One of the worst advice I’ve got in my life was, “CASH IS KING”. Well, I am here to tell you that is completely wrong, “CREDIT IS KING”.
Well, think of it this way. If you have $10,000 and you spend it all cash, that’s $10,000 you can spend.
Let’s say instead you use that whole $10,000 on your credit card and spend the whole $10,000. A lot of credit card companies will offer you 1-5% cashback on any purchases that you make with their credit card.
Now let’s say you get 5% back, (which I have on one of my credit cards) that’s about $500 extra you can.
Plus, when you spend $10,000 on your credit card and simply pay $10,000 within the 30-day grace period, you pay no interest plus your credit goes up since you are using credit.
Now, if your credit limit was at $10,000 before doing this, the credit card company will likely to raise your limit to another $5000, meaning your credit limit will increase to $15,000.
Why is good?
Well, your credit rating is partly based on how much credit limit you have versus how much credit you have used.
If you paid off $10,000 and increased your credit line to $15,000 from $10,000, you have effectively increased your credit limit by a whopping 50%! That makes your credit better so long as you paid that $10,000 off.
If you keep doing this with every dollar you make, you will eventually be able to raise your credit to a lot, even $50,000 easy.
Now, let’s say for some reason you lost your job. You have $10,000 in the bank. Now, if you didn’t use your credit card a lot (and believed in “Cash is King”), your “emergency” money is $10,000 plus whatever credit you have.(let’s say another $10,000) That’s $20,000 of money and credit you can spend when you lose your job.
Instead, if you have been using credit cards and increased your credit limit to $50,000, you will effectively have $60,000 of money to help you while you find a new job!
Of course, the most important thing here is that you need to be a good spender and accountant, you can’t simply spend without knowing how much you can pay back the credit card company.
The point is, you can “use” your cash to increase your credit limit and your credit rating rather quickly.
If you fall into the trap of “Cash is King”, think again, that’s for dumb people in the 21st century.
Even if you have debt, you can use this method to effectively reduce your APR, increase credit limit, and get a better credit rating.
Even me, I have a good amount of debt but I am prone to using credit cards to get out, don’t become a victim to “Cash is King”. 🙂