Do you remember the kid in elementary school who borrowed a dollar against tomorrow’s lunch money, for that extra ice cream he just had to have? And then, there was the other kid, from whom he borrowed the money, at $0.10 interest, per day. Depending on whether you’re closer to being like the first kid or the second kid, having a credit card can be either terribly unwise or truly helpful for your financial status.
Of course, many people fall somewhere between those two extremes: They don’t risk paying interest on frivolous items, and yet they don’t make extra money, either. If you’re the cautious type that doesn’t use credit when you can pay cash, you are precisely the person for whom using credit cards can actually be better than paying cash. Take this quiz to find out whether you’d benefit by paying your college tuition, room and board, and other major bills, with credit cards:
- Do you keep track of your spending and avoid buying anything if you don’t currently have enough money in the bank to cover the expense, even when store credit or an “IOU” is available to you?
- Could you completely ignore the “minimum payment” amount listed, and promptly write a check for the full balance amount?
- Do you want to establish your credit, so that you can rent or buy a car or home without a cosigner, someday?
- Do you like the idea of earning money on the money that you spend?
If—and only if!—you answered a resounding “yes” to all 4 of those questions, you may be a good candidate for putting everything you can on credit cards. Yes, everything! Typically, cash-back cards offer 1-5% on purchases, which can really add up: $1-$3 on every $100, $10-$30 on every $1,000, etc. Consider college tuition, for example: At $20,000 per year, even only 1% cash back adds up to $200. If you attend an out-of-state college or plan to study abroad, travel expenses can add up, as well. And if you purchase a new-to-you vehicle, you could earn enough in return to fill your tank with gas … well, maybe.
In addition, there are some credit cards that offer specials to new cardholders, such as $150 cash back on your first $500. As the linked article warns, you do well to pay attention to specific details of such offers. For instance, Discover offers 1% cash back on all purchases, only after you spend $3,000 for the year; until that point, you earn only 0.25%. Many offer higher percentages on certain categories, such as gas, travel, or restaurants, and others rotate the categories in which they offer higher amounts of cash back. Some credit cards offer gift cards worth more than the cash you could get back, and if you would already spend money at the stores in question, such a trade-off might be wise.
If you end up paying more in interest than you’re getting back, though, using credit cards is not a good idea. If you’re disciplined and cautious, though, you could end up getting hundreds or even thousands of dollars back on what you pay throughout your college years, just by paying with credit cards.
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