This is a guest post by Andy over at Retire at 40. Check out his great blog and subscribe to his RSS feed here.

I’ll admit it. I’m a credit card user. I use it a lot, not everyday, but a lot. Am I wrong? Am I a bad person? Should I be slapped with a wet haddock for my sins?

The answer is of course ‘no’. There are multiple ways why you’re not an automatically bad person if you use a credit card but you must follow them. These tips broadly fit into three categories so we’ll look at each of these in turn:

(1) Using Your Credit Card the Right Way, (2) Using Your Credit Card to Your Advantage,
and (3) Using Your Credit Card Within Reason.

Pay off your Credit Card in Full Every Month no Matter What

Without a doubt, this is the most important thing you can do with your credit card. Even if you don’t read the rest of the article (please do) be sure to take this tip in your back pocket everywhere you go. It’s the first point, the most important point and the one you should practice every step of the way when using a credit card. By doing this you don’t get interest payments, late charges, increased rates or fees and the myriad of other disadvantages credit cards can be responsible for.

Get your Bills Taken Automatically Out of your Card

Doing this allows you some mental freedom, the freedom to not have to worry. I do this and I never have to remember what date my bills need to be paid. I never have to remember how much they are. I also get a prompt payment discount from some utility companies such that I’m even paying them less. The only date I ever have to remember is the 24th of every month when my credit card bill has to be paid (see, I did remember!).

However, even this can be automated and means you have even less to worry about. Think about it: you have to pay those bills anyway, right, so why not just make them automatic? The Credit Card bill doesn’t arrive until next month so it doesn’t really matter if you pay on the 1st or the 30th of the month, just let it happen naturally.

Don’t See your Credit Card as Debt, Instead just see it as a Liability that Needs to be Paid

Many people see the balance on their credit cards as debt. I don’t and whilst I know this may fly in the face of many people’s opinions, that one is just mine. Instead, I just consider it a short term loan – a liability – but nothing more than that. In fact, it’s a loan for which I don’t actually have to pay any interest on! How good is that? It happens to be something I need to pay off by a particular date but I
just told you that I always pay it off, every month, so in reality it’s a loan. All it means is that my money stays in my account for longer than it otherwise would, hence I keep my money working for me for longer. It’s that simple.

By looking at your card as just another liability that must be paid by a certain amount of time, you’ll soon get into the hang of the fact that you get to keep your money working for you longer than you otherwise would.

Don’t View your Credit Card as an Emergency Fund

Many people think their credit card is their way out – an Emergency Fund if you will – but that is just silly. Please don’t. This is the second worst thing you can do with your credit card after not paying the balance off in full

I suspect that there have been many times when partying people have ran out of money and slapped a whole lot of drinks on their card … “It’s an emergency, eh bro’?” At that time of night, it might seem like an emergency but the reality of the cold and hungover day proves it wasn’t. Kristy also mentioned this in her post on Lessons Learned from being in Debt.

Using Your Credit Card to Your Advantage

Keep your Money in your Account Longer

As I just mentioned, I keep my money in my account for longer by using my credit card. The best thing is, this is for all the stuff I have to buy anyway so what does it matter if I put it on my credit card? What I don’t do is buy frivolous, unecessary and unneeded things on my card (or indeed, at all).

By putting your bills, your groceries, your travel and a myriad of other essential ‘needs’ (not ‘wants’) on your card, you’re making sure you keep your money working for you longer. If you current account pays interest, then you’ll reap the rewards of that. If you have a revolving current account like I do, then I’ll not be giving the bank as much interest each month. It works both ways.

Using your Card Builds Credit History

Building a credit history is important but remember this isn’t the only way to do this. Any form of loan can build a credit history but if you usually buy larger items with cash then your credit card is still a great way to get a better credit score (for those times you really need it). Yes, paying your bills helps too but I suspect not as much using your card.

Earn Reward Points

Cash back, rebates, air miles, reward points, reward cards – all of these can be given out by credit card companies so it’s worth looking around to see which ones give you the most. I know of people who use different cards at different stores since the rebates are higher there but I’m a one card person. Of course, you should choose what is right for you.

Using Your Credit Card Within Reason

Do Not Overspend on your Card

For much the same reason that you shouldn’t see your card as an Emergency Fund, you should also not use your card excessively. Mostly this comes down to the fact that you should be able to pay off the card in full the next month. If you are more particular about this, then you shouldn’t have more on your card at the end of the month than what you have budgeted for for any of those categories which you use the card for.

This too, is very important, otherwise it might lead you to the road of carrying a balance and therefore paying interest on your account.

Stay away from Cash Withdrawals (Cash Advances)

These transactions are pretty bad and oddly enough, many people don’t realise why. When you take money out using your Credit Card, they rack up interest immediately and in most cases at a higher interest rate as well. This is not good for your end of month statement and should be avoided as much as possible. Just a little advanced planning can help quite significantly.

Final Thoughts

But please be warned, some people cannot or won’t use their own cards in the right way. In some cases, this might lead to a perpetual downward spiral and therefore will have to get themselves back out of it. Credit cards are not for everyone. If you have used one in the past and said that they were not for you, then these tips above might not help. If you don’t see the point of using them, then don’t.
Otherwise, for those who can use credit cards sensibly and to your advantage, go for it and enjoy taking advantage of this smart way of getting the most out of your money.

Related posts:

1. 10 Tips for Foreign Travel with a Credit Card
2. Travel and Credit Cards: 7 Tips Before Hitting the Road
3. 8 Tips: Handling Credit Card Debt During a Divorce
4. Frugal Living Tips for a Recession
5. 10 Tips for Seniors to Get Out of Debt