When most people think about a credit card they do not make a connection with it being a frugal way to handle money. A credit card is usually thought of as an incentive to do some serious shopping without having the means to pay it back. Those that think about being frugal with their money often don’t consider a credit card for those reasons.
While retailers and banks issue credit cards hoping that consumers will use them half hazardly, the fact is that there are some frugal shoppers that can make the most out of credit cards and use them to their advantage.
Being frugal with a credit card
The only way you can really get into trouble with a credit card is by not paying the balance in full every month. The interest rates on credit cards are very high and it is easy to go into quick debt by using them for purchases that you simply cannot afford. If you are able to pay off the balance on the statement every month without fail, you can get your credit card working for you and be frugal it.
Your credit card should be considered as an alternate way of making payments. When it is used like this it becomes a better payment method that can help maximize savings. If you can pay off your balance every month in full, and treat your card with full responsibility, here are some tips to help you choose the best credit card.
Look for promotions
Banks are always looking for new customers and you can find incredible deals on credit cards. Card providers are especially interested in customers that always keep up with their payments and don’t get into debt. While these customers do not end up paying any interest, they are low risk and the banks know that they probably won’t lose any money by signing them up. They will still make money off of these reliable customers through merchant fees for transactions.
Airlines and hotels also understand that selling points and miles to banks is highly profitable. In order to lure in more customers, banks are offering credit cards with high bonuses for rewards points for signing up.
Some credit cards are offering as much as 75,000 to 100,000 miles if you sign up with them for a new credit card. When you consider that a few short years ago, credit card providers were only offering about 25,000 air miles to their customers as a bonus, this is huge. A bonus of 25,000 miles could get you a round trip on a domestic flight if you looked for sales. In many cases the average consumer will not accumulate more than 100,000 miles for as long as they own the card. These miles are a valuable incentive, and if you treat your card responsibly and pay off your debt every month, it simply makes sense to sign up for the card, get the extra miles, and go on a free holiday.
Don’t worry about the interest rate
If you are certain that you are not going to carry a balance forward from one month to the next, you really don’t have to worry about the interest rate and can sign up for the best deal. This gives you total flexibility to choose the best promotion that is being offered, no matter what the interest rate is. You will have to remember, however, that this card must be used as an alternative payment type and should never be used for splurging.
Considered the rewards
When you’re looking through the rewards credit cards available, always look for a card that is linked to a program that you can really use. There is not much use in getting a rewards card if the rewards are useless to you. For example, if you really aren’t a traveller you should not be looking for a travel rewards card. There are some great cards that offer promotional bonuses for merchandise and gift cards.
You must also look at how much you will end up paying for the reward versus how much it would cost you to buy it on sale. This will let you know how much money you are really saving by collecting rewards points.
You should also factor in how much the points are actually worth. This can differ from one credit card to the next. The points may be more valuable on one card and have a very low value on another. Do some calculations to find out the actual point value and what you can purchase when you have points accumulated.
If you are looking for rewards cards that offer cashback programs you should do some shopping around first. Most cards will give you 1% cashback, so look for something better. If you can only find the 1% cashback, you may be better off looking at merchandise or travel rewards cards that offer 1.5% or 2% in points value for every dollar you spend.
A frugal person will truly see the value in a cashback program. Every time the credit card is used for spending, you will be saving money on the item you purchase. Again, the card must be paid off in full every month in order to really see the savings.
Many people sign up for a credit card because they are comfortable dealing with their local bank and don’t look for any special offers. This is not a frugal way to shop for a credit card. There are fantastic promotions being offered by the credit card companies right now, and you do not need to settle for the credit card that your bank is offering.
Don’t be afraid to change banks for your credit card services. It does not mean that you have to switch over all of your other accounts to have one of their cards. It simply means that you are taking the best deal that is being put on the table and using it to your advantage. That is being frugal, and you can end up saving a lot of money this way.
You can still be frugal and own a credit card. If you already have a frugal mentality then you are probably safe getting a card. The problem with credit cards lies with people that have a spending mentality instead of a saving money way of thinking. Look at the great deals that are being offered by credit card providers right now to see if any of them can provide savings to you.
This article was written by personal finance writer Timothy Ng from Sydney, Australia. He is genuinely passionate about helping people compare credit cards and helping them through researching to find the best credit card.