Always Use Credit Cards… Always

Always Use Credit Cards

I never use cash. I rarely ever carry around cash. My debit card has grown roots in my wallet. And it is the smartest money decision I’ve ever made.


 

Why Cash is Not King

The main reason I don’t use cash is because you don’t get a percentage of it back when you spend it. Once you spend cash, it’s gone and you’ve earned nothing for using it. If an option exists where you can get a return on your spending, it is illogical not to take advantage of it. If a credit card offers 2% back for every dollar your spend, that is like earning 2% in a savings account. But you earn 2% when you spend.

That’s a higher percentage than what most big banks in Canada provide in interest in a regular savings account! Don’t believe me? RBC offers a paltry 1.10% on their High Interest Savings Account (HISA). Ditto BMO. TD only provides the generous 1.10% if you hold more than $5000. Credit Unions aren’t much better with their HISAs: Vancity and Coast Capital both offer 1.10%. ING offers 1.35%. And the highest rate for a savings account in Canada is with People’s Trust, who offer 1.90%. None of those return 2%.

The Best Credit Card

For us, we did some extensive research into what would be the best credit card to use to get back the most return on our spending. After crunching many numbers, we decided on the Capital One Aspire World Travel MasterCard. I won’t go into any in-depth review of the card as there are many other places on the internet which discuss the merits of this card. Red Flag Deals has a good discussion on the card here. MoneySense has a good review of travel reward cards here.

The Capital One Aspire World Travel MasterCard works the best for those who travel. Even if you take a flight once a year or every couple years, this is a great card for redeeming for flights. The card returns 2% back if you redeem on air travel over $600. It can be a little more technical on how to get the full 2% on smaller travel, but read about those technicalities in the links above.

If you redeem out your points for straight cash, the amount you get back in cash from points works out to a 1.5% return on all spending. Not as great as the 2% for air travel, but still better than a lot of other cards out there.

This card has an annual fee of $120. This is a sticking point for a lot of people. But I’ve made a graph to demonstrate how the card basically pays for itself over 5 years:

Why Using Cash is Illogical

In a hypothetical situation where you get the card and do not purchase anything on it for 5 straight years, you would either end up owing $37.50 in fees for 5 total years if you converted your points to cash or you would have $150 worth of travel credit.

This is how the math works:

always use credit cards

This is purely a hypothetical situation as there is no use of the credit card. Under normal use, one would collect up much more points than the scenario I have described. I used this hypothetical scenario to illustrate in simple terms how the card works and why paying the annual fee doesn’t necessarily mean it costs you anything.

The bottom line is that this card returns either 1.5% cash back on all purchases or 2% back on air travel, depending on what you want to use your points for. The math makes sense and that is why we use it for all of our purchases.

5 Reasons Why Cards Trump Cash

As great as the rate of return on spending is for this credit card, there are a few other major advantages for using credit cards instead of cash or debit. Here are 5 reasons:

1) Cash Back

You usually have to save money in a savings account to receive money back in the form of interest. Credit cards can give you cash back in your hands for spending.

2) Insurance

Baggage loss, travel delay, travel health, and other forms of insurance are usually included.

3) Safety

If you order something online and you never receive it, you can dispute the charge and get your money back. You are protected from fraud.

4) Build Credit

Helps you build credit for favourable future mortgages and loans.

5) Convenience

Carrying cash, paper and metal, can be a hassle. It’s much simpler to have a single card for all payments.

The Disclaimer

First, I am in no way affiliated with Capital One or MasterCard and I make no money whatsoever for recommending this card. My opinion and recommendation of this card is based purely on the research I have done to choose a credit card that is the best for me and my family.

Of course, you have to be aware that credit cards offer these kind of incentives because they want you to senselessly spend so that you spend more than you earn. Then you have to pay +20% interest on the bills you can’t pay in full each month.

With great power comes great responsibility. Credit cards are not something that everyone either has the discipline to use or should use. But if you can wield the power responsibly, the payoffs are tremendous.

What are some of your thoughts on using credit cards for all purchases? Even with these sort of incentives, do you still prefer debit and cash? If so, what are your reasons?

26 thoughts on “Always Use Credit Cards… Always

  1. We do use a credit card for almost everything. My husband is very good about keeping track of any special incentives, such as greater percentages back on dining or hotels.
    That said, we haven’t paid interest on a credit card in 20 years, so we are in no danger of not being to pay the bill. We keep track of spending in our budget and set the credit card to pay in full each month.

    1. Sounds like really responsible use! It’s the same with us, before we were married, neither of us EVER paid our bill late and paid interest. We’ve carried that over into our marriage and pay off the bills in full every month. You have to stay discipline with spending and if you don’t prescribe or are susceptible to lifestyle inflation, than it should be easier to maintain discipline with spending!

      There really are great rewards for those who are able to use their cards responsibly!

  2. Interesting and well written article, but I think you are missing two points.

    1. There have been dozens of studies that show that people spend more using plastic than cash. So the 1 – 2 percent cash back can be defeated by 7 percent more spending rather quickly.

    2. If people play the credit card’s game long enough, there is at least a moderate chance that they will pay interest at some point (for example – a job loss that leads to not being able to pay the balance in full at the end of the month)

    1. Of course there are risks and the credit card companies don’t offer these sort of incentives for the betterment of consumers. I rather believe that these credit card companies issue these types of cards in a predatory manner.

      They want you to overspend and they want you to pay insane amounts of interest on the balance you can’t pay off in full every month.

      However, with that said, is it not up to the consumer to responsibly use a tool that they have been given? No matter the predatory nature of credit card companies, isn’t it ultimately left to the consumer to spend responsibly or irresponsibly? Are grown ups not grown ups? Or should they be treated like children and told what to do and what not to do?

      While I can empathize with consumers who have shopping addictions or can’t control their spending, whose fault is it in the end that they are spending more than they make?

      That’s super simple math: Net Income = Maximum You Can Spend without Going into Debt.

  3. Credit cards and debit cards are two different things in my mind. I cut up and cancelled all my credit cards about 3 months ago. I just can’t handle them without accruing a balance. So I use my debit card for just about everything. It’s liberating but keeps me accountable for everything I swipe.

    1. Definitely. I don’t think credit cards are for everyone in every situation. In some, they might not make sense. My post was about how beneficial they can be if you choose the right card and are in a situation where you can responsibly wield the power of this tricky tool. There really are great payoffs with credit cards in the right hands and in the right situation!

  4. I’ve got a similar credit card that I’ve started to recently use again (and pay off in full at the end of every month). Basically, I collect points (1 point for every £1 I spend) which I can convert to pay for flights, entertainment, days out and even grocery shopping vouchers! The £5 note I’ve had in my purse since the beginning of the month is still there!

  5. I use my credit card for everything! Because of this I’ve had the same $20 in my wallet for over 4 months. And when I need to pay my friends in cash for whatever reason I just get away with ing money transfers.

    I like your break down of the credit card point values, I had to do all those manual calculations a few years ago too. I think you’d like my sites approach of comparing credit cards.

  6. Steve: I enjoyed reading this post and appreciate your analysis of the topic. People have to know themselves and their disciplinary habits in order to make full use of this method of being “in charge” of your charge cards. A friend of mine uses an REI Co-op card to purchase all of her groceries, which she pays off in full each month. There are some substantial benefits, listed on their website as:
    5% back at REI including sale and full-price items, REI gift cards and REI Adventures trips.
    1% back everywhere else2 including your monthly bills when you pay them with your REI Visa card. Your 1% rebate is included annually in your REI dividend.
    All This on Top of Your REI Member Refund (typically 10% on eligible REI purchases)3

    I don’t own one of these cards, but am an REI member.

    1. I absolutely agree that individuals have to take own and manage the responsibilities of taking on a powerful tool such as rewards-based credit card.

      I’ve always viewed credit cards as the same as spending cash. I’ve never been tempted to or wanted to carry a balance. I understood from a young age (when I first got my credit card at 18) that there were huge penalties for carrying a balance forward.

      I guess that is the mindset that people need to be in to fully take advantage of these type of rewards. If they cannot, I guess cash would be a better way for them. Better to not make any rewards and have no credit card debt than to have lots of rewards and credit card debt!

  7. If you purchase an axe with your credit card and kill someone with the axe 5 years later, they could trace the purchase back to your card which would incriminate you. Also, your wife could also see your statement and notice $1000 worth of women’s underwear that she never received.

  8. Steve,

    First off, thanks for stopping by my blog! As I’m just starting out blogging, knowing someone else (other than myself, hah!) is reading my content is very encouraging. 🙂

    Secondly, this entry really hit a personal note. The idea that “credit cards are evil” was previously rammed into my head by my parents (and professors) so I steered clear and only used debit / cash. Now that I’m an adult and married, I’m finding out that having no credit is almost just as bad as having bad credit, so I’ve had to (slowly but surely) build up credit now, a little later in life. It’s crazy how society generally often teaches us NOT to do something, but fails to explain how we CAN do something responsibly and safely.

    1. Hi Kim, I’m glad you enjoy the content here! I’ve only recently found your blog and I’ve been enjoying reading your stuff too!

      I think it comes down to people generally slinking to the path of least resistance and effort, which is to make blanket statements about not doing something rather than trying to teach how to do something safely and responsibly.

      Teaching your kids about safe and responsible sex? Too hard, just tell them not to have sex. Teaching your kids about responsible money management and investing? Too hard, just tell them to use cash. And so on and so forth!

      1. Steve,

        “Teaching your kids about safe and responsible sex? Too hard, just tell them not to have sex.” — EXACTLY. Same goes for drinking, guns, etc. Which, I guess, leaves it up to *us* to become “better” parents to our kids, right? 🙂

        Definitely looking forward to reading more!

        -Kim

Comments are closed.