The best investors know that either they work for their money or their money works for them. The reality for most consumers is that they have to work for most of their money, but that doesn't mean that having the mind of a professional investor can't be profitable. One investor said that credit cards are a place to send money to die and the way most people use their credit cards, that's true. (For more on credit card, see 10 Reasons To Use Your Credit Card)

TUTORIAL: Credit Cards

It doesn't have to be that way. There are ways to make your credit card work for you instead of you throwing money at it.

Pay It Off
Of course you know that you need to pay down debt, but before you can make your credit cards work for you, you have to eliminate the interest you're paying. Interest, sometimes at rates as high as 20% or more, equates to big money thrown away to make purchases that could have waited until later in most cases. Before considering any other strategy for your credit cards, address your interest payments by paying down the debt and finding a new card with a lower long-term rate.

Rewards Card
If your credit card doesn't offer you rewards points for all of your purchases, you need to get a different card. Although some credit cards charge an annual fee to enroll in a rewards program, many do not. Don't pay an annual fee, but do find the rewards program that fits your lifestyle. If you spend a lot of time in your car, find a card that awards double points to gas station purchases. If your purchases are more family oriented, you need a more multifaceted rewards card.

When you pay your card in full and avoid interest charges, the credit card company is essentially paying you to use their card. Your card use is generating income for the card company from the merchant which makes it worth the card company's while to encourage you by giving you rewards points.

Extended Warranties
Are you the warranty type? If you purchase extended warranties for your electronics or other items, you may not be aware that your credit card may give you that coverage free of charge. American Express gives some of its card holders a minimum of an extra one year of protection. Along with American Express, Visa offers similar protection on some of its cards. Not all cards are eligible for extended warranty coverage and some items, including power tools, pets and many other items are excluded from the coverage. (To learn more about extended warranties, check out Extended Warranties: Should You Take The Bait?)

Car Rental Insurance
Did you know that most major credit cards include insurance if you rent a car and get into an accident? Those high fees that rental car companies charge for the optional insurance can be completely eliminated thanks to your credit card, right?

Actually, it isn't that simple. Your credit card company offers coverage, but there are limitations. The primary renter has to be the person who was driving during the accident, some cards won't cover pickup trucks, the rental period has to be less than 30 days, and the rental has to be 100% with the card offering the coverage, to name only a few of the exclusions. This coverage could save you a lot of money, especially if you're a frequent renter, but don't decline the rental company insurance coverage until you have a complete understanding of your credit card company's coverage.

Pay Your Balance With Points
If you have a card with cash rewards or your points can go towards a wide variety of nice merchandise, say no to spending those rewards. Most rewards cards will allow you to put your rewards points towards your balance. This increases the value of the rewards points because they are not only paying down the debt but they're also reducing your interest burden. Don't use your points to purchase more stuff. Make those points work for you by paying off debt.

The Bottom Line
Generally, avoiding the use of credit cards unless you're highly financially disciplined is well-advised. Remember that before any of the above perks of using a card actually become perks, you have to cut out those interest payments. There are very few ways for the consumer to make more money than to pay off existing debt. (To help reduce your debt, check out Expert Tips For Cutting Credit Card Debt.)

Related Articles
  1. Credit & Loans

    5 Credit Cards For the Super Rich

    Understand the difference between an average credit card and an elite credit card for the wealthy. Learn about the top five credit cards for the super rich.
  2. Credit & Loans

    Explaining Equated Monthly Installments

    An equated monthly installment is a fixed payment a borrower makes to a lender on the same date of each month.
  3. Professionals

    Small Business: Minimize Your Credit Card Fees

    Accepting credit cards is a must these days, but small business owners can take steps to minimize profit-eating credit card fees.
  4. Personal Finance

    How Sending Money on Gmail Works

    Learn how sending money via Gmail works, and understand how Google makes money from offering this service despite it being free to use.
  5. Credit & Loans

    Does a Lost or Stolen Credit Card Hurt Your Credit Score?

    Learn the ways in which a lost or stolen credit card can hurt your credit, and understand the steps you can take to protect yourself if this happens.
  6. Investing

    Debit or Credit Card: Which to Use for Car Rentals

    Before you rent your next car, think twice about purchasing the added insurance if you're using a credit card.
  7. Credit & Loans

    5 Surprising Things That Will Hurt Your Credit Score

    Here are five ways that you can damage your credit score without even knowing it.
  8. Economics

    What Happens in a Default?

    Borrowers are in default when they don’t honor a debt, whether their failure is intentional or not.
  9. Budgeting

    The 7 Best Ways to Get Out of Debt

    Obtain information on how to put together and execute a plan to get out of debt, including the various steps and methods people use to become debt-free.
  10. Credit & Loans

    Don't Get Burned by High Credit Card Rates

    The average card charges 11.8%, and some rates top 20%. Experts warn that credit card interest may remain steep.
  1. Are credit card rewards taxable?

    Credit card rewards are taxable in the United States some of the time. The Internal Revenue Service (IRS) classifies credit ... Read Full Answer >>
  2. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
  3. What is the best way to start to rebuild your credit after a bankruptcy?

    Bankruptcies can be devastating to your credit score. Even worse, a bankruptcy will be listed on your credit report for between ... Read Full Answer >>
  4. What were the primary financial crimes involved in the ZZZZ Best case?

    ZZZZ Best was a company started by Barry Jay Minkow that claimed to be a carpet cleaning business. In fact, it was a Ponzi ... Read Full Answer >>
  5. Can a creditor sue me for a delinquent account?

    If a credit card account becomes delinquent, the creditor can sue the debtor for the balance as soon as the delinquency occurs. ... Read Full Answer >>
  6. How do I transfer my credit card history from one country to another?

    It is currently not possible to transfer your credit history to another country if you relocate. The credit metrics used ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!