Do Credit Cards Really Help You Save?

The following is a guest post by blog reader, Audrey Clark. Audrey is a freelance blogger covering a range of topics from careers and finance to travel and leisure, along with everything in-between. When not writing, she’s always on the lookout for her next adventure. Connect with Audrey on Twitter and Google+.

We all know that irresponsible use of credit cards can cost us hundreds or even tens of thousands of dollars in unnecessary debt. But used wisely, credit cards can actually help put money into your wallet. That’s right, credit cards can help you save money.

According to TransUnion, credit card companies are changing the way they do business in response to consumer concerns. While banks are obviously still in business to make a profit, even lenders know that consumers who go bankrupt because of overwhelming debt don’t make good repeat customers. If the new wave of benefit offers is any indication, credit card companies are more interested than ever in keeping their customers happy.

Cash-back, rebates, college-savings rewards, pay-back planners and loan consolidation are just a few of the carrots lenders are dangling in front of our noses. Not all of these enticements can actually save you money, but some can. The three easiest ways to make credit cards work for you are through rewards, expense tracking and consumer protection.

Rewards

Also called “points” or “bonuses” rewards are an incentive program to encourage you to use your credit card. A certain percentage of your spending is paid back in the form of cash, points towards good, air miles or some other attractive prize. To take the best advantage of rewards you must do three simple things:

1. Find a card that offers rewards you can actually use.
2. Use your credit card to buy everyday goods you’d normally pay for with cash such as groceries or gasoline.
3. Pay off the balance each month. Keeping a zero balance on your card is crucial if you want to save money.

For example, let’s say your credit card offers one percent cash back on all purchases. So you spend 100 dollars in groceries and earn one dollar. That’s not a phenomenal savings, but how much money do you spend in groceries every month? How much do you spend on gasoline? Depending on your habits, you could save hundreds per year by paying with a credit card instead of cash. But to realize those savings, you must pay the bill in full each month to avoid interest fees. And that should be easy to do–simply use the cash you would have used in the first place.

The cards you already have may not be the ones that offer the best benefits. Investigate the rewards your current credit cards offer against some of the more popular options on the market. Bankrate is a reliable and unbiased source for credit card information. When making comparisons, remember to consider these factors:

• The interest rate
• Annual fees
• Deals that change too quickly
• Cards with travel benefits probably won’t save you money if you rarely travel
• Bonus or reward points save you money only if they can be used for goods you actually need, not luxuries
• Cash-back plans offer the best potential for savings

Expense Tracking

You can’t cut unnecessary expenses of you don’t know what they are. As Debit Card Tracking explains, credit cards sometimes provide more thorough statements than banks. If you pay for everyday items with a credit card instead of cash it will be easy to see exactly what your expenditures are because it’s all right there on the credit card statement. While “living” on your credit card may not be the best practice, using your card to get a realistic view of how much you spend and where can be a great benefit when trying to tighten the budget.

Consumer Protection

Having a credit card stolen from you is a big inconvenience, but not as much as having cash go missing. Using a credit card instead of cash when you travel or need spending power for any reason provides protection against loss or theft. Stolen cash can’t be recovered, but stolen credit cards can be canceled without holding you accountable for fraudulent activity. And according to Creditnet, credit cards also save you money on defective purchases or purchases that fail to be delivered. Lenders will withhold payment until your transaction is satisfactory.

Credit cards really do help you save money if you use them correctly. Be smart with your cards and they can be a valuable asset in your long-term financial planning.

How about you all? Do you have a favorite rewards card that you’d recommend to others?

Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/consumerist/422358899/in/