Can Credit Cards be Part of a Frugal Lifestyle?

by Miranda Marquit · 5 comments

When it comes to frugal living, it seems obvious to some that there is no place for credit cards at all. Indeed, the idea of credit cards as part of the frugal lifestyle seems impossible. Many of us believe that credit cards are the complete opposite of everything frugal. They promote consumerism, materialism and debt.

However, this view might not be totally fair to credit cards. Indeed, like many money tools, credit cards can be scary — or they can be helpful. It’s all about how you use credit cards. Used responsibly, as part of a plan, you can incorporate credit cards into your frugal lifestyle.

Credit Cards: Get Cash Back, Free Stuff and Promotional Savings

One of the ways that credit cards can help your frugal lifestyle is through the rewards you can earn. When you make use of rewards credit cards, you are providing yourself with opportunities to maximize your money. Rewards programs offer you some of the following perks:

  • Cash back: You can get cash back when you make purchases on certain cards. This cash back can range from 1% on most purchases to 3% or 5% cash back on particular purchases. Free money is always a good thing.
  • Free stuff: Some rewards programs will let you redeem your points for merchandise, or for discounted travel. You can get airline tickets, hotel stays and other perks when you accumulate enough rewards.
  • Promotional savings: Many credit cards are now offer special savings when you shop through their networks. You might also get bonus points that can be used for cash back or other merchandise.

If you are careful with your credit card, you can use rewards to save money and live a little more frugally. It is also worth noting that purchase protection and extended warranty protection can also be perks of your credit card, and help you save in the long run.

Creating a Credit Card Spending Plan

Of course, it isn’t keeping with the tenets of frugal living if you end up spending without a budget or a plan. Instead of just using your credit card blindly, you need to come up with a plan. I have a plan for my credit cards:

  • My Upromise card is used for all online purchases. This helps us save up toward my son’s college costs.
  • My miles card is used for bigger purchases that we have planned to make. We often save up the money, then use the miles card. Because we have saved up, we can just pay off the balance.
  • My cashback card is used for most other purchases during the month (groceries, gas, etc.), since many of those things come with a 3% cashback rate instead of a 1% rate.

We spend money according to what is in our budget. At the end of the billing cycle, when we get our credit cards, we can pay off what was spent with money that has been sitting in our checking account. At some point, I’d like to get really ambitious and keep most of the money in the savings account until the end of the month, having it earn interest, and only transferring the money to the checking account when it’s time to pay the credit card bills.

Avoiding a Balance

In my mind, credit cards can be a good part of a frugal lifestyle as long as I’m not carrying a balance. If I’m not wasting money on interest payments, there really isn’t a problem, and I can reap the benefits that come with good credit card rewards programs.

Bonus Tip:

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{ 5 comments… read them below or add one }

Jen @ SheBloggs May 4, 2011 at 9:07 am

This is something I’ve been thinking about lately. I completely stopped using my credit cards the last few months because they were the main reason I racked up an atrocious debt.

I’m not only reconsidering because of the cash back and promotional features, but it’s a good way to track certain expenses as long as you never carry a balance.

slug | May 4, 2011 at 9:34 am

I’ll be a little controversial here and say you can’t truly be frugal if you’re not using credit cards. Regardless of the rewards program, credit cards allow you to defer payment meaning you can have up to an extra 60 days where your money is working for you in terms of interest. At today’s nominal interest rates, you can shrug, but in an inflationary interest environment potentially on the horizon, the time to instill good credit card behavior is now. On top of the deferral, you can get rewards. I prefer cashback rewards cards like the Fidelity AMEX that gives 2% back on every purchase combined with the tiered rewards programs of cards like Discover and Chase Freedom with a reliable gas card like the PenFed VISA. This equates to at least $1,000 in savings per year for me. Finally, don’t forget the fraud protection and extended warranties offered by credit cards. Of course the KEY here is that you never ever carry a balance else all the rewards and payment deferrals in the world can’t help you out.

bluesauger July 20, 2011 at 3:20 pm

I’m definitely on the fence with this one. On the one hand, rewards programs, cash back and the like are appealing and do help a person to save money. The only problem is the major temptation of saying, “put it on the card” all the time.This is a battle for me and sometimes I feel like everything gained through cash back and rewards is lost by impulse spending.

Joy August 2, 2012 at 7:37 am

I’m going to go with yes on this one. I got my first credit card when I was 18, did okay for a couple of years, but eventually found myself doing a lot of impulse spending that resulted in a lot of bad debt. After finally paying it off, I was very hesitant to open another credit card, but realized I had to in order to rebuild my credit. As long as I don’t carry a large balance (paying off my monthly expenses like the article outlines), I still earn rewards. I don’t typically redeem the rewards, but instead, if I’m finding myself starting to build a balance that I can’t quite pay off at the end of the month (old impulse habit rearing its ugly head), I can redeem the rewards as an account credit.

I’m excited about this new (to me) system because it allows me to use my credit card and rebuild my credit in that manner, but I’m usually not spending beyond my monthly budget in order to do so. It also protects my checking account from overdrafts, which is another big plus. I’d say the only con to this system is having be very aware of every cent that I’m spending…if I don’t I may go over my budget and end up carrying a balance through to the next month. Having to pay interest on that balance is a good reality check to keep myself in line, LOL.

Steve August 20, 2012 at 10:41 am

There’s another sort of freebie that credit cards can provide. If I use my card to rent a car, I can waive the insurance because it is covered by the card. I actually had to rely on this feature once, and the insurance provided by the card covered everything with a minimum of hassle.

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