10 Ways Credit Cards Promote Frugality

Credit cards often get a bad rap when it comes to frugality. It’s no wonder when we hear stories of people maxing out their credit cards and then paying more in total interest than they borrowed in the first place. And the credit card industry doesn’t help itself much, particularly when it jacks the interest rate up on cardholders when they miss a payment. But the truth is that credit cards can promote frugality and improve finances if they are used responsibly. To show you this, here are ten ways credit cards promote frugality.

1. Tracking Expenses: Credit cards are a great way to keep an eye on expenses. I put almost everything we buy on either a credit card or a debt card. Typically it’s better to choose credit cards because of the rewards, but a debit card works just as well when it comes to tracking. At the end of the week or month, it’s easy to see where all the money has gone.
2. Reducing Interest: Balance transfer credit cards are a great way to to eliminate interest expenses. Consider transfer a high rate balance to a card that gives 0% so you can avoid the interest. It doesn’t just have to be a credit card to credit card transfer, you could also transfer the balance you have on something like a home equity line of credit. This is a great way to reduce the interest you have to pay.
3. Earning Interest: You can also use 0% cards to transfer balances into a savings account to earn interest. Consider this scenario – Maybe you have access to $50,000 in 0% balance transfer funds for 12 months. At 4% interest, you could earn an extra $2,000 for yourself. Iif you have no debt, these 0% introductory rates can be used to simply put some extra cash in your pocket. The key here is to get a no fee balance transfer.
4. Saving on Gas: With the price of gas all over the place, it helps to do everything possible to save on the cost of fuel. There are several gas credit cards that offer cash rebates on gas purchases as high as 5% or more. This is an excellent way to cut down your gasoline costs.
5. Saving on Vacation: There are many credit cards that offer valuable hotel, airline and car rental rewards. My personal favorite and one of the best offers is the Starwood Preferred Guest card by American Express. The card offers Starpoints toward stays at Starwood hotels, and the points can be converted to miles as well. With your first purchase, you earn 25,000 Starpoints, enough for a weekend at a Category 4 hotel.
6. Building Credit: Responsible use of credit cards can help build a credit history that can save you a bundle when you go to buy a house or a car. The interest rate a bank will charge an individual depends in large part on the person’s credit score. The higher the score, the lower the rate. Using a credit card that you pay in full each month (or at least on time) will improve your credit score over time. Having available, unused credit will improve your credit score, too.
7. Saving on Taxes: This tip is particularly important if you run a small or home based business, but it applies to everybody. Making purchases that are tax deductible using a credit card gives you an audit trail of the purchase and reduces the risk that you’ll forget about the deduction at tax time. Every year when you sit down to do your taxes, you can take out your yearly credit card statement to confirm you’ve included all eligible deductions you’re entitled to.
8. Saving for College: If you have a 529 plan with Fidelity, they offer an American Express card that contributes up to 1.5% of your purchases into the 529 plan.
9. Saving for college II: With Upromise, a percentage of purchases you make can be contributed to a 529 plan. It works similar to the Fidelity American Express, except that the 529 plan does not have to be with Fidelity, and you can use just about any credit card or debit card. And signing up is free.
10. Shopping at Costco: Costco is one of my favorite places to shop. Now with the TrueEarnings® Card from Costco and American Express, you can earn 1% on general purchases, 2% for travel-related purchases, and 3% for restaurant and gasoline purchasee.

Photo Credit: o5com via Flickr