How Wealthy People Use Credit Cards Differently Than Most Americans
by Lyle Daly | Dec. 11, 2018
The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation.
The wealthy make their credit cards work for them, not against them. See how a change in your payment habits can help you do the same.
Image source: Getty Images
What's your go-to payment method during the checkout process?
It may surprise you to learn that preferred payment methods vary by annual income, and that the wealthier someone is, the more likely they are to prefer paying by credit card. While this can seem inconsequential at first glance, it makes more sense when you know the advantages of paying by credit card and how consumers in higher income brackets maximize those perks.
How preferred payment methods vary by income
Debit cards were the most popular payment method in the United States in 2017, as a study by TSYS found 44% of consumers preferred paying that way, compared to 33% who preferred credit cards.
Here’s where it got interesting -- each time you went up an income bracket, the percentage of consumers who preferred credit cards grew.
Among consumers who made between $25,000 and $49,999.99, only 25% preferred credit cards compared to 50% who preferred debit cards. But among consumers who made more than $75,000, credit cards continually won out. Here are the splits on preferred payment methods for each income bracket above $75,000:
- $75,000 to $99,999.99 -- 44% credit, 42% debit
- $100,000 to $149,999.99 -- 49% credit, 40% debit
- $150,000 and above -- 56% credit, 33% debit
The advantages of paying by credit card
The higher your income, the easier it is to pay upfront instead of putting purchases on credit. So, why wouldn’t wealthy consumers just do that? Because credit cards have several distinct advantages that other payment methods lack.
Earning rewards
Every time you pay with your debit card or in cash, you’re leaving rewards on the table. If you opted for a cash-back card or a travel rewards card, you’d be earning a return on your spending.
Rewards rates vary, but you can typically expect anywhere from 1% to 5% back depending on the card and whether you’re spending in one of its bonus categories. That may not seem like big bucks, but it can add up to significant long-term savings.
Most consumers like rewards, with 68% calling rewards their favorite credit card feature. Wealthier consumers are even more enthusiastic, as it was the favorite feature of almost 80% of consumers making over $75,000 per year.
Building and maintaining your credit
Even more important than rewards is the fact that using a credit card correctly will help you attain and keep an excellent credit score. The factor that affects your score the most is your payment history, and the average age of your credit accounts plays a role as well, so you need to have a credit card you use regularly to attain a high score.
Greater security
A credit card is by far the safest payment method because it doesn’t access your money directly. If a thief gets your debit card number, they could drain your bank account. With your credit card number, they could rack up a high balance, but once you dispute the charges, you aren’t liable during the dispute process.
You only get your money back with debit card disputes when they end in your favor. That could mean going days or weeks without that money.
The difference in how wealthy people use their credit cards
There’s a simple reason why wealthy people can benefit from credit cards without getting into debt -- most of them avoid carrying balances. Every month, they pay the entire balance on their credit cards.
Tom Corley’s best-selling book, Rich Habits: The Daily Habits of Successful People, examined how wealthy people and poor people used credit cards, and found that only 5% of wealthy people carried any sort of credit card balance, while 90% of poor people did. Wealthier consumers are also careful to pay on time, avoiding late payment fees.
Building smart credit habits
It may seem easier for higher earners to make the most of their credit cards, but there’s no minimum income requirement to take advantage of those card benefits. If you figure out a budget and avoid overspending, you’ll be able to pay your bill in full every month. Once you can do that, a credit card is worth its weight in gold as a payment method.
Top credit card wipes out interest until 2022
If you have credit card debt, transferring it to this top balance transfer card can allow you to pay 0% interest for a whopping 18 months! That’s one reason our experts rate this card as a top pick to help get control of your debt. It’ll allow you to pay 0% interest on both balance transfers and new purchases until 2022, and you’ll pay no annual fee. Read our full review for free and apply in just 2 minutes.
About the Author
Lyle is a writer specializing in credit cards, travel rewards programs, and banking. His work has also appeared on MSN Money, USA Today, and Yahoo! Finance.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
