How to Use Your Credit Card Like a Rich Person
There’s a general assumption among consumers that rich people don’t borrow money. However, this is far from the truth. Some of the wealthiest people on the planet use credit cards to finance small and larger purchases. The only differences lie in what they borrow money for, how much they borrow, and when they pay it back.
According to the Bank of America, wealthy Americans borrow more money than average earners in terms of amount and frequency. In fact, hyper-successful individuals and households with savings and assets exceeding $10 million have over 10% of their balanced sheet full of debt.
In this post, we’ll share why rich people use credit cards even though they can easily afford to pay cash. Moreover, we’ll also explain how to use your credit card like a rich person so you can build a solid credit report and manage your finances wisely.
4 Reasons Rich People Use Credit Cards
You’re probably wondering why rich people use credit cards when they can easily use cash to pay for most purchases. The truth is credit cards offer many lucrative benefits rich people can use to preserve their wealth and better manage their finances, including:
1. 30-Day Payment Floats
The most important reason rich people use credit cards regularly is to take advantage of the 30-day payment float, especially when making large or multiple purchases. Therefore, they can borrow money interest-free if they pay it back within the 30-day billing cycle. This allows them to better manage their cash flow.
Plus, with this tactic, they can leverage their creditor’s or bank’s money and have cash on standby at all times with the freedom to use it in any way they please.
2. Rewards
Most credit cards offer spending-based rewards to users, especially those from wealthy backgrounds who like to make big purchases. Due to their spending, they often qualify for the best rewards, such as travel miles, product upgrades, and refunds. Just because you’re rich doesn’t mean you should pass up opportunities to save money or enjoy free stuff just because you have plenty.
As Roman Pierce from the Fast Saga once said when asking Tej and others for change to buy from the vending machine, “that’s how you stay a millionaire.”
Rich people can enjoy more cash back and rewards than average earners simply by charging more. For instance, if your card offers 3% on returns, you’ll get more cash back on spending $100,000 a year compared to someone spending $50,000. The math is simple.
3. Improved Credit Score and Report
Being rich doesn’t mean you should waste your money on interest and penalties. By improving your credit score, you can secure better mortgages and other loans and enjoy tax benefits due to low-interest rates.
Most wealthy people try to maintain an excellent credit score so they can continue to borrow money strategically for different business, real estate, or personal investments
4. Additional Perks
Most credit card companies have partnerships with businesses in every business sector, especially retail, healthcare, and travel. These industries have the highest credit card use for purchases and services, especially at the B2B level. As a result, users, especially those with high annual fees, enjoy several additional benefits due to the relationships credit issuers have built with third parties.
For instance, some credit cards offer early or free access to special events and places. Of course, rich people typically don’t have problems availing of these offers on their own, but why not enjoy the perks on offer without making an effort? However, ensure you follow the best credit card usage practices, such as paying your balance on time and maintaining a healthy credit utilization ratio.
5 Ways to Use Your Credit Card Like a Rich Person
If you’re ready to learn how to use your credit card like a rich person, the following are some credit utilization habits of the wealthy:
1. Real Estate Investing through Financing
Real estate investing is probably one of the two most profitable passive income strategies, along with stock trading. Today, residential, commercial, and industrial properties make up a significant percentage of assets for wealthy people.
However, instead of buying properties in cash, even the richest people tend to finance properties via mortgage loans. They see this as a smart opportunity to enjoy financial freedom by obtaining 10, 20, or 30-year loans for a minor percentage in interest payments.
Some also take this opportunity to rent out their properties and use their rental income to repay their loans. Depending on how much they earn, many wealthy people practically live for free.
2. Tax Payments
Many wealthy individuals use credit cards to pay their taxes to maintain their cash flow while paying it off slowly and regularly. You could also pay taxes with zero interest depending on your numbers and payment strategy. Today, many credit cards offer teaser rates for up to 1.5 years, so you can secure tax loans easily.
The IRS has also approved different payment processing services for people going down this route, with affordable fees between 1.87-2.35%. For regular credit card users, this might sound like a lot. However, wealthy people use this tactic to save interest payments, which is often a significantly smaller price to pay.
So, if you pay within the time frame, you can save thousands of dollars in taxes by opting for this clever strategy.
3. Lucrative Investment Opportunities
One of the key attributes of wealthy people is that they always keep their eyes open for lucrative investment opportunities, whether real estate, businesses, or other financial endeavors. They don’t mind borrowing money to fuel the initiatives as long as they’re confident they can profit from their investments.
Let’s take an example of a real estate investment to explain. Suppose, you find a modern, luxurious apartment in your neighborhood that costs $1 million. Based on the real estate market trend, you’re confident that you can easily make hundreds of thousands in resale or thousands in annual profit after expenses.
By using your credit card to pay to finance the purchase, you can borrow money, pay the interest (<7.5%), and still make a profit. Moreover, you won’t have to spend a penny from your savings or income.
4. College Tuitions
Most wealthy people opt for the best colleges in the country and around the world. As a result, college tuition is among the biggest expenses they incur, whether it’s for them or their kids. Financing educational expenses is common among the elite, even though they often have more than enough cash to splurge on education.
The only difference between rich people and regular people is that regular people often have no other choice but to borrow money to pay for tuition and other expenses. However, rich people don’t opt for federal student loans with interest rates of around 6.8%. Since they generally have good credit scores, they’re perceived as more likely to repay their loans on time.
Hence, they opt for private loans with lower interest rates, between 2.25 and 5.75%. By doing so, they can opt for the best schools in their target industries and use this opportunity to grow their wealth further by getting a better quality education.
5. Business Startups
If you’re saving money to start a business, you have a different mindset than the upper half of society. By using your credit card to borrow money for a startup, you can spend more on your venture and earn a higher rate of return. Of course, this would depend on many other factors, such as the quality of your product or service, industry, target audience, marketing, operations, and much more.
However, the difference here is that rich people generally only borrow what they can afford to lose if things don’t go their way. So, if you have an idea, you can turn it into reality with the swipe of your card.
Wrapping Up
To sum up, rich people do a much better job using their credit cards to their advantage. They strategize their expenses proactively and look for opportunities to save money or earn rewards whenever possible. This approach is probably the factor that made them rich in the first place.
So, by learning how to use a credit card like a rich person, you, too, can get on board the reward bandwagon and optimize your finances and savings. Of course, you must adhere to the best credit card utilization practices to reap most benefits, such as paying your dues on time and not missing payments.
