Wednesday, October 29, 2008

Save More by Using Your Credit Card

While consumer confidence reached an all time low last month, it seems like Americans are finally figuring out that paying down debt and saving more is the way to go, especially in tough times. Having said this, you might be surprised to hear me say the following: my wife and I make a conscious effort to put every dime we spend on our credit cards. No, we're not debt fiends. In fact we never carry a balance and we pay down our cards every single month. The logic here is very simple: we do this for the rewards. Over the past 12 months we got approximately $1,000 in cash back from our AmEx Blue and our Citibank Dividend cards. That's $1,000 tax free, and that's also what I call one of the very few free lunches you can find out there.

I first got acquainted to rewards credit cards in 1997 when I saw my father-in-law use a card that gave him a 5% discount on his gas, provided he filled-up at Shell. "Wow, that's pretty nifty", I thought to myself (I still use words such as "nifty" sometimes in my head, never out loud though...). Little did I know that there were even better deals out there. Our current favorite card is the AmEx blue - to date, we haven't found a card that offers a better deal. Also, since we have had it for several years now, our credit limit has grown to a level where we can pretty much use the card for everything, including job related expenses and travel, and not worry about exceeding the credit limit. That makes things pretty easy.

Anyway, even today you can still hear (and read) passionate arguments about whether cash back credit cards or the humble gas credit card is superior. Personally, I'll take cash any day of the week, but the point is different. As Americans are starting to adjust their financial lives to the new and gloomier economic reality, rewards credit cards can play a major role in boosting people's savings and helping them improve their balance sheets. Of course the key is to NEVER carry a balance, or else your financing fees will far outweigh any rewards your card offers.

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