How to Use Your Credit Card to Become a Millionaire

by Neal Frankle, CFP ®

If you use your credit card intelligently, you could be well on your way to a 7 figure net worth. No, I’m not suggesting that you lean on your credit card to invest in Facebook. What I’m saying is that you can emulate the credit card habits of millionaires (and avoid credit card tricks) in order to increase your chances of becoming wealthy. Now, just because you act like a millionaire doesn’t automatically mean you will become one. But it never hurts to exhibit good habits. Am I right?

According to Investment News Magazine, there are 5 habits millionaires have when it comes to using credit cards. See how many you share with them:

  1. Millionaires don’t carry balances. They pay off their credit cards every month.
  2. Millionaires pay on time so they don’t pay late fees.
  3. Millionaires download their transactions into budgeting software.
  4. Millionaires use single-transaction credit card numbers when they do business on the internet.
  5. Millionaires don’t worry about mileage cards. They focus on cash-back cards instead and they get that cash automatically deposited into their investment accounts rather than being sent a check.

Let’s look at each point above:

1. Balances

It’s obvious that if you don’t have any credit card debt you won’t incur interest expenses or pay late fees. It also indicates that you won’t live beyond your means. These two behaviors also save you the hassle of running around moving money and trying to borrow from Peter to pay Paul. Sounds about right to me.

I’d have to say that not having credit card debt and living below your means are key success ingredients if you want to be financially independent. So far so good.

2. Downloading

Downloading transactions also makes sense. This is really the only efficient way to know how much you spend and how you spend it. One program I love is YNAB (You Need a Budget) because I can quickly set up budgets and then compare my actual spending to that budget. By so doing, I can pinpoint where I need to adjust my spending. It just takes all the guess work out of it. Finally, this saves a tremendous amount of time when it comes to planning. Downloading transactions and studying the data is the first step to take if you want to be rich.

3. Single Transaction Cards

The concept of using single use credit cards for internet transactions is smart. Frankly, I haven’t done this but I can see the logic. Using my card on the net has created problems. I have to cancel my credit cards at least once a year because my number gets compromised. Then I spend hours changing all the auto payments I’ve set up to the new account. Time waster.

Of course, I don’t know if the problem is caused by thieves over the internet or what. But I can see that using single use cards cuts way back on the possibility of this happening. That’s another big time saver right there.

4. Points

The last item is interesting and it’s something I’ll also have to start doing. The research that Investment News did indicates that cash back is far more valuable than miles and credit card reward points. Also, mileage cards have annual fees (usually) and cash back cards don’t.

5. Late Fees

I already addressed this point above. If you don’t carry a balance you should never have a late fee. If you do, it simply means you aren’t organized. The solution is easy enough – put your payments on auto pay. You’ll never incur a late fee ever again.

Again, just because you act like a millionaire doesn’t mean you’re going to become one. But even if you don’t reach the 7 figure status, it only makes sense to take smart action. The points above seem very wise to me. They save money and time.

Do you agree with how millionaires use credit cards? What is a smarter strategy?

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{ 7 comments… read them below or add one }

Pollyanna March 26, 2012 at 6:22 AM

Good article, I utilize all the points covered except the one about using a different credit card for one-time internet purchases. That is a really good one I had never thought about — in January of this year our credit card company called us about a $10 charge by a sporting goods ‘place’ in Michigan or somewhere — we had not made the charge and apparently the bank was already aware the ‘place’ fraudulent (I’m sure it wasn’t truly a brick and mortar store). Our cc company cancelled our current # and reissued, but it was very inconvenient to chase down my auto-payments and advise them of the new cc#. I am going to put this new pointer in place.

As others do, I also use a free credit card that I pay off every month, and it earns dollars. It is literally free (and tax free) money — I tracked it last year and received $520 back. I just love how that works in my favor.

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Jerry March 18, 2012 at 3:17 PM

I agree with the article and it’s an interesting perspective on how wealthy people use credit cards to their advantage. It’s useful and can lead to benefits like the ones you outlined. The previous comment about using credit cards as leverage to build wealth I think misses the point. These are characteristics but not a how-to. There’s no insurance anyone will become wealthy. It’s a combination of many factors converging.

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Neal Frankle March 16, 2012 at 7:31 AM

Beth,

I am happy you enjoyed the post. What exactly are you referring to? I explained how millionaires use their credit cards and how you can learn from them. I don’t see this as misleading. I am sorry that you do.

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Beth March 16, 2012 at 1:45 PM

You’ve framed it like a “how to” article — in the “how to use a knife to slice cheese” sort of way. Okay, bad example, but the expectation you’ve set up is “use this tool to get this outcome”.

The problem is credit cards don’t actually build wealth. Other than some small cash back rewards, there’s no financial advantage to using them over cash or debit. A credit card isn’t something you can leverage to build wealth — it’s just something that can run you into trouble if you’re not smart about using it.

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Neal Frankle March 16, 2012 at 3:52 PM

Beth,

I respect your opinion but I disagree. I believe that wealth is a function of three things; assets, income and spending. You need a good balance of these three or you can not create wealth. Using a credit card properly is part of spending. It can keep that element of your wealth building in check. I actually stand by the title.

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Beatrix March 23, 2012 at 8:38 AM

“…credit cards don’t actually build wealth. Other than some small cash back rewards, there’s no financial advantage to using them over cash…”
Beth,
with all the respect, we all need a “how to” lesson on credit cards and money management. Neal has an excellent point here. Credit cards help to earn and protect you as well. There are a lot of advantages of using cards. Every dollar you get back after using your cards saves you money; means you earn. I’m getting back about 260.00 every year from AmEx. That’s a nice earning. I can invest this 260.00 and earn more. Besides that check they send me every year, using the card (that I pay off in every 30 days) builds me excellent credit, which saves me a lot if I need a loan. Each time you save you actually earn money. It’s like paying twenty for a product, but, let’s say, if you get back one dollar, you paid only 19.00. One full dollar earning is fantastic, especially when you keep doing it. Not to mention when I buy a ‘free after rebate” product, I’m getting a double deal. I don’t have to pay for the item plus I get back a certain percentage after using the card. That’s pure money making. Yes, cards can build wealth! If we take every 25 cents seriously, we build wealth. It adds up gradually. This is how millionaires operate. And let’s not forget about safety and protection. Example: a company did a horrible job for me not long ago. They replaced a good pipe with a wrong pipe in my basement plus made damages around it. It’ was an expensive work. Now I have to find real professionals to make corrections and start the whole thing over again. I called my credit card company and filed for dispute. They acted for me as legal professionals and I didn’t have to go to small court. No paper work fees and no court fees! I saved a lot. Especially on nerve cells. They took care of the problem for me. Now I can use this money to hire the right people to fix the problem. I’m glad I used the card. Can you imagine what could happen if I used check or cash? Or even a card I don’t use that often? The more you use the card, the more benefit you earn. (I mean to use it for paying bills mainly and not for irresponsible shopping at the mall.) I keep learning about credit and money management because even when I think I’m doing the right thing, I often realize I have so much to learn. I still need smart and wise “how to” articles to read. I don’t think I can ever stop learning about how to take care of my money. It’s a life-time process.

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Beth March 16, 2012 at 5:52 AM

I enjoyed reading your points about how millionaires use credit cards! However, I was really disappointing by the click bait tactics of your title. Your post was great! Why did you feel you had to mislead readers into reading it?

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