Credit Card Basics

The first thing anyone needs to understand about credit card points is that they are made valueless once you start paying interest.  The idea is to get the points for spending you would do with or without the credit card.  Essentially if you use your credit card in a similar fashion that you would if it were a debit card and that debit was your only card.  This will maximize benefit while also working to make sure you don’t over extend your finances.  I hear a lot of people saying they don’t use credit cards because they don’t trust themselves.  If you can’t trust yourself, who can you trust? 

The first line of business is understanding your monthly and yearly spend.  I am a big fan of using Microsoft Excel to organize my financial life.  Typically, I’d just create a sheet with all of the bills for the month and their cost. You can add plenty more fields to give yourself the granular knowledge you need. Once you have the list of bills and the cost, you can start to create a spending budget.  This will help you understand where your money is going month by month so you can make informed decisions.

Once you have this information for a year, you will start to see trends and once you have your yearly figures you can start making decisions.  One of these decisions I like to think about is what credit card will give me the most value for the spending I already do.  If 40% of your income goes to groceries you should look at a card that gives you the most points back on Groceries. Conversely if you spend 40% of your income at restaurants then you will want a card that gives you the most back in that category.

When I was first starting out on this credit card journey, I was far more interested in cash back.  Those few hundred in cash could really help out my bottom line or in better times make for a great weekend.  As I became a little more stable with more disposable income, I stopped thinking so much about the few hundred in cash I would get every once in a while, and started really wanting to have some life experiences.  That was the point where I started looking at travel cards.  The travel cards reward you with points that are more easily used to travel.