You know the saying credit cards can be a blessing or a curse? How you choose to use them makes all the difference.
If you’re smart about it, credit cards can actually help you build wealth over time through rewards and benefits.
I took steps to maximize my credit cards and make them work for me, not against me.
Using credit cards strategically is a simple trick that pays off big. Follow these tips, and your credit cards can help boost your bottom line in 2023.
How I Use My Credit Cards Wisely to Build Wealth
If you want to build wealth over time, using credit cards wisely is key. Here are a few tips to leverage your cards and earn money back:
1. You Should Have 2-3 Credit Cards to Maximize Rewards
Choosing credit cards that match your needs is key to using them responsibly. Look for cards that offer rewards and perks that you’ll actually use.
For everyday spending, a general travel or cash-back card is perfect. My favorite gives 2% back on all purchases, which adds up quickly.
Compare cards to find the highest rates in categories where you spend the most.
A premium travel credit card is necessary if you travel frequently for work or pleasure.
Many provide airport lounge access, TSA Precheck/Global Entry fee credits, and generous point bonuses. Just be sure to spend enough each year to offset the annual fee.
For big purchases, look for cards offering 0% APR intro periods so you can pay off the balance before interest charges kick in. Make a plan to pay the full amount before rates go up.
Students and those with little or no credit should consider secured cards that report to the credit bureaus.
They require a cash deposit, which becomes your line of credit, but it helps to establish a good payment pattern.
After 6-12 months, you can usually convert to an unsecured card and get your deposit back.
2. Maximize Rewards and Cash Back
To maximize the rewards and cashback from your credit cards, you need to use them strategically.
Some simple tips can help you earn hundreds or even thousands of dollars per year that you can use towards travel, gift cards, or just cash in your pocket.
I. Focus Your Spending on the Right Cards
Concentrate on the types of purchases that earn the most rewards on cards that offer the highest cash-back rates or bonus points for those categories.
For instance, use a card offering 3-5% back at restaurants and entertainment for those expenses.
Use a 2-3% card at gas stations for fuel purchases. And a card with 1-2% off all other purchases for anything else.
II.Look For Sign-up Bonuses
When you open a new credit card, look for a big sign-up bonus to earn a chunk of points or cash back immediately.
Many cards offer bonuses like $150 back after you spend $500 in the first 3 months or 50,000 points worth $500 in travel.
Meet the minimum spend requirement for the bonus. Then you can stop using the card or just use it for the bonus categories. The bonus is an easy way to earn a lot quickly.
III. Redeem Your Rewards Wisely
The way you choose to redeem your rewards can impact their value. For the best value, redeem for travel, gift cards, or statement credits.
Cash back is the most flexible but may be worth slightly less. And only redeem for merchandise if there’s something you need.
Compare how many points or dollars it costs to redeem for each option. Travel redemptions and gift cards often get you the most cents per point.
2. Pay the Bills on Time
Paying your credit card bills on time each month is one of the best ways to build wealth and improve your credit score in 2023.
Here are some best ways to do it:
I. Set up Automatic Payments
The easiest way to ensure you get all the payments is to set up automatic payments for at least the minimum amount due.
Most credit cards allow you to schedule automatic payments from your checking account for the full balance, minimum payment, or a fixed amount.
Choose an option that fits your budget, and you’ll never have to worry about late fees again.
II. Pay More Than the Minimum
If possible, pay more than just the minimum amount due each month. Making only minimum payments means much more of your money goes to interest charges rather than paying down your balance.
Paying just $10 or $20 above the minimum can save you money in the long run and get you out of debt faster.
III.Check Statements Regularly
Even with automatic payments set up, you should still review your credit card statements regularly to check for errors or fraud.
Log in to your credit card account at least once a month to review recent charges and ensure no unauthorized transactions.
Report anything suspicious right away to limit your liability. Checking statements frequently also helps ensure automatic payments are being made properly each month.
3. Keeping Low Credit Card Balances
One of the best ways to use credit cards wisely is to keep low card balances.
High balances hurt your credit utilization ratio, which makes up 30% of your credit score.
Keep your balances below 30% of your credit limit whenever possible. Pay off charges as soon as they post to avoid interest charges.
For example, if your credit limit is $10,000, keep your balance under $3,000. Pay more than the minimum due each month to lower your balance. Pay the full amount if you can.
You’re using your card responsibly and building credit by keeping low balances.
I. Pay on Time
Late or missed payments severely damage your credit and credit score. Payment history makes up 35% of your FICO score, so always pay on time.
Set up autopay or automatic payments to ensure you never miss a due date.
Consider setting a weekly or biweekly reminder to manually pay as well, in case there are any issues with automatic payments.
Staying on top of your payments is one of the easiest ways to build wealth with credit cards.
You avoid late fees, penalty APRs, and score drops. Keep making those on-time payments, and watch your score rise over time.
II. Track Your Spending
Review your credit card statements regularly to track where your money is going each month.
Look for expenses you can reduce or eliminate. See if you’re overspending in certain budget categories.
Use your credit card like a monthly financial check-in to ensure you’re on track to meet your financial goals.
The more aware you are of your spending, the more control you have over your financial situation.
6. Monitoring Your Credit Score Regularly
Monitoring your credit score and reporting regularly is key to using your credit cards wisely and building wealth.
As the saying goes, “What gets measured, gets managed.” Check your credit score and full credit report at least once a year, ideally every 6 months.
A good credit score opens you up to the best credit card offers with rewards and perks that can save you money.
It also allows you to qualify for lower mortgage, auto, and insurance interest rates.
Some services like Credit Karma, Credit Sesame, and NerdWallet offer free credit scores, reports, and monitoring.
- Watch for any signs of fraud or identity theft, like accounts you didn’t open. Report these immediately to the credit bureaus and credit card companies.
- Look for and dispute errors on your credit reports, like incorrect late payments or amounts owed. Even small mistakes can hurt your score.
- See how your spending and payment habits are impacting your score. Make adjustments as needed to keep your score in a good range. Pay high credit card balances, and don’t max out your cards.
Building wealth with credit cards is really about maximizing rewards while avoiding debt.
Choose cards wisely, spend responsibly by paying balances in full each month, and your points and perks can really start to add up over time.
By paying close attention to these few strategies, your credit cards can work for you instead of against you.
While it may seem tedious, developing good financial habits and discipline will serve you well in life
With the right approach, credit card rewards programs can be a simple way to build wealth.