HOW to Use Credit Cards

I just finished an article where I asked you NOT to use credit cards unless you were debt-free and had multiple income streams. Today, I present the counterargument to using credit cards. Please read “When NOT to Use Credit Cards” first. 

Credit cards can be a boon to your financial success if used properly. They offer lots of perks, rewards, and security. However, ensure you have your spending habits under control before keeping a few credit cards in your wallet or purse. 

I want to cover the three main topics: using credits cards as an emergency fund, cash flow, and rewards. There are even more reasons, such as purchase protection, but today I want to focus on these three. Let’s get into it.

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An emergency fund. The old adage is to have 3-6 months of expenses saved in your emergency fund. Having money outside the markets (stocks, cryptos) is mandatory for financial success. 

However, keeping this much money tucked away in high yield savings accounts or certificates of deposit can hinder wealth creation. I just finished an article titled “Investing for Interest 101: What is Fixed Income?” where I discuss investing in low-yield, high safety instruments like bonds. 

I believe it is best to keep a few thousand dollars in liquid high yield savings accounts, three times that in bonds, and then another good amount in USDC stable coin cryptocurrencies. 

Here is how my emergency fund would look. If I had $2,000 a month of expenses, I would need roughly $20,000 in an emergency fund. I would keep $3,000 in my high yield savings account, $7,000 in treasury bonds, and finally $10,000 in USDC stable coins. 

The magic of credit cards is that I could use those for emergencies. As long as I still had my job, I could use credit cards for emergencies I knew I could repay over the next few months. 

Prepare for Inflation

As a person who owns three homes, I know my biggest emergency expenses would be if one of my air conditioners broke. Instead of keeping $10,000 in my high yield savings account, I can use my credit cards as a buffer.

Remember, inflation is at a high point today. The year-on-year inflation rate is 6.8%. Keeping my money in a high yield savings account at a 0.4% interest rate would not be ideal. Cash is trash, so we need to do everything in our power to keep our money from sitting around. 

My wife and I have a large amount of cash flow from high-paying jobs, renting rooms, dividends, and royalties. If we had a $7,000 air conditioning expense (which we have had), we could fund it through credit cards. We can pay it off over 3-4 months while still investing in the markets. If we need to pay it off sooner, we can liquidate bonds or USDC.

Credit cards give you the flexibility to have $20,000-$100,000 on hand without having your cash getting destroyed by inflation. You only need to exercise self-restraint with having such a high credit limit. 

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Cash flow. You can also use credit cards for cash flow by maximizing cash rewards. You can find fantastic cash rewards if you are a savvy credit card shopper with a high credit score. You can keep the cash rewards with no interest penalties by paying off your card every month.

I like to use my cash rewards on my Discover debit card, but you can substitute a credit card if you will. I love the debit card because I cannot get myself into trouble. 

I absolutely LOVE LOVE LOVE my Discover debit card. It offers 1% cashback rewards, and those rewards flow directly from my online checking account into my high yield savings account. Now, my high yield savings account is offering a trash 0.4% interest rate, but that’s a story for another day.

I use my Discover debit card to pay my little recurring expenses such as Netflix, Hulu, Amazon Kindle, Amazon Prime, Google Drive, YouTube, etc. I have $800 being directly deposited from my paycheck into my Discover checking account.

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After paying bills, food shopping, and buying random crap (it’s fun), I usually spend all of my $800 allotment. I receive $7-8 of cashback rewards at the end of the month. How amazing is that? 

For reference, to receive $8 on interest from my high yield savings account offering 0.04% interest, I would need to have $24,000 invested. Wow. So these rewards are a fantastic deal. The limit on cashback spending is up to $30,000 a month, meaning you could earn up to $300/month in bonuses. 

Rewards. On top of cashback, credit cards offer great rewards. If you get the right cards and pay off the balance every month, you can make a killing in points.

Get a credit card from your favorite airline if you fly a lot. You can purchase gas, go to restaurants, do food shopping, etc. while earning airline points. You can accumulate enough of these points to fly every year on vacation for free if you do it correctly.

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There are also points for gas stations, shopping cards like Walmart and Amazon, retailers like Apple, Military Star cards, etc. The list is too large to expand upon today. Just know that with careful attention to detail, this can be a huge money earner for you. 

Putting it all together. The main idea is to use these cards as investments. Credit cards can help you in times of need but always have the cash somewhere if you need it. 

Cashback rewards and points are a massive bonus for those responsible enough to keep up with their cards. You need to take these cards seriously and have systems in place to check the balance at least weekly. 

I have an extensive budget spreadsheet to keep up with my bills, expenses, and payments. For example, I pay $60 for Amazon photos every August, and I pay $120 for Amazon Prime in November.

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I don’t like surprises, so I  write down everywhere my money goes. You don’t want to have a random $120 credit card that you don’t know about for three months. Life is actually much more fun when you can anticipate and prepare for significant expenses. If you are not a budgeting guru, there has never been a better time to start.

Conclusion. Finally, I recommend two books that can help you get to where credit cards are a luxury. “I Will Teach You to be Rich” and “Smart Couples Finish Rich” are two books that give you detailed financial plans. 

Credit cards can be just as valuable to wealth-building as dividends. If you can get to the point of earning $300/month in cashback and paying for your annual vacations via rewards, that’s a huge win. 

Becoming a well-rounded millionaire is all about exercising all options available to you. Ensure you know how to manage your money, and credit cards can take your finances to the next level. Enjoy!

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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it.  I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing