Why you should use rewards earning credit cards for (almost) everything
- mike
- 7 days ago
- 6 min read
Growing up, I was always told that credit cards were evil and that they led to financial ruin. In some cases, that’s true - if you abuse credit cards and don’t practice financial discipline, you can get into some serious financial trouble. However, if you are disciplined and can manage your finances properly (by paying off your bill in full every month), then you should be using a rewards card to pay for (almost) everything. In this post, I’ll explain how you’re leaving money on the table and putting yourself at risk by not using a credit card to pay for your day-to-day goods and services. I'll also explain when you shouldn't be using a credit card to pay for things and why.
You’re leaving money on the table
On average, when you decide to pay with cash or a debit card, you are missing out on anywhere between 1 and 10 cents per dollar spent. Think about the last time you shopped online, or at Target, Costco, or even a mall (do those still exist?) If you paid with cash or a debit card, did any of those merchants offer you a discount for paying with cash versus a credit card? Or for choosing Visa versus American Express? The answer is "doubtful."
Here's why:
When merchants decide that they will allow credit cards as payment, it's because they know that a large majority of customers own and prefer to use credit cards as payment. In fact, a 2024 study done by Capital One Shopping Research revealed that a whopping 81% of shoppers prefer to pay with a credit card over cash, and when these shoppers use a credit card, they spend roughly 4x as much with credit cards vs using cash. Now imagine you're a merchant. Are you going to turn down 4x revenue just because of the 2% fee that Visa or Amex is charging you? I don't think so.
And this is exactly why you SHOULD be using a card. Merchants are willingly absorbing the credit card merchant fees so that you can use your card and spend with them. And most of them (especially big-box retailers) aren't offering any type of discount for using cash versus credit. If that's the case, then you should absolutely be using a rewards card to get your share of the pie.
Purchase protections
When making purchases both in-person and online, using a credit card can offer peace of mind that traditional cash payments can't offer. That's because when making a purchase on a credit card, a record of the transaction is logged both with the merchant and with the card issuer, making it much easier to flag an issue with either party if something goes wrong. If paying with cash, you'd need to hold onto your receipt, and you likely would only be eligible for whatever the manufacturer warranties and merchant return policies allow. Depending on your credit card, you could have any combination of the following purchase benefits:
Protection against accidental loss, damage, or theft
Extended warranties
Car rental coverage
Baggage insurance
Trip cancellation and interruption insurance
Travel and emergency assistance
Cell phone protection
Keep in mind that not all cards have these protections, but it is becoming more commonplace for credit card companies to include at least some combination of these protections. American Express and Chase do an exceptionally good job of offering some of these benefits on their cards, even on their no-annual-fee cards.
Using a credit card helps your credit
Your payment history accounts for 35% of your overall FICO score, which is the largest percentage for any of the FICO score components. The second largest FICO score component is your overall balance relative to your total line of credit.
Since that’s the case, then the best way to show a continuous stream of on-time payments is to use your credit card, wait until the statement closes, and then pay the balance in full before you accrue any interest fees. It shows creditors that you are a responsible borrower and that you are worthy of having credit extended to you.
Makes for easier record-keeping and budgeting
It’s easier to plan and set a budget when you already know where your money goes. I personally prefer using Quicken, which aggregates all my accounts, including credit cards, checking and savings accounts, as well as my brokerage and 401 (k) accounts, so that I can view everything in one place with automated updates. However, what I particularly love about Quicken is its categorization of transactions, which is performed by your bank and then transmitted through the Quicken application, allowing you to view everything on one screen. This becomes particularly useful when figuring out where to cut back on spending and what cards would make the most sense based on your spending.
When you probably shouldn’t use your credit card
There are a few use cases when you probably should use cash or ACH payment over a credit card. These include:
Paying rent (unless you do this)
Most landlords will charge you a fee for using a credit card to pay rent. However, if you happen to have a landlord or property management company that does not charge a fee, then you should be using your card and then paying it RIGHT AWAY.
If you DO get charged a fee for using a credit card, and you also want to earn points while paying rent, then perhaps you should consider the Bilt Rewards Mastercard. This card allows you to pay rent via the Bilt platform and waives fees charged by the landlord. So not only do you get the benefit of using your credit card to earn points, but you will also not have to incur the fee while doing it, which ensures that your points earned are not devalued by the fee.
Paying taxes or student loans
Similar to the rent scenario, using a credit card to pay for taxes or student loans is not recommended. Each of these payment types would charge you a fee between 1.5% and 4.5%, which would devalue the points you would earn by using your card. Furthermore, if you aren't able to pay off the balance of the transaction right away (I'm talking about student loans here), then you're essentially converting a relatively low-interest debt (avg. 4% - 7% and converting it into a MUCH higher interest debt payment (19%-29%), losing more money in the long run and creating a never-ending cycle of debt.
Unexpected medical expenses
I wish this never happens to you, but if you're stuck with an unexpected medical bill, do not use your credit card to pay it. According to CNBC, the number one cause of bankruptcy in the United States is inadequate health insurance. You are better off paying a higher monthly premium for better health insurance in the long run than getting stuck with a massive medical bill that isn't covered by insurance.
Only use a card if a) you can pay it off immediately, or b) you have no other choice (like a life-or-death situation). You could find yourself in debt hell if you're not mindful of the consequences of putting such expenses on a credit card.
Purchases you don't intend to pay in full
Finally, if you can't pay it off in full at the end of the billing cycle, then you can't afford it. If you're not paying off your card in full, then every additional dollar you spend on credit card interest is eating away at the value of your hard-earned points.
Key points
There are several benefits that credit cards offer over cash payments. However, you shouldn't just freely use your card everywhere it's accepted. Remember that merchants are subject to fees charged by networks such as Visa, Mastercard, and AMEX so that they can process these transactions, so not every merchant will eat that cost to get your business.
In cases where it makes sense to use your card, do it. When you don't:
You're leaving potential points or cash back earnings on the table
You're exposing yourself to purchase risk
You're making it harder to track your expenses
There are excellent credit card options available that offer protections and benefits, providing peace of mind when shopping and traveling. If you're interested in finding out which ones are suitable for you, feel free to schedule a one-on-one consultation.
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