Frugal Tip: Use a Credit Card

Using a credit card is a frugal tip?  Sounds counter intuitive doesn’t it?  In my opinion, using a credit card is the ultimate frugal tool.

Let me explain.  As some of you may know, I funnel most (if not all) of our purchases through a single credit card.  What about the high interest you ask?  We don’t pay any because we pay off the balance in full every month.  Of course this strategy doesn’t work if self discipline isn’t already in place.  That is, the balance must be paid off in full every month or else a cash strategy would be the better financial tool for spending.

Why is using a credit card better than cash?

  1. Tracking – You can track every purchase online or via your paper statement.  This is basically a variation of my write it down frugal strategy.
  2. Insurance – Most popular credit cards (see below) offer warranty extension and protection against theft.  Some even include car rental and lost baggage insurance.
  3. Fraud protection – Most credit cards will limit your liability in the case of fraud.  What happens if your cash is stolen?  What are the chances that you’ll get the money back?
  4. The Rewards – There are a lot of free rewards based credit cards out there, why not get something back for the spending that you do anyways?  Personally, I funnel most of my spending through the SPG hotel credit card, but will use my new 1% Cash Back PremierRewards card if I surpass $30k in spending.

My favorite FREE credit cards in Canada:

Why not a debit card?

I notice that debit card use is very popular in Canada.  Yes, it’s great as it can limit your spending to the amount that’s available in your account and provides electronic tracking of your purchases.  However, there are pitfalls such as if someone sees your pin and somehow gets access to your account, guess who’s on the hook?  In addition to very limited fraud protection, there are no rewards benefits to using a debit card.

Final Thoughts

Credit cards are a great financial tool IF used properly.  I funnel all my spending through a single credit card for budget tracking with the side benefit of rewards and insurance.

What are your thoughts on this?  Do you use the same strategy?

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FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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Rikk
10 years ago

I use a card too … PC at 1% towards groceries … however, the big picture is that the card costs are passed on to the consumer … my understanding, 2% to 4% There’s sometimes a discount available for using debit or cash. For those bigger items, ask about a discount for using debit or cash. Fwiw, I’d estimate my costs for the convenience of a “no fee” credit card are likely $600 or so per year to cover that 2 to 4%.

newbie
12 years ago

We use our PC mastercard for gas, insurance premiums and groceries and Citi Enrich mastercard for everything else. Straight cash back from Citi, I personally prefer that to points.

In 2002, we switched from the Enrich to the Driver’s Edge coz we knew we were going to buy another car in the near future. Received a $500 cheque after the purchase and switched back to the Enrich.

And of course, the cardinal rule of paying off balances in full every month.

Sandy
12 years ago

@elman – just let the recipients know- they have to pay a 10% (? could be a little less) premium over the product price if they don’t have a membership. Makes things not so great a deal.

elman
12 years ago

@Sandy
Talking about costco. Another interesting thing with gift cards is that you can give them to someone with no Costco membership, this will allow them to shop at Costco. Also they can refill the gift card when its empty at the cashier. I saw this gentleman do this.

Sandy
12 years ago

For those of you using debit instead of your credit card at Costco, I found a great way around this – buy a costco cash card online with your credit card. I did this for Christmas. Got the points, no extra shipping fee, used the cash card to pay at Costco. The only pain is that you can’t reload the same card online – you have to keep buying new cards.

L505
12 years ago

There are some cards out there that offer 1.25% if you search carefully.

Some of you on these forums are hilarious. I hear people talking about using a 4 percent credit line to pay off a card that gets you 1 percent rewards, and other people talking about paying off their mortgage with their credit cards, and people keeping money in their high interest savings accounts when they have a mortgage. LOL. Ahahahaha. If you were intelligent you would pay off your mortgage with the money you seem to have available in your high interest savings accounts, and you would not use a 4 percent line of credit to pay your card bills. I hear other people talking about BUYING coffee. You BUY coffee and you think you are getting rewards back from your credit card? The amount you spend BUYING coffee a few times is more than the rewards you get in a year from a credit card! Same goes with buying small meals out (10-20 dollar purchases).

Make your own damn $0.10 coffee and meals, heat up the house while your coffee maker is on in the winter, and rarely pay a coffee shop 5 dollars for a coffee. Please, and I guarantee you will save more money than you ever did racking up rewards. Coffee in the summer can be used to go into a cold sweat to cool off – but make your OWN.

Plus, if you get rewards AND you stop paying idiot companies for styrophoam cups of coffee, you get the benefit of actually making money on the rewards instead of before where you were just LOSING all your rewards by purchasing the donuts and coffee! Do not get me started on fast food, or Girl Friends either.

Rusty
12 years ago

We use the PC Mastercard for all of our purchases and pay it off completely when it is due. This way I can look at our spending with Microsoft Money. Plus the points on this card add up fast — throw in some more with fuel at Superstore and using your own shopping bags and you’ll be amazed at how many free groceries you can get. I estimate $400-500 per year in free groceries. The card has no fee and the points can be redeemed instantly at the checkout.

Dividend Growth Investor
12 years ago

David,

Unfortunately I only know of US rewards checking accounts.

I think that the Canadian retail bank market is more concentrated in the big 5 unlike the US market which is concentrated, but also consists of thousands of community banks..

DAvid
12 years ago

DGI,
Have you some Canadian sources of such reward accounts?

David

Dividend Growth Investor
12 years ago

Actually sometimes using the debit card associated with a rewards checking account that yields 6% and pays interest monthly could be a better option than using a credit card with 1% cash back..