Credit cards get a bad rap - one that is not entirely deserved. The term 'credit' may mean 'ability to obtain resources based on a future payoff', but the card is named entirely wrong: If the only purpose of your credit cards is to purchase things on credit you are doing things completely wrong. The true beauty of credit cards is that they are a liquidity tool; credit cards allow you constant access to funding... whenever you need it. So, let's look at the perfect credit card spending strategy for turning your credit cards into liquidity cards!
About Credit Cards (Credit Cards Aren't Evil but They Are Like Guns)
What exactly is liquidity? Liquidity has multiple meanings, but in this case liquidity means 'how quickly can something be converted to money'. Your house may be worth more than the money in your wallet, but the dollar bills you carry are liquid while your house might take multiple months to sell.
A credit card has two main functions:
- Credit Cards allow you to purchase goods and services today and allow you to pay for them later (the dangerous credit card strategy)
- Credit Cards increase your liquidity by allowing you to spend money on days you do not collect a paycheck (the ideal credit card strategy)
Most people don't collect a paycheck every day. Most people also have a good idea how much money they make in a month. If you are one of those people (and I imagine most of you are) you can use one simple strategy - pay for things on your credit card (preferably a rewards card), and pay the balance at the end of the month. Think about it - it is much simpler to have a credit card (which by the way protects you from fraud, is easier to carry than cash, and, if you use a rewards card, even gives you rewards to use it) than to withdraw a huge amount of money at the beginning of each month, spending it down on each purchase.
The 'credit' part of credit cards is the dangerous part. In that regard, credit cards are like guns. Guns are also tools which are extremely controversial. The downsides to guns are well known, but they can also be used for beneficial things like hunting and self-defense. Just like the slogan, "guns kill" is disingenuous, so too is "credit cards cause debt". No - they don't. The tool's user is responsible for the proper usage. We all have many tools, but if I said "pencils write books" or "hammers build houses" you would demand that I stopped writing snarky articles for this site. Only because credit card users have run up huge debts is this even an issue.
Summarizing the Perfect Credit Card Spending Strategy
- Use credit cards only as liquidity tools, ignoring the 'credit' feature
- Only spend what you know you can comfortably pay off at the end of the billing cycle
- Preferably use rewards cards, which will pay you to implement this credit card strategy
The Ultimate Credit Card Strategy
If you only ever use credit cards in this way, you will never have to worry what all the complaints about credit cards are about. Think about it - you don't have to worry about credit scores, you don't have to strategize paying down your debts, and you don't have to lobby Congress for laws with unintended consequences. You also won't have to worry about the security risk of carrying around a packed billfold. Oh yeah, credit card companies will pay you if you implement this strategy with rewards cards. Let the cash users be jealous!
So, readers, do you use this credit card spending strategy? What do you think about credit cards? Would people look at you funny if you told them you have 'liquidity cards'?