Thus far, I have covered two of the main reasons why I use credit cards. The first being protection while the second covers warranty/insurance services. Now, I get to talk about the final and most exciting reason why I use credit cards and it is called cashback.
In my world, if I am purchasing anything for which I will get cashback, I am not paying full price. Take for example if I am paying $100 for gas and my cashback rate is 5%; I am effectively paying $95 on that gas purchase while saving $5. This means if I spend $100 on gas ten times I am then putting 50 bucks back into my pocket. (I will speak about gas costs in a different post)
When I combine all of my expenses that provide cashback, they add up over time and contribute to my saving power. Though some of the cashback rates go as low as 1%, I am more than happy to take that rate as opposed to 0%. Compare that 1% to the negligible interest rate on a savings account at a local bank and you will see that it matters. I view cashback as interest on the money I am actually spending. Imagine that instead of just getting interest on my savings, I am also getting it on the money I spend, though of course it is not identified as such.
To really take advantage of these rewards and realize them as interest on spending money, I use cards that provide rewards. I will not use a credit card that gives me nothing back. These rewards have to be convertible into cash or its equivalent, which can then contribute to my saving power by depositing them into my savings directly or indirectly (more on this later).
I prefer to keep using the cards as opposed to spending the rewards as I have explained regarding my Amazon credit card. There are cases when fees for using a credit card offset the benefit of using them, and in those cases I go with a different form. It is important that I direct cashback, discounts or anything of that sort into saving as opposed to spending them. By doing this, I am increasing my saving which subsequently builds my potential spending power which leads to financial stability.
I cannot end without stating again just how important it is that we understand that using credit cards and not carrying a balance really requires a lot of discipline, planning and commitment. I must state again that carrying a balance on any credit card defeats the goal of this blog and as a reminder, please refer to why I do not carry credit card balances.