Credit cards can be convenient tools, wielding the power to help cardholders pay down debt faster with balance-transfer credit card strategies. Credit cards can also make sense for a number of everyday and less common purchases, especially when savvy budgeting mixes with prudent card use.
With this in mind, Motley Fool credit card expert Nathan Hamilton and Deputy Managing Editor Michael Douglass discuss, in the video below, two types of purchases that may make sense to put on credit.
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Douglass: Folks talk a lot about things you shouldn't put on your credit cards. Let's talk about things that, generally speaking, you should.
Hamilton: Let's not be Debbie Downers...
Douglass: Right. Personal finance can be so negative, sometimes.
Hamilton: Yes.
Douglass: Let's try to be a little bit positive for a while.
Hamilton: We've got to be fun.
Douglass: A little extra sunshine.
Hamilton: Yes.
Douglass: And of course, the caveat here is, don't put anything on your credit card that you can't pay off.
Hamilton: A pretty simple one.
Douglass: Basically immediately. Don't spend more than you have.
Hamilton: It warrants mentioning because it is something that you and I [know]. It's really hard to maintain a budget, and you have to work to do so. Credit cards are convenient. They're easy to use. It's just a matter that, to reap the most value from a credit card -- say, to earn 2% cash back and avoid interest charges -- you've got to pay your bills monthly. Otherwise, you're getting charged, say 18% or 20%-plus for credit card interest and earning 2% rewards. It's not really a money-making proposition for us.
Douglass: Right. Absolutely. So let's talk, first off, about tax-deductible business expenses.
Hamilton: This is one expense that business owners should consider putting on credit cards. The reason is, as a business owner at the end of the year filing your taxes, you have to put together all you're reporting, and so forth, seeing what expenses [of yours] are deductible. Some people are good at keeping their receipts... are good at tracking those throughout the year.
Douglass: Right.
Hamilton: It does take some extra work, but credit cards are a convenient way to have a trackable record and say: "Here are my specific expenses. I can just look at the statement easily. It's easy to compile my tax return when I'm filing it." And it is, as I mentioned, a convenient way to do so.
Douglass: Absolutely. Let's talk about online purchases, too. You're online and there's one of those 10%-off coupons. You just have to buy whatever it is.
Hamilton: There's a few things that make sense for online purchases and credit cards. One is some cards actually offer price matching or price guarantees, where they'll scour the internet and look for a better price on that purchase, and file the claim to reimburse you the difference, and so forth. So that's definitely a value-add for online purchases.
Douglass: Nice.
Hamilton: The second part is many credit cards offer fraud and ID protection that may be better than what you would get with your existing bank account debit card. So it's worth reviewing the details of each credit card to figure out, "Is this better or not? Does it make sense to buy online with these purchases?" But if you're earning rewards... there are some cards on Amazon that are 5%-10% cash back for Amazon purchases. It very well could make sense to earn those rewards, get better ID protection, and also pay your bills off so you're taking advantage of it.
Douglass: Absolutely. And finally, recurring bills.
Hamilton: Yes.
Douglass: Again, these are recurring bills that you're able to pay off, which hopefully is the case for all recurring bills.
Hamilton: And I should say, recurring bills and normal expenses.
Douglass: Sure.
Hamilton: So assuming you're maintaining your budget, there's no reason for your cable bill or for your cellphone bill... if it's something you're going to be paying with cash from your bank account anyways, you might as well earn some rewards on it and pay with a credit card.
It does take a little bit more management, because you pay with credit and then you have to pay off the credit card. There's two different transactions, but the time is generally worth it. It's an easy recurring expense that you're paying anyways. Take advantage, earn some rewards, get a little more cash in your pocket. Spend it however you determine is relevant for your budget...
Douglass: Right.
Hamilton: If it's investing in the market, that's what we say is the best way to go, but if you want to have some fun, we won't be a Debbie Downer. Make a purchase and use those rewards for it. Sure, go ahead.
Douglass: That makes sense. And as always, all these things depend on your personal circumstances, and what makes sense for you, but the fact of the matter is, these are ways to get a little bit of that extra juice for that squeeze when you're making these purchases.
Hamilton: Mm-hmm.
Douglass: For more on budgeting, for more on credit cards, for more on how to work your way through this complicated personal finance topic, check us out at fool.com/credit cards. Again, that's fool.com/credit cards. There's a wealth of information there, including a number of free guides and The Motley Fool's picks for the best credit cards of 2017.
Hamilton: The best.
Douglass: All right. Thanks much, Nathan.
Hamilton: Thanks.
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