Money motivation: Utilizing credit cards to build wealth

Would you travel the world for free? Or buy groceries for free? Or, perhaps shop on Amazon without losing a penny? Well, it is a possibility with the power of credit cards. 

Every card offers distinct rewards and costs. Some are free and some give better cash back prizes than others. Credit cards with $0 annual fees are frugal options for students wanting to get cash back and start building their credit score. REMEMBER, the benefits of credit cards will only help you if they are paid on time. Fortunately, paying off your card is now easier than ever through WiFi and global cellular data.

Having 100% on-time payment history will help build your credit score fast, even with small purchases. 

Many credit cards offer anywhere between 1-5% cash back. This may not seem like a lot, but it adds up quickly with the thousands of dollars Americans spend every year. Spending this cash back can save you a lot of money that would otherwise be spent straight from your own bank account. I earned $400 in free travel in three months because I opened two accounts with no-annual-fee Chase UNLIMITED cards. In fact, most credit card companies have no-annual-fee cards with introduction perks like this, such as Bank of America, Capital One, Citi and Discover.

Most of these credit cards are known for their high acceptance rate of young people and first-time credit card users so that they can start building their credit scores. They all similarly have ridiculously high interest rates, mostly between 18% and 30%. Be weary, credit card companies make their profit by feeding off others’ debt. These companies know that many of their users will not pay off their credit card, so it keeps the average person paying off high interest rates on their card for years. I urge caution and encourage self-awareness when opening an account because credit card debt just reached a record-breaking $1.13 trillion in the United States.

In my two years of experience, paying off the card immediately after using it works best. Just go on whichever banking app corresponds with the card and there will be an ability to pay it off. Or, you can set up autopay with your credit card. However a consistent money supply is needed in your bank account or else the automatic payment can overdraft your account. I use autopay on a separate card for small, recurring purchases only. For example, I have a Nintendo subscription for $2.99 per month, so I know I will always have money in my checking account to pay for it with autopay on my credit card. These tactics have repaid me with a 760 credit score, which helped me easily get accepted when renting property during my last two years at UCO. 

It may seem like buying a house is impossible today. However, having a good and experienced credit score will help with mortgage rate costs when you are in the market for a house years from now.

During my study tour in Paris over the summer, I realized how insane cash back can be if you take advantage of it over a long period of time. A business owner I met on the trip travels the world completely for free, by putting his business expenses on a travel card earning thousands of cash back points. As a business owner, this strategy can make you back thousands of dollars that you spent, allowing for further business reinvestment, travel or spending however you want. 

Some people on social media have taken credit card sign-on bonuses and cash back to the extreme. They will sign up for as many cards as they can and then get the sign-on bonuses for them all. This earns these ‘credit card maxxers’ thousands of dollars in cash back, most often spent on hotels or travel. Not only is using many credit cards risky in terms of your credit score and ability to pay them off, but this would require a lot of capital to begin with and is not normally viable. 

Growing up, my parents were never financially literate in terms of taking advantage of credit cards and investing. I always wanted to create generational wealth for my family. In order to do that, I taught myself about the benefits of investing and how to use a credit card wisely.

Credit cards can help you or hurt you. It is up to each individual user to know when to use your credit card versus your debit card. For example, large purchases on a credit card should be avoided unless the entire amount can be paid off. Regardless of when you should use a credit or debit card, use common sense. Large purchases like cars, apartments, houses or technology should be avoided as a general rule of thumb; unless you have three times the cost of the item in your bank account. 

These are some things that I wish I would have known as an 18-year-old. Expect more ‘Money motivation’ articles in the first publication of the month until May!