The reason I use a credit card for everything

rainbow of credit by frankleleon

I hold a multitude of credit cards.

In my wallet there's a Visa Debit from S bank, a Mastercard Gold from Nordea, a Mastercard from Hypo Bank and a corporate American Express. Of these I used only two: The S bank card for all purchases from the S group (because of the 0.5% cash back offer (”maksutapaetu”)) and one of the credit cards for everything else.

The reason I use a credit card for almost all of my purchases is that then I can have much less cash on my bank account. This may seem counter-intuitive for some: I actually want to minimize the amount of money on my bank account.

That's because of the time value of money or time preference in economics, i.e., the idea that money now is more valuable than money in the future. This is because capital has an earning capacity. If there's no cost involved, one should always choose to pay later. Due to the low interest rate environment this doesn't currently mean as much as it used to but the principle is sound.

When I use a credit card to pay for everything, I don't need to keep money on my bank account. Instead I can invest that money. Let's say I would invest 1000 euros, that I would otherwise keep on my bank account, for 50 years and make 6% on that investment, then I would end up with around 18 400 euros. Now, that is extra money just from behaving more smartly without zero sacrifice or saving more, etc. Using a credit card is a no-brainer.

I always pay off my credit card bills in full. The interest rates on credit cards are quite high and no person who's in control of their finances should have an outstanding balance on their credit cards.