Paying for everything with a credit card can be a super smart move — if you pay the balance in full every month. If you don’t, it can be a very costly one.
Do it right, and you’ll earn rewards on money you were already spending. It can even increase your credit score. Do it wrong, though, and interest wipes that upside out.
Here’s what to expect when you put everything on a credit card: the good, the (potentially) bad, and how to do it the right way.
You’ll earn solid rewards on your existing spending
Let’s start with the obvious: Putting everyday purchases on a rewards card pays you a little bit back on every swipe.
A card that earns, say, 2% cash back on purchases turns $3,000 of monthly spending into $60, or $720 in rewards a year. That’s a pretty solid return on a cash back card — especially if you can get it with no annual fee. If you find a card or two with bonus categories that fit your spending, you can earn even more.
It also makes a card’s welcome bonus that much easier to earn, which can be worth hundreds or even thousands on its own. It’s pretty much the best way to start your savings journey off on the right foot.
Your credit score can increase, too
This benefit is a little less well-known. Spending regularly on a card can actually help your credit score — again, if you pay on time and keep your overall balance low.
Payment history is the biggest piece of your FICO® Score, and a card you’re actually using week in, week out gives you a steady record of on-time payments. Steady use, plus on-time payments, is one of the easiest credit-building habits there is.
Try not to use too much of your overall credit, though — credit utilization, or the amount you owe compared to your total credit limit, is another part of your score. Aim to use less than 30% of your total credit at any given time.
The downside: Risk of overspending
Overspending is the main trap of putting everything on a card. Swiping a credit card feels a lot easier than handing over cold hard cash. It’s also much easier to overspend on a credit card than a debit card — you’ll never get an “insufficient balance” message on a credit card.
Rewards rates can make this even worse –getting 2% back might tempt you to buy things you don’t need. Remember that spending $100 to earn $2 is still a $98 loss.
The best strategy: Treat your credit card like a debit card. If the money isn’t in your checking account, don’t swipe.
What happens if you carry a balance?
Carrying a balance costs far more than most cards pay you in rewards. The average credit card APR is 21%, according to the Federal Reserve. On a $3,000 balance, that’s about $630 in interest in a year, which easily cancels out most of the rewards you’d earn on any card.
Already carrying debt? Check out our list of the best balance transfer cards to get some much-needed breathing room. They’re the best way I know to hit the pause button on debt for months on end.
How to keep your credit card spending under control
Spending more on your credit cards, when done right, can be a huge savings boost. Pick up these three simple habits to do it correctly:
- Turn on autopay for your full statement balance, so you’ll never miss a payment.
- Make a mid-month payment if you spend a lot in a short span. That’ll keep your balance (and credit utilization) low.
- Regularly check your card statement and credit score so nothing surprises you.
Do those three things, and the rewards should be yours to keep. Want to find the card to help you save? Compare our list of the best credit cards available now to find the one for you.
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