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The use of credit cards can be a great financial planning tool. They can also be one of the worst financial decisions you can make. After receiving many solicitations to upgrade my American Express credit card, I decided to give them some attention and consider whether I should move forward with the upgrade. In this blog, I’ll share some of the pros and cons of credit cards, explain how I use my credit card, and my thought process for upgrading.

The Case for Credit Cards

There are many benefits to using a credit card – if you pay it off each month. While there are certainly emergency circumstances where it might make sense to carry a credit card balance, it’s generally not recommended. The benefits below assume you are paying off your bill each month. None of these reasons outweigh the large amount of interest you’d pay to carry a balance.

  • Building your credit score – using a credit card and paying it off each month will help raise your credit score and allow you access to more credit and more friendly loan terms for things like a mortgage or business loan.
  • Security – credit cards offer enhanced security measures compared with debit cards directly tied to your checking or savings account. Most notably, it’s easy to cancel or suspend a card if you lose it, and you’re not in jeopardy of losing any real money from your checking or savings account like you would be if your debit card got in the hands of the wrong person.
  • Spend Tracking & Budgeting – many credit cards have spend tracking tools and categorization tools to help you better understand where your money goes. I categorize my spending each month by basic needs and discretionary spending to better track against my budget. You can set monthly targets per card which is good for providing kids a controlled spending environment.
  • Bill Pay – I use my credit card to automatically pay several bills each month which saves me the time and hassle of writing checks or filling out invoices. It also ensures things like my water bill, cell phone, and various subscriptions don’t go unpaid.
  • Rewards Points and Benefits – most credit cards come with some sort of rewards program and other benefits. Some are simple cash back benefits and others provide reward points or discounts. Many stores or companies offer their own credit cards with extra benefits for their goods or services. Taking advantage of the reward points and benefits afforded you by the credit card company may add significant value, usually more than any annual fee you pay for the card. The key here is to find a reward program that will benefit you the most.

The Case Against Credit Cards

As mentioned before, credit cards don’t come free of risk and downside. There are several reasons a credit card may not be the best fit for everyone.

  • High Interest Payments – any balance carried from month to month will incur large interest expenses. These add up quickly and credit card debt can become a real problem for many people.
  • Annual Fees – some credit cards come with an annual fee which may be an extra expense that isn’t worth it or needed. These fees can be several hundred dollars in some cases. If you are paying a credit card fee make sure you understand the additional benefits your getting and that you’re taking advantage of them.
  • Complexity – some people prefer to keep their financial life simpler and not introduce another payment mechanism. Paying with cash or with your debit card is a sure way to make sure you don’t overspend. The complexity is multiplied if you open various credit cards to take advantage of one-time rewards or short-term benefits.
  • Misleading Benefits – it’s easy for credit card companies to promise big benefits then make it very difficult for you to cash in on them. You may need to enroll in certain benefits or spend a certain amount of money on the card to activate them. Paying attention to the small print will make a big difference and this takes time and energy.

How I use my card and why I upgraded

I use my card for anything and everything I can. I’m so used to typing it in for online purchases that I have the number, expiration and security code memorized. I’ve been using an American Express card since 2011 when I applied for my first credit card. I must say that I am probably more loyal to Amex than many companies I’ve done business with. I’ve always appreciated their customer service; I love their online platform for tracking my spending, and the mobile app is great. The alert system (email and mobile) is fantastic and helpful, even though it’s ruined a few gift surprises for me in the past because my wife has her own card tied to our joint account.

I’ve always thought of my credit card like a debit card. I am careful not to spend money I don’t have. I have an automatic bill pay set up to move money from my checking account to pay my credit card balance each month. I still review my monthly statement, but I don’t have to worry about accidentally forgetting to pay the bill and incurring interest expenses.

I recently upgraded my card to take advantage of additional rewards points and benefits. Now I get monthly statement credits for subscriptions and services I was already using. I’ve been able to access airport / travel clubs with my card. I’ve also been reimbursed for other expenses at various locations by enrolling in benefits attached to the card. I made sure to justify the additional annual fee by confirming the dollar value of benefits was greater than that cost. I had to pay close attention to enroll in all the benefits and have been checking my statement closely to ensure I’m receiving the statement credits promised me. I check once a month when I review my statement to see if there are any new benefits that might pertain to me. So far so good and I am glad I made the change.

I’ve accumulated points with Amex for over 10 years now, and only cashed them in once – that was to pay for (a portion of) my honeymoon. Since that trip in 2015, I’ve been saving up points again for another big trip. The plan is to take the kids to Europe at some point – when they are old enough to appreciate it. At ages 4 and 2 they provide me with plenty of time to spend more money and earn more points. When that day comes, I’ll be sure to use Amex Travel to book my flight and hotel and Amex Rewards points to pay the bills. Of course, the ultimate benefit will be the time spent with family, and ability to make some memories that will last a lifetime. No credit card is offering that – at least not yet!