Tyler Tervooren, 26, a writer in Portland, Oregon and creator of the site Advanced Riskology, isn't embarrassed to admit he uses credit cards for almost every purchase he makes. In fact, he's proud of it. Here's why: He pays off his balance in full at the end of every month. That means he gets all of the advantages of credit cards with none of the downside.
[In Pictures: 12 Money Mistakes Almost Everyone Makes]
Those benefits include rewards points, which he earns and then uses to buy expensive plane tickets, as well as the ability to closely track where his money is going.
Even Carmen Wong Ulrich, author of Generation Debt and the forthcoming The Real Cost of Living, says credit card debt is what allowed her to support herself after she graduated from college. "Money for the futon had to come from somewhere … I had to start my career and I couldn't live at home, so I needed a place to sleep, and a couple good outfits to go on job interviews," she says, adding, "As much as I write about debt, I don't think it's a monstrosity. It can be a tool."
Curtis Arnold, founder of credit card information site cardratings.com and father of six, financed his family’s minivan purchase at no cost by charging it to a card that offered a zero percent introductory rate for one year. While most card companies count on some portion of consumers to either make late payments or carry debt past the introductory period in order to turn on a profit, Arnold was careful to transfer the $13,000 balance to a credit card that offered another teaser rate within the twelve months. Without his credit card, Arnold would have been at the mercy of the dealership’s financing terms, which would have cost him about 6 percent in annual interest.
Here are five secrets to credit card success:
Use credit cards to buy almost everything. “I only carry cash for the few places I frequent that don't accept credit for small purchases (mostly coffee shops). Right now, I have six, but I expect to have several more over the next 6 months,” says Tervooren. That frequent usage means that he builds up his balance and earns more rewards points. This strategy only works for people who pay off their balance in full each month so avoid any interest charges, which leads to the next point.
Pay off the balance in full each month. “In the seven years of my credit history, I have never carried a balance or paid a fee of any kind,” Tervooren says.
Take advantage of rewards. “I am very strategic with the cards that I apply for. I use them to build large sums of frequent flyer miles that I use to exchange for otherwise very expensive trips,” says Tervooren. Next summer, he’s flying to Africa and Europe to climb two of the world’s tallest mountains as well as run a marathon. He’s already booked his tickets—at no cost to him.
[For more money-saving tips, visit the U.S. News Alpha Consumer blog.]
Track all of your expenses. Many card issuers now offer a free budget tracking service so you can see where your money is going. Tervooren uploads his credit card expenditures to mint.com for easy tracking.
Pick the best credit card for you. If you use your credit card the way Tervooren does, then you can largely ignore the interest rate and focus on rewards points instead. Says Tervooren: “I purchased my entrance to a marathon in South Africa for next summer on a card that offers good frequent flyer rewards and, because it's a travel-related card, it comes with some extra travel insurance provisions above and beyond what you would get with a debit card.”
Kimberly Palmer is the author of the new book Generation Earn: The Young Professional’s Guide to Spending, Investing, and Giving Back.