Tips on making purchases cost effective

The advice in most articles about saving money is unequivocal: shred your credit cards, or at least keep them stashed away for a very rainy day. Few financial advisors entertain the idea that it is possible to save money using credit cards. However it is possible to actually save money using credit cards. It just takes a little planning, discipline, and business savvy.

The first step to saving money by using credit cards is to pay your credit card balance in full by the due date each month. Most credit cards allow you a full billing cycle before they begin charging interest on purchases. This means you are getting the financial equivalent of an interest free loan every month you use your credit card and then pay it off in full. If you make a purchase a few days after the end of the billing cycle, you don't actually have to pay for the product for almost two months. Meanwhile, the cash that you would have used up-front to pay for the item can be somewhat productive, like a savings account or an interest-bearing checking account, until your credit card bill comes due.

Again, this method only works if you pay your bill in full, and on time each month. Late charges and interest fees don't save money-they waste it. Another money waster is using your card for cash advances. Unlike with purchases, the interest on cash advances usually starts accumulating the day of the advance. Depending on which card you are using, a cash advance may also carry a hefty upfront fee. So if your credit card company sends you checks to use for cash advances, rip them up-they're not money savers!

Another way to save money using credit cards is to cash in on your reward and bonus points. To rack up the extra points, use your credit card instead of cash or checks for every day purchases like groceries and prescription medications. Again, for this technique to be a money saver, you must pay your bill in full each month. If you carry a balance and end up paying interest each month, you'll quickly pay more than the worth of any reward you might earn. It's also important to make sure you understand how your card's reward system works. For instance, on some cards, your reward points may expire if you don't use them by a certain date. This is wasted money! So be sure you know the rules to get the full benefit of any rewards system your card offers.

Another way, using credit cards can actually save you money, is through purchase protection. If you buy a product that is damaged, poorly made, or never arrives, you can dispute the charge and ask the credit card company to withhold payment. If you pay for an item with cash, a check, or a debit card, it is much more difficult-sometimes impossible-to get your money back, if the merchant doesn't live up to his end of the bargain. This is one money-saving reason why it's actually a good idea to make major purchases using a credit card.

So, if you want to save money, you can still use your credit cards. It's possible to save money using credit cards judiciously. To save money using credit cards, remember to pay off your bills in full each month, don't get cash advances, use your credit card for major purchases to get payment protection, and, if your credit card offers a reward system, learn the rules and use the rewards you're entitled to.