarily Use A Credit Card, Safety
That’s right, an overlooked benefit of not using cash is your increased safety. If your cash is lost or stolen, it’s gone. You probably won’t be getting it back either. However if you lose your credit card, you can easily call the bank and have them cancel the card. If any fradulent charges were made on your card, simply contact customer service and they will be promptly investigated and wiped from your bill. You are 100% safer carrying a card than cash, it’s just a fact.
OK! I’m Ready To Earn Lots Of Rewards!
To begin employing this new credit strategy, the first thing you need to do is look at your bills and figure out which bills you have that can be paid monthly via credit card. These recurring bills can be your most reliable source for earning cash back, rewards, or miles. For example, my mortgage is not payable via credit card, but my building maintenance fee is. So I charge it each month. I also charge my internet and mobile phone bills.
Where you can really begin to earn rewards is when you accustom yourself to using your card on all your everyday expenditures such as petrol, groceries, dining out, as well as any unexpected things that may come up. Auto repair? Charge it. Hiring a painter? Charge it. Seek out ways to pay for something with your credit card that you haven’t in the past. If you’re really ambitious to earn points, while out shopping offer to pay for your friends purchase and have them give you the cash on the spot. It all works out even, but you just earned free rewards.
This sounds too easy. What’s the catch?
OK, I know you’re thinking to yourself “What about the card’s interest rate? It’s not free money once you consider that.” Actually yes it is still free money if you are responsible. I’m asking you to look at your card not as a tool of credit, but as a cash surrogate. If you want this strategy to really work for you in the long term, then you need to exercise self control. Only spend what you were going to spend anyway. The golden rule here is:
ONLY charge what you can pay in full by the time your bill comes.
Letting interest accrue kills the benefits of this strategy. I often find myself paying my credit card down 6-7 times per month. There’s many reasons why this is beneficial. Doing this keeps your credit utilization perpetually low which is a great factor in raising your CIBIL score. Also, lenders will see you’re responsible by paying early and often, which can lead to them increasing your credit line. It also helps you learn your own spending patterns and money management. On a personal level this helps you not only make money but build financial discipline. Everyone would agree by committing to only spending on your card what you can certainly pay back shows incredible discipline and is a quality that will serve you well throughout life.
Of course you still might want to use your credit to pay off something over time, and that’s perfectly fine of course! What I would recommend is if you plan to really adapt your spending style to earn points, then get two credit cards. Your primary spend card will be the one you’re trying to earn points or cash back with and keep a second credit card for your pay over time charges. This is a simple way to cleanly manage your credit. It’s worked extremely well for me as I have an 800+ CIBIL score and accumulated enough miles for a free flight in 2015.
So stop carrying cash and start applying for plastic. Take control of your financial life and start taking what the credit companies want to give you: FREE MONEY!