This is a guest post by Mr Credit Card from Mr Credit Card. Mr Credit Card reviews credit cards and really understands reward programs and perks. Today, he is going to share with us some tips on how to save and earn rewards with your credit card. If you are looking for a new credit card, you can check out his best credit card deals section.

There are two school of thoughts as far as credit cards go. One school of thought says they are evil and should be avoided at all expense. The other school of thought says that you should use them for all the rewards that they provide (and make sure you pay your bills fully every month). I happen to belong to the second camp and so does Lulugal, who loves her credit card rewards. I think the thing that really gets folks to overspend on their credit card is really down to two things:

1. Lack of “detailed” budgeting – not just budgeting, but detailed budgeting as I’ll explain below.

2. Lack of emergency funds – If you do not have an emergency fund, then you will be in all sorts of trouble if you have any unexpected expenses.

In this post, I would like to talk about what “unexpected expensess” should you budget for and once you have done that, I’ll just run through some quick tips to get a card that pays you rewards.

Budgeting for unexpected expenses – Many folks who have finally got down to the nitty gritty of budgeting do not factor in a budget for unexpected expenses. What can it be. Here are a few common items.

Car Repairs – For those of you with a car, you know that occasionally, breakdowns do happen. And when it does happen, it normally cost a couple of hundred bucks to fix. No $30 repairs these days. A tire change, a dead battery or some other engine problem (especially when your warranty date is way past due) can really blow a hole in the budget.

House Repairs – Had pipe that leaked? Or a basement filled with water after a heavy rain. I have. Had a crack in a basement wall that resulted in a leak. And it eventually cost me over $6,000 to get it fixed properly (so far for Dave Ramsey’s $1,000 emergency fund!). But a basement leak problem is nothing compared to a friend of mine who had to replace his roof (ooh! don’t even talk about the bill).

Emergency medical expenses – This can easily blow a budget. You never know what is going to happen. Co-pays, emergency dental surgery or hospital stays can put a serious dent in your expenditure. In fact, medical bills are one of the biggest reasons for folks filing for bankruptcy and many folks get into credit card debt because of this.

Eating Out Expenses – Some folks simply put a number on their budget for eating out. But like a grocery budget, simply putting numbers on them is not enough. You actually have to break it down. One method that Mrs Credit Card and myself use is to plan where we want to go and have a good idea of the menu (or rather dishes) that we want to order. For our kids, we always get them to share dishes because the portions (more often than not) are huge.

Entertainment Expense – Last minute invites out for drinks are another way you could blow your budget. Once again, best way is to plan how much you want to spend and more importantly, where you want to go! And leave some room in the budget for those late nights.

Vacation – This is how I prefer to do it. Set aside a sum for your vacation. Then figure out a place to go where you can stick to your budget. The other way is to pick a place and activity, then work around your budget. Either way, vacations can easily blow your budget. It is so easy to charge stuff to your credit card when you are abroad. After all, it is so easy to justify. You are away from home.

Gifts and Presents – Planning gift is especially difficult because you never really know how many parties you will be invited to or how many parties will your kids be invited to. But using the previous years experience is a pretty good guess. So make sure you actually plan for it.

Kids summer camps – Yep, summer is just over. Those of you with kids will understand this issue. You need to send them away for half a day because they get on your nerves. But it cost money to do so. Budgeting for this is so important because it cost a couple of hundred bucks just to send your kid for a one week camp!

Unexpected credit card rate increases – This one is relatively new for me. But seeing so many of my readers having their 0% balance transfer credit card rates increased because of late payments, or seeing what they thought was their low interest credit cards rate jacked up to 29% made me think that those who carry a credit card balance really have to plan for these contingencies. If your interest rate doubles, that means your credit card minimum payment doubles. If you carry a balance on your credit card, pay it down as soon as possible and plan for possible rate increases.

Pamper yourself expenses – Someone on a strict diet should always plan for a Sunday Meal where anything goes. This is because psychologically, it is tough to be strict on things like diet, money without going berserk! Same thing with your budget. I think you need room for things where you can pamper yourself. It could be one starbucks a week, or a new accessory once in a while, or a dinner treat?

If you really have your budget sorted out, then you are much more likely to be disciplined in using your credit card, paying in full and not using it for impulse purchases. Lulugal has always recommended using credit cards for their rewards and I totally agree with that. The key to choosing a card that will earn you the most points or rebates is to look at your budget. And break it down.

You should break down your spending according to items like:

  • Rent
  • Gasoline
  • Groceries
  • Travel
  • Dining
  • Internet Shopping
  • For most folks, the best type of card to get are actually cash back credit cards that actually give you cash rebates for every dollar that you spend on the card. Most pay 1% for every dollar that you spend. But the better ones will pay anywhere from 3% to 5% on certain types of spending, like gasoline, travel, supermarket etc. The trick is to know how much you spend on different things and actually research lots of cards and figure out which one will save you the most money. Also, as a best practice, you should set up autopay with your bank account.

    To sum up, having a comfortable emergency fund and “proper” budgeting are keys to a sound financial foundation. If you work at these two things, you should make use of tools like credit cards to save yourself more money.

    If you like what you read here please head over to Mr. Credit Card and check out the blog.

    I also have an interview there so you can check that out as well.