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Many times in life, debt is the inevitable.  Your mortgage for example – is something that is necessary and difficult to avoid.  But there are also many purchases that aren’t crucial, and just part of life.  In those times, a credit card can come in really handy.

Personally, I use my credit card as a way to avoid overdraft fees.  If you can’t pay off the entire amount by the end of the month, the few dollars in interest still beats $10 in overdraft fees per transaction.  Beyond the overdraft benefits of charging everything, there’s also the rewards perks and the fact that you’re building credit history and a higher credit score.

Credit Cards that Pay You Cash

Just about every credit card out there gives you rewards of some sort, but which one is best for you?  While cards in certain stores give you a higher number of “points” like the Victoria’s Secret credit card, you have to take into account how much you spend there.  For example, a Marathon gas station credit card may seem like a great idea because you get 5% back on all Marathon purchases – but how much of your total spending goes towards gas?

Now I should probably elaborate that this is not an article encouraging you to go out and open a ton of credit cards.  The best practice is to pay off the charged amount in full every month.  This way, you get the rewards without having to pay a cent of interest.  Some debit cards also provide great rewards, but be sure to avoid the overdraft costs.  Also, if you feel that having a credit card is too tempting and that you’ll overcharge, then of course you should do what’s best for your situation.

Maximize Your Credit Card Rewards Based on Spending

The important thing when choosing your main card is to pick one that fits your lifestyle.  If you spend large amounts of money on groceries, utility bills, and mortgage payments like most people, chances are – a credit card in a specific store (i.e. Victoria’s Secret or Macy’s) won’t get you the optimal returns you need.

Instead, I would recommend sacrificing the 5% interest at one store for maybe a 2% cash back on all general purchases.  Depending on your spending, this could really increase your rewards points.

Refinance for Large Purchases Instead of Charging

Keep in mind that if you need a large sum of money, charging up your credit card is not a good idea.  This is because credit card debt is unsecured – meaning if you default, the credit card companies can’t take anything in the place of that debt (like the flatscreen you charged).

What does unsecured debt do to your interest rate? It skyrockets it.  Credit card debt can be somewhere around 19% to 24% while secured debt is closer to 5%.  Secured debt is like your house or car, so if you can’t pay the loan back, the lender can take your house or car in the place of that loan and try to recoup their losses.

So if you have something you need quite a bit of money for, the best option is to refinance (if that’s possible for your situation) instead of charging it.  You’ll get a much lower interest rate on the debt, and have more adequate time to pay it off.

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