How To Buy Stuff

How To Buy Stuff: Credit Cards

credit-card-1520400_1920I buy a lot of things online. I have a whole blog about it.

You’d think buying things online would be easy, that there’s little nuance involved. You’d be right, mostly. It’s not all that difficult, you’ve all definitely figured it out by now. But I think there are some rules that a lot of people don’t know to follow when making purchases. The first: always use a credit card.

This is a hard one to get past some people. There’s a large portion of the population who have been burned by using credit incorrectly, and never want to see a credit card again. There’s the Dave Ramsey envelope followers who are scared the card will ruin their budgets. There’s the conspiracy theorists that  don’t want the man following them around. And, in some sense, these people all have valid concerns. But, I’m hear to tell you that using a Credit Card correctly is safer and, more importantly, cheaper than any other purchasing method. But you have to be smart about it.

So first thing: what makes it safer? The danger it protects you from is identity theft, first and foremost. When you use a credit card, you’re protected by the card company’s fraud protection services. If you ever find a fraudulent charge on your account, you call the number on the back and the charge will be reversed while it is investigated. While a check card will offer similar services, sometimes the fraudulent amount is held by the bank until the investigation is resolved. If the fraud amount is high (which it will tend to be), this can have a serious impact on your ability to pay rent, or other payments that are due. The credit card has none of these drawbacks. I would never recommend using a check card directly for this reason. Even offline, card sniffers are easily concealed anywhere you’d normally use a swipe card. Chip and Pin makes this harder, but that is not available everywhere yet.

Second reason: it’s cheaper. Most cards have some sort of rewards program available. These can give you free airline miles, cashback, or points towards purchases. So long as you’re paying off your balances every month, these rewards can add up and make all your purchases cost a little less, or get you to that vacation you’ve been wanting. But to make this work out, you’ve got to follow the rules:

Rule 1: Always Pay Your Balances.

This one is pretty straight forward. Don’t buy things you couldn’t purchase in cash. Floating purchases[1] is okay, but at the end of the month, when that bill is due, you need to be able to pay all of it. No excuses. Why? Well, with most credit cards, you don’t start accruing interest until after the due date of the statement has passed. This means that, so long as you pay your balance every month before the due date, the card is essentially free to use[2]. Holding a balance is what all those naysayers I listed above worry about when credit cards come up. If you do happen to get yourself in trouble, or want to make a larger purchase, there are other methods which I will write a whole other post about.

Rule 2: Pick The Right Card For You

Everyone is different, and there are different cards for different spending habits and goals. Are you looking to save money? Or go on cheap trips? Do you spend more on groceries or at restaurants? Are you going to be able to earn enough rewards to offset a yearly fee, or should you make sure this thing is absolutely free? Do your research. I’ve found the recommendations from Mint to be pretty good at gauging your habits.

Rule 3: Never Pay With Points

Many Cash Back cards, like the Discover It or the Chase Freedom, calculate your rewards in points and then, if you ask for cash back, pay them out at 1 cent per point. They also give you the option of purchasing some items with points directly, usually showing you an online catalog to chose an item from, everything listed in points. The two I mentioned above actually go one step further, and have deals with Amazon.com to allow you to purchase anything off their site by using points instead of a charge on the card. This seems enticing, but it is almost never a good deal. The points pay out at 1 cent per point in cash back, but generally less than that when purchasing items with points. You’re better off purchasing the item with your card, and then immediately requesting the cash back with points. Furthermore, even if the cash back/point purchase are equal payouts, you’ll miss out on the extra points you’re getting by putting it on the card. Think about it: If you pay for a $100 item with points, you got $100 free. If you buy the item with your card, then ask for cash back, you get your $100 item free, plus another $1 worth of points (assuming 1% cash back) for the purchase you just made.

This rule does not hold with miles, however. If you’re interested in flights and hotels with those types of cards, it most often beneficial to purchase through the miles system. Just make sure to do your research, and your math, in order to make sure you’re making the best use out of your rewards.

There’s plenty of other ways to make the best out of online purchases with Credit Cards. I’d suggest checking out https://reddit.com/r/churning to get a hold on how some of the experts take advantage of these deals.

[1]: Floating a purchase is buying something you can’t pay for right now, but can easily afford by the end of the month.
[2]: Some cards have yearly fees so this is not always true, but the idea holds either way.

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