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?
- Tracking – You can track every purchase online or via your paper statement. This is basically a variation of my write it down frugal strategy.
- Insurance – Most popular credit cards (see below) offer warranty extension and protection against theft. Some even include car rental and lost baggage insurance.
- 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?
- 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.
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?If you would like to read more articles like this, you can sign up for my free weekly money tips newsletter below (we will never spam you).