There are as many strategies for using credit cards as there are people using credit cards. Everyone does what they think is right for their particular situation. But people who actively use credit cards tend to fall in one of two camps:
- People who put every purchase on a credit card. These people rarely use debit, cash or checks. Only when it would cost extra to use credit, or when they can't use credit at all, will they turn to a different form of payment.
- People who use a credit card only if they need time to pay off the purchase. For day-to-day spending, these people rely on their debit card, cash, checks or ACH payments from their checking account.
Neither approach is necessarily "wrong." But people in the second group are probably getting less value than they could, especially if they carry a credit card that pays rewards.
When you use your credit card only for big purchases, you get a larger share of the "bad" stuff that accompanies credit card use and little to none of the "good."
Competing mindsets about credit
Anytime you use a credit card, you're borrowing money from the credit card company.
A lot of us have been taught since childhood that you should borrow money as infrequently as possible, and that borrowing should be reserved only for big-ticket expenses that it's not realistic to spend years or decades saving up for ahead of time: a house, a car, a college education. From this mindset, the idea that you would borrow money — go into debt — for a $4 cup of coffee that will be gone in five minutes just doesn't make sense.
But people who use credit cards for everything have a different mindset. When they borrow $4 for that cup of coffee, they're doing it only for a short period of time. It's not really "debt" to them. When their credit card statement comes, they pay the entire balance, in full. When you pay in full every month, you get a credit card grace period, so you don't have to pay interest. For these people, using a credit card doesn't cost any more than using cash or debit.
More important, they earn rewards on each purchase — something you don't get with cash, checks or debit. Depending on the card you use, and where, you can earn rewards that effectively give you 1% to 6% of your money back (or even more). Use a card that pays 4% back at coffee shops, for example, and that $4 cup of joe might actually cost only $3.84 when all is said and done. Multiply the savings by thousands of dollars in spending a year, and you're talking real money.
Ready for a new credit card?
Create a NerdWallet account for insight on your credit score and personalized recommendations for the right card for you.
The perils of 'big purchases only'
If you're putting only big purchases on your credit cards, you're leaving money on the table — potentially a lot of money.
Look at your checkbook register or your debit card statement for a month and add up everything you bought with cash that you could have used a credit card for — groceries, gas, restaurant meals, stuff from the drugstore, snacks, you name it. Now take 2% of that (multiply it by 0.02). It's pretty easy for someone with good credit to earn rewards of 2% on every purchase, so that's a good estimate of how much you didn't earn in rewards. Say you spent $500 in a month. You missed out on $10 in rewards. Over a year, that's $120.
If you're using credit cards only for things that you can't afford to buy upfront, that presumably means you're going to roll over some of the debt from one month to the next. If so, you'll get no grace period, so you'll be paying interest — and interest rates on credit cards are notoriously high.
Back to those people who put everything on their credit cards and then pay off their cards in full. Yes, they, too, may also use their cards for the occasional big-ticket expense they need time to pay down. They, too, will pay interest during that time. But they'll also have been earning rewards all along. They get both the good and the bad.
Your spending style matters, too
It's important to note that using credit cards for every purchase does require a certain amount of discipline.
When you pay with cash, you can't spend any more than you have in your wallet. With debit, your spending is more or less limited by how much money is in your account. With a credit card, you can spend all the way up to your credit limit, regardless of whether you actually have the money to cover those charges.
That spending power can be too tempting for some people, and the fallback ability to roll debt over from one month to the next can amplify the temptation. Other people have no intention of going beyond their means but just find it hard to monitor their spending if the money's not coming straight out of their bank account.
For these folks, it might make perfect sense to just keep the credit card in a drawer until they need it for a big purchase.
🤓 Nerdy Tip
If you choose to reserve a credit card for big purchases only, don't let it sit unused for too long. Make at least one purchase on it every few months. Card issuers often close credit card accounts for inactivity. Having your account closed on you not only reduces your ability to lean on credit when you need it, but also can hurt your credit score. Tips for putting it all on a card
If you want to try putting more everyday purchases on your credit card for the rewards, try these tips:
- Get a rewards credit card that matches your spending. If you spend a lot on groceries, for instance, look for a card with great supermarket rewards. Eat out a lot? Look for restaurant rewards. Love to travel? You get the idea.
- Make a budget that accounts for irregular expenses. This way, you won’t have to rely on credit to get you through a cash-flow crunch. If possible, start building an emergency fund to give you more of a cushion.
- Consider a 0% credit card for big purchases. If you have good credit, you may be able to find a card that gives you a year or more at 0% interest. Use the new card for your big expense, and keep everyday spending on your rewards cards. No, you won't earn rewards on that big purchase, but you also won't pay interest that could offset the value of the rewards.
- Track your spending. Treat your credit card account like a check register: Enter every purchase, add up the balance and look at it in the context of your budget.
- Pay your credit card bills on time, every time. To avoid penalties, fees and possible damage to your credit score, you must pay the minimum amount by the due date. To avoid interest, pay your statement balance in full.
