Why You Should Use Different Credit Cards For Different Purposes

Credit cards are something that borrowers must be very careful with. It is so easy to get carried away with your spending and end up mired down in unmanageable debts. However, if used appropriately, credit cards can offer plenty of opportunity to get more from your money. One of the best ways to make the most of your credit card accounts is to have different cards for different types of purpose. The main reason behind this is that various cards offer different rewards depending on the type of purchases you make. Let’s take a closer look at how this can be put into practice.

Compartmentalizing Your Money

The best way to think about this method of credit card spending is to compartmentalize your expenses and payments. Imagine separating them into a few groups and placing each one on its own self contained island each with a credit card attached.

How you split your payments will depend on the credit cards you use. For example, you might have a low interest card which you use for carrying debt and for larger purchases that you cannot pay off in full. In this case you want as low an interest rate as possible. You may then have a rewards card which offers an increased rate of cash back or points accrual on all grocery and fuel purchases which can be used for most day to day expenses. Finally you may have a third card which offers additional rewards for travel purchases such as flights, accommodation and car rental and which carries no foreign transaction fee which you will reserve for traveling.

Maximizing Your Rewards

In order to make the most of any rewards offered by your credit card you need to keep a close eye on what is being offered. For some purchases you will want to choose a card that steadily offers strong rewards on a particular type of purchase, for example some gas station reward cards. However, some reward cards operate a revolving system where a base rate is applied to all purchases, and each month or quarter there is spotlight category. It is important to know when these spotlight categories are in effect so that you can make the most of them.

You may need to be flexible in your approach to which card to use, for example if you usually place your fuel purchases on a card offering 2% cash back on your purchases, but another of your cards is offering 2.5% on fuel purchases as the spotlight category this month then it makes sense to switch purchases to that card for the month. The key is to be aware of how to earn the rewards and make the most of these opportunities. However, it is important not to overspend just to earn the rewards as this negates the point.

Reaping The Benefits

One of the benefits that come with using this approach is that you can keep interest costs to a minimum. If you use 3 separate credit card accounts you can use 2 for your day to day spending and pay them off in full each month, thus avoiding interest charges. The last card can be reserved for larger purchases that you will not pay off in full. This means that you will only be paying interest on one of the cards. If you were to place all of your purchases on one card you would be paying interest on your debt plus your monthly expenses.

Splitting your expenses up can also help you to see where most of your money is spent giving you the opportunity to reduce spending in some areas and budget your monthly expenses more effectively.

In conclusion, with a little care and attention you can ensure your credit cards are working harder for you. Not only does splitting purchases between 2 or more cards allow you to maximize rewards earning potential, but it also allows you to reduce how much interest you are paying. It may even help you to budget your spending more effectively.

Founder and Managing Director of GBP Loans ltd Hugh Tyzack is an expert in the field of no fee Guarantor Loans and he has written for a number of high profile blogs on the subject. When it comes time to relax, Hugh can most often be found listening to music or playing his piano. Follow Hugh on Twitter @GBPLoans and also on Google+