8 Ways To Use Credit Cards To Build Wealth, Not Debt
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Written by
Jeanine Skowronski
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Edited by
Levi Leidy
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Reviewed by
Jasmin Baron
Credit cards are often linked with debt, but if used responsibly, they can help you build wealth instead. The best cash-back credit cards, for instance, let you earn a kickback on everyday spending, like gas or groceries.
But the literal buck doesn’t stop there. Tap these strategies to build wealth and improve your financial health with a credit card.
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Build Credit To Qualify for Better Prices
“Responsible credit card use is always a great way to have excellent credit,” said Ashley Morgan, a debt and bankruptcy lawyer in Virginia. “A strong credit score typically will mean lower interest rates on home loans and car loans.”
Other good credit benefits include better insurance rates, favorable utility costs, lower security deposits and increased rental opportunities, all of which help you save and build wealth in the long term.
To build credit with your card, pay monthly balances on time and in full. If you must revolve a balance, keep your credit utilization (your outstanding debts versus your credit limits) below 30%; the lower, the better. For example, if your card has a $2,000 credit limit, you’d want to keep your balance at less than $600.
Get a Rewards Windfall With a Welcome Bonus
Welcome bonuses offer big-time rewards if you spend a certain amount on the card in your first few months as an account holder. They’re commonplace among top rewards credit cards and often worth hundreds of dollars in points, miles or cash back.
You can use these cards to buy flights, hotel stays, online merchandise or gift cards. You can also typically redeem cash rewards for statement credits or directly deposit them into, say, your emergency savings account.
Just be sure not to overspend to earn the extra rewards. Otherwise, you’ll lose those savings to interest charges.
Pay Off Debt With a Balance Transfer Credit Card
Credit cards can, in fact, help you get out of credit card debt. With a good balance transfer credit card, you can move an existing high-interest balance to a new card with a low-to-no introductory annual percentage rate (APR).
This introductory APR usually lasts between 12 and 24 months, giving you time to pay off the balance, save significantly in interest and refocus on other financial goals, like saving for college or retirement. You’ll likely have to pay a 3% to 5% balance transfer fee, however.
Invest Your Rewards
Some credit cards can help directly with key investment goals. For instance, a few cards let you roll rewards directly into a 529 college savings plan, while others link with retirement accounts.
There are also newer market entrants that allow you to earn cryptocurrency through card spending or welcome offers. However, it’s important to note that crypto assets are typically regarded as high-risk investments.
Buy Yourself Time To Make Purchases
A good 0% introductory APR card can buy you around 12 to 24 months to pay off a large purchase. However, credit cards can generally help you manage your cash flow, as most utilize a 28-to-31-day billing cycle and a 21-to-55-day grace period.
“When you are paying off your credit cards in full each month, you get an interest-free loan for 30 to 55 days,” Morgan said. “Being able to make one payment a month for many of your expenses can make things easier to budget, especially for people who have some fluctuation in income.”
Remember, if you are carrying a balance past your payment due date, credit card interest typically accrues daily.
Scale Your Business
Business credit cards can help new or established owners track their spending, manage cash flow, build business credit and earn rewards on everyday expenses, like office supplies.
You can also use one to keep personal and business expenses separate, which can save you time and money when taxes come due.
Lower Travel Costs
Beyond awarding points or miles on purchases, the best travel credit cards tout extra perks that can help you avoid select travel expenses, like foreign transaction fees, and free up more money to allocate elsewhere.
For instance, some carry important travel coverage, like trip delay insurance, trip cancellation insurance, lost baggage reimbursement and car rental insurance. Premium travel credit cards also offer premium travel perks, like free anniversary stays or airline, hotel and restaurant credits, sometimes worth hundreds of dollars.
Keep in mind that many of these cards carry high annual fees, so you’ll need to consider your personal habits to determine if a travel credit card is worth it.
Leverage Shopping Portals for Extra Savings
Even many no-annual-fee credit cards entitle you to benefits that can help you save more money and build wealth over time. For instance, many net you access to an issuer’s shopping portal. These portals offer discounts or extra opportunities to earn points, miles and cash back at partnering retailers or travel providers.
“Being able to get a benefit from paying for things you would have purchased regardless is a great thing,” Morgan said.
