Uncommon Cents

While I have several credit cards I use depending on the time of the month, the vendor I’m purchasing from, and the products I’m purchasing, my overall favorite is the Pentagon Federal Credit Union Platinum Rewards Visa. This card will provide a cash rebate of 5% on gas, 2% on groceries, and 1.25% on everything else, with no annual fee. Moreover, unlike other cards, it doesn’t require hitting a milestone of points (such as 2,500 points on my Amazon.com Visa to get a $25 Amazon gift certificate or $20 cash reward to get a $20 Cashback Bonus from Discover Card) to get the reward–the reward is credited to your account every month. Considering that gas is a major expense for me–well over $2,000 a year–that 5% reward is substantial. This can be a great way to spend less.

The problem with this is that it can also be a great way to spend more. If people commit the very common mistake of not paying the complete balance of their credit cards on time, that 1.25%, 2%, or 5% reward is wiped out. It’s gone, kaput, as if it didn’t exist. If you don’t pay on time, the late fees will kill you, and if you don’t pay in full, the interest will. If you don’t pay in full and you don’t pay on time, that’s death in two different ways, but the end result is the same.

The third way that this credit card–or any credit card–can cause you to spend more is simply… by causing you to spend more. In other words, if you spend more money using your card than you would if you had to pay cash, then the credit card is costing you money. Dealing with this is a matter of discipline; if you are an old hat at monitoring and limiting your spending, this is not a big deal, but if you are having difficulty with it or just starting off dealing with debt, then it may take some time to develop.

While my general position is that credit cards can be very beneficial financially, that is not without controversy. Many in the personal finance blogosphere would argue that credit cards are harmful if not downright evil. To me, a credit card is like a sharp knife–in the proper hands it’s an incredibly useful tool, but treated carelessly there’s potential for devastating harm. In my case, the Pentagon FCU Visa helps me spend less on gas–5% on $3.50 a gallon is a bit deal, trust me!–as long as I avoid the pitfalls mentioned above.

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