Tuesday, 17 May 2016

Credit cards—sometimes justifiably—get a bad rap.

These little plastic tools have been blamed for destroying budgets, credit histories, and even relationships. But when you utilize them correctly and pay off the balance in full every single month, credit cards can actually be a very useful way to save—and sometimes even earn—you more money. Here are eight ways to maximize the advantages of your credit card:

1. Points

Many credit cards offer rewards programs. Whether redeemed for cash, statement credit, airline miles, or gift cards for your favorite retailer, these points can add up to real money. Make sure you understand exactly how many points you earn for each category (such as grocery, travel, restaurants, or gas), the value of those points, and whether the program makes sense for you. For example, if the card gives you five points per dollar for gas and you don't drive a car, that isn't the card for you. But if you eat at restaurants often, you may want a card that offers great rewards for dining out.

2. Travel rewards

If you travel often and stay on top of your frequent flyer programs, using a card that aligns with your preferred traveler can be a great way to earn free trips, upgrades, lounge access, and other perks. Some hotels also participate in these programs. Even if you're just looking for another way to help save for vacation, there are cards that offer points on purchases that can be used toward traveling.

3. Accounting

Whether for personal or professional use, credit cards can be a great way to track your spending. Your monthly credit card statement likely comes with an itemized list of transactions and merchants, which makes things easier when you're sticking to budgets or recording for tax purposes.

4. Building credit

If you have a poor credit score or no credit history at all, a credit card can help. Opening a credit card in your name, charging no more than 30 percent of the limit, and paying it off in full and on time each month is the best way to earn a high credit score—which is the key to qualifying for low interest rates on a car loan, mortgage, or personal loan. These attractive loan terms can mean saving many thousands of dollars over a lifetime.

5. Account protection

Unlike cash or checks, credit cards have built-in protection in the event your card is lost, stolen, or if a merchant makes an incorrect charge to your account. Many credit cards also offer extended warranties for items you purchase with the card—which saves you that cost at the store. CardHub has a useful guide to research these benefits, and it can be helpful to know what warranties your card provides if something breaks.

6. Retail discounts

Many major retailers offer store-branded cards that extend generous discounts to their cardholders. If you shop at these stores often for things you need anyway, taking advantage of sales and using the retailer's card can help you save more money.

7. Rental car insurance

The next time you rent a car, consider declining the optional rental policy and using your credit card instead. Nearly every credit card offers a collision policy at no extra cost—as long as it is used for qualifying vehicles (some will not cover luxury vehicles, for example). Make sure you review what your card covers.

8. Emergency funds

You should have a cash emergency fund equal to at least three to six months of living expenses. Even if you have that cushion, life happens. Unforeseen events sometimes crop up, and you'll need an immediate source of funds. While it's not ideal, a low-interest credit card can help provide the line of credit you need to get through leaner times.

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