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Using Credit Cards as Part of Your Financial Plan

Posted by Michael Kane on Jun 16, 2017 2:29:17 PM
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credit cardPew Research, the U.S. Census Bureau, and the American Bankers Association have all released studies in recent years about the proliferation of credit card use in the United States.

Depending on the source and the year, most estimates are between three and four hundred million credit cards in use, each carrying an average balance of just over $3,000.

Credit cards are not inherently harmful if you use them wisely. In fact, there are several advantages to credit cards such as improvements in creditworthiness, convenience, and rewards programs. When used wisely, credit can be an important contributor to the success of your financial plan, and developing good credit card habits will help you stay out of debt while building your nest egg.

Always Pay Your Credit Card Balances in Full

Credit cards enable you to pay for things quickly and easily without having to carry around large amounts of cash. Their convenience and the purchase protection they provide are practically unrivaled among payment methods. Using credit cards can also help you more effectively manage your cash flow (and your budget!) on a monthly basis.

However, financial experts agree that the only way this works in your favor is if you pay your balance in full every month. Doing so will save you on interest payments and ensure that you’re not breaking your budget for an impulse purchase that can’t be paid off completely within a relatively short amount of time.

Rewards Programs are Like “Free Money”

Not all credit card rewards programs are created equally. The American Express Centurion Card, with its initiation fee of $5,000 and annual fee of $2,500, is offered to AmEx customers who have spent (and repaid) a minimum of $250,000 a year. The card boasts an exclusive concierge program that once obtained Kevin Costner’s horse from Dances with Wolves for a client to purchase!

While not nearly as glamorous or exclusive, many banks and credit card issuers offer enticing programs that allow you to build points toward travel rewards, cash back, or merchandise, depending on how much you spend. Credit card points are a great way to save money on everything from gas and groceries to vacations.

Some credit cards offer generous cash back options that are fairly substantial for large purchases. The savings and rewards can be placed into investment accounts or other vehicles that will help grow your assets and ensure that your money is always working for you.

Monitor Your Credit Report

If you choose to incorporate the use of credit cards into your financial plan, always keep an eye on your credit report both to ensure your credit is in good standing, as well as to detect fraud as early as possible. There are a variety of tools that help monitor your credit activity in real time. Many of these services calculate your credit score, a primary indicator of your creditworthiness.

A good credit score usually results in favorable interest rates that can make a positive impact on your purchasing decisions and reduce the amount of interest you will spend over time on a purchase. It can make a difference of hundreds or even thousands of dollars on monthly mortgage or loan payments.

Credit reports can also help you detect errors and fraud more quickly. Identity theft is an increasingly common crime that costs its victims an estimated $15 billion a year. Frequently monitor your credit report to make sure there are no errors, and, even more importantly, no unauthorized charge accounts that have been opened in your name. While there are protections in place against losses due to identity theft, there is no way to reimburse the time and hassle you must invest to make things right.

Like most financial instruments, credit cards have both benefits and drawbacks. They allow you to build your credit score, conduct a variety of transactions with safety and convenience, and collect rewards on your purchases. However, if you’re not vigilant about your credit card balances, you could face surmounting debt, interest, and fees that far exceed the original cost of the items you buy, and quickly derail your financial plan.


Mindfulness about your credit card spending and the creation of specific goals for its use within your financial plan are powerful tools that can contribute significantly to your investment and retirement outlook. Request a call with an advisor at RAA today to learn more about the ways credit can be incorporated into your plan, as well as strategies for avoiding identity theft and fraud.

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Disclaimer: This blog is intended for informational purposes only and should not be construed as individual investment advice. Actual recommendations are provided by RAA following consultation and are custom-tailored to each investor’s unique needs and circumstances. The information contained herein is from sources believed to be accurate and reliable. However, RAA accepts no legal responsibility for any errors or omissions. Investments in stocks, bonds, and mutual funds may increase or decrease in value. Past performance is no guarantee of future results. Any of the charts and graphs included in this blog are not recommendations for the purchase and sale of any security. 

Topics: Financial Planning