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Many people don’t carry cash these days, preferring to make a purchase by tapping or swiping a debit card or credit card. However, there are times it can actually pay to dip into your wallet and break out the bills. Using cash can be more secure and less costly, among other benefits.

Here, you’ll learn when it can be better to buy with cash and when plastic is preferable.

The Benefits of Cash

Here are some of the pros of using cash:

You May Get a Discount

You may be rewarded for paying cash, like paying a lower price at the gas station or when you get take-out at a restaurant.

Many businesses pay a fee for accepting credit and debit cards, so they may be willing to charge you less if you’ll pay in cash. If you frequently fill up your tank, saving even 10 to 20 cents per gallon can add up to significant savings over time.

It Can Help You Avoid Overspending

When you tap or swipe your credit or debit card, you don’t physically see your money leaving your account. Since there’s no sense of immediacy or consequence, it can be easy to spend more than you originally intended. That can lead to debt and overdraft or NSF charges.

If, on the other hand, you leave home with only the amount of money you need for the day in cash, your spending is likely to be more mindful. That could mean you may have a better chance of sticking to your budget and avoiding overspending.

There Are Fewer Security Risks

Yes, someone could rob you when you are carrying cash. However, there is less risk of identity theft or your information getting stolen when you pay with cash vs. a debit or credit card.

You Can Avoid Fees

Cash is a one-shot deal — the purchase you made won’t end up costing you a penny more. With credit and debit, however, you can end up paying additional charges down the line, from late fees to interest payments on debt.

Recommended: How to Avoid Overdraft Fees

Times When You Should Pay in Cash

Your Tab is $10 or Less

It can be a good idea to carry cash for small purchases. Many retailers have a minimum amount of money you must spend in order to use debit or credit. If your purchase is under, you’ll have to throw in extra things (you probably don’t need) to meet the minimum.

When Shopping at a Small or Local Business

Small businesses often offer discounts for cash payments, since it helps them save on bank fees. This can be an easy way to support your local businesses and save a few dollars at the same time.

You Want to Keep Advertisers at Bay

You may have noticed that after you buy something with a credit or debit card, you often get hit with ads and offers for similar products. That’s because retailers can track their customers’ spending and share their information with a third party, who can then target them with ads.

This can be annoying, and also lead to more spending if you’re enticed by an offer. Using cash makes it much harder for businesses to collect and share your information.

Times When You Shouldn’t Pay With Cash

Next, learn about the times when you should keep your wallet shut and find another, non-cash way to pay.

Buying a House

While not an everyday occurrence, some people may have the option to plunk down cash they’ve stashed in their savings account to buy a property.

While buying a home with cash vs. getting a mortgage may get you the house, it may not be the most prudent move in the long run, especially if it wipes out all of your savings.

A mortgage has tax benefits and timely payments can help you build good credit. Also, there could be better uses for all that cash, like investing in the stock market or elsewhere.

Business Expenses

If you own your own business, have a side gig, or do freelance work, it can be better to use credit (or even a check) to pay for business-related purchases. You’ll likely want a paper trail so you can deduct these expenses on your tax return.

Another potential perk of using credit is that it may offer some purchase protection in event something you buy for your business that breaks or gets stolen soon after you purchase it.

Paying Service Providers

You may think a service provider, whether it’s an electrician or an auto mechanic did a good job, but only time will tell. Using credit can offer you some protection in the event that you experience problems with a service after you’ve already paid for it.

Renting a Car

Often your credit card will provide insurance on car rentals (which can help you save on renting a car), but only if you use that form of payment, as opposed to debit or cash. Using credit for the car rental can help you avoid paying for something you don’t need to purchase.

You’re Looking to Build Credit

If you need to build your credit score, one way to accomplish that is to use your credit card on a regular basis and show that you’re responsible by paying what you owe each month, consistently and on time.

When Buying Electronics

Using your credit card instead of cash for electronics can be a big advantage if your credit card offers extended warranties as a cardmember benefit. This allows you to get peace of mind without having to pony up for the store’s warranty. And, you can simply pay off the balance as soon as the bill comes.

You’re Looking to Track Your Spending

If you’re looking to see where your money is going so you can track your spending and set up a monthly budget, it can be easier if you pay with credit or debit.

Your financial institution may even offer you a pie chart of your spending from your bank account, broken down into categories. Seeing everything in black and white can help you become better at budgeting.

Alternatives to Using Cash

Paying in cash has its pros and cons. If you decide that you want to pay with something other than cash, here are some alternatives.

Cash vs Credit Cards

A credit card can be a good alternative to cash if you are able to pay it off in full every month, and you do. If managed well, credit cards (even secured credit cards) can help you build credit to buy a home or another large purchase in the future.

Cash vs Debit Cards

A debit card can be a good substitute for cash, as long as you know there’s money in the bank. By using a debit card, you’re not incurring any new high-interest debt. As long as you are not incurring any overdraft fees or withdrawing money from ATMs that charge high fees, debit cards can be a simple way to make purchases.

Cash vs Financing or Loans

It can sometimes be better to pay for a major purchase, like a car or a home, with a loan rather than cash if the interest rate is lower than what you could likely earn by investing that money.

However, you’ll also want to keep in mind that there is risk involved in investing in the stock market, so there is always a chance that you could lose money.

Recommended: Leasing vs. Buying a Car: What’s Right for You?

The Takeaway

While there’s a movement toward a cashless society, paying in cash can help you garner discounts at local businesses, stick to your budget, avoid paying overdraft and interest fees, protect against identity theft, and keep advertisers from targeting you.

If you’re looking for a safe place to keep your cash when not spending it, where it can earn some interest and grow, take a closer look at your banking partner.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

When should you pay with cash?

Cash can be a good option when paying for a small purchase (say, under $10 or $20) or when paying at a small retailer who may add a fee for credit card purchases. Cash can also help you be more mindful about spending and can be good when trying to rein in discretionary expenses.

Is it better to pay in cash?

It can be better to pay in cash if it can help you avoid high interest (which can accrue if you carry a credit card balance) or get a discount on a purchase (say, at a small retailer that offers a discount for cash). However, a person could earn rewards when using a credit card or could enjoy cash advantages when getting a mortgage vs. paying for a property with cash.

Is it smart to keep money in cash?

It can be smart to keep a small sum of money in cash for unexpected and/or pressing expenses, such as tipping a service person for a repair. But cash is usually safest in a financial institution, where it can’t get lost or stolen and in most cases is insured up to the limits of the Federal Deposit Insurance Corporation or National Credit Union Administration.

Photo credit: iStock/towfiqu ahamed

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOBNK-Q325-075

A credit card can be a useful financial tool and offer a number of perks, from the opportunity to build your credit to the chance to rake in lucrative rewards. However, using a credit card responsibly is key to enjoying those benefits. Otherwise, a credit card could harm your financial well-being rather than help it.

Using a credit card responsibly involves sticking to basic rules like making on-time payments and avoiding practices such as spending more with your card than you can afford to pay off. By learning some tips for how to use a credit card responsibly, you can make the most out of this financial tool.

How Do Credit Cards Work?

A credit card is a payment card that offers access to a revolving line of credit. You can tap into this credit line for a variety of purposes, including making purchases, completing balance transfers, and taking out a cash advance. Cardholders can borrow up to their credit limit, which is largely determined based on their creditworthiness and represents the maximum amount they can borrow.

It’s necessary to make at least a minimum payment by the due date each month in order to avoid a late fee. However, to avoid paying interest entirely, cardholders must pay off their balance in full each month; interest accrues on any balance that rolls over from month to month.

Many credit card companies charge compounding interest, which means that not only will you owe interest on any outstanding balance, you’ll also end up paying interest on the interest. That’s because this interest is calculated continually, then added to your balance, and it may be compounded daily. You may be shocked to see how much credit card interest you’ll pay if you only make the minimum payment each month.

Understanding Your Statement

A crucial component of knowing how credit cards work is understanding your monthly credit card statement. Your statement contains a number of important pieces of information about your credit card account, including:

•   Your account information

•   Your account summary, including your payment due date

•   All purchases made with the card

•   Your total credit card balance

•   The minimum payment due

•   When the credit card payment is due

•   Your available credit

•   Interest charges

•   Rewards summary

Many of these details are key to know in order to ensure you’re using a credit card wisely. For instance, knowing your payment due date will ensure you make your payment on time, avoiding any late fees and a ding to your credit score.

Checking on your available credit can help you ensure you’re not using too much of your credit, which can drive up your credit utilization rate and subsequently drag down your score.

10 Tips For Using a Credit Card Responsibly

To make the most of your credit card, here are several credit card rules to keep in mind — as well as some guidance on what credit card behavior to avoid.

1. Avoid Making Too Many Impulse Purchases

To use a credit card responsibly, you want to avoid overspending with it. How many purchases are “too many” depends upon how much your impulse buys cost and how easily they fit into your budget. Say you know you can pay off your credit card balance and otherwise meet your monthly expenses and savings and other financial goals. That’s an entirely different situation from one in which your impulse purchases are too costly to promptly pay off and/or prevent you from meeting other financial responsibilities or goals.

If you enjoy making spontaneous buys, you may consider including this as a line item in your monthly budget and then sticking to it. This could add enjoyment to your life without causing financial problems down the road.

2. Use the Right Credit Card

There are a variety of different types of credit cards, and depending on how you plan to use your credit card, one option may make more sense than another. Some credit cards are there to help you build your credit, while others pay out generous rewards.

Selecting which card is right for you requires a look at your financial habits and current situation. For example, if you know that you often end up needing to carry a balance, then it may make sense to find a card that prioritizes low interest rates. Or say you’re a frequent vacationer — in that case, you might benefit from a travel rewards card.

3. Take Advantage of Benefits Offered

Interested in another way to use your credit card responsibly? Signing up for eligible rewards programs like SoFi Plus can help cardholders make the most of their card.

Also know that each type of credit card may have slightly different reward programs. See what the full range perks offered by your card are — and if you’re not sure, check the card’s website or ask the credit card company for specifics. For example, you might need help understanding what unlimited cash back really means in terms of how you might benefit.

Once you know what perks are available, you can use them strategically. You may discover that the card(s) you have don’t provide the best benefits for you. For example, maybe your card offers one of its highest rewards rates for gas purchases, but you don’t do much driving. In that case, you might be better served by a rewards card that offers a flat rewards rate or that prioritizes a category in which you’re a frequent spender.

Finally, if you’re earning rewards points, it’s also important to consider the best way to use them. Sometimes it’s possible to get a bigger bang for your buck if, say, you use your rewards points at an approved store rather than opting for cash back.

4. Sign Up for Automatic Payments

To avoid missing payments or making them late, consider signing up for automatic payments or autopay. By enrolling in autopay, you’ll regularly have money transferred from a linked account each month in order to cover the amount due (or at least the minimum payment required).

Another option is to sign up for automatic reminders about payment due dates (by text, for example, or by email). You can do this through the credit card company or via a calendar app.

What’s most important is coming up with a plan that works best for you to ensure you make your payments on time. Otherwise, you could face late fees and adverse effects to your credit score.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

5. Regularly Check Your Statements

Mistakes do happen on credit card statements and, unfortunately, fraudulent activities could impact your account. Check your statement every month to ensure that you made all the charges that appear, and that any payments you’ve made are accurately reflected.

If something is missing, review the statement dates to see if the transaction may have happened right after the statement cut-off date, for instance. If something seems off, contact your credit card company for clarification. In the case of any potentially fraudulent activity, it’s important to report credit card fraud to your credit card company immediately.

6. Pay More Than the Minimum

You’ve just read about how credit card interest works, so you’ll remember that only making the minimum payment doesn’t get you out of paying interest. To avoid credit card interest charges, you’ll need to pay off your monthly statement balance in full.

Understandably, this isn’t always possible, but even then, it still helps to pay as much above the minimum as you can afford to. This will at least cut down on the outstanding balance that accrues interest.

7. Don’t Close Out Old Cards

While it might seem logical to close out an older credit card you’re no longer using, you’ll want to think twice before you cancel a credit card. That’s because doing so can negatively impact your credit.

For starters, canceling a credit card will lower your credit utilization rate, which compares your total outstanding balance to your overall available credit limit. Closing out a card will cause you to lose that card’s credit limit, thus lowering the amount of credit you have available.

Closing an old card could also have an impact if the card in question is one of your older accounts. Another factor that contributes to your credit score is the age of your credit. By closing out an old account, you’ll lose that boost in age.

That being said, there are scenarios where it might make sense to close a card, such as if it charges a high annual fee. Just be mindful of the potential effects it will have on your credit before moving forward.

8. Maintain a Low Credit Utilization Rate

Another key tip for responsible credit card usage is to avoid maxing out your cards. Instead, aim to keep a lower credit utilization rate — ideally below 30%. The lower you can keep this utilization rate, the better your credit score is likely to be. Some financial experts advise keeping your utilization below 10% of your limit.


💡 Quick Tip: Aim to keep your credit utilization — the percentage of your total available credit that you’re using at any given time — below 30% (or lower). This could help you to maintain a strong credit score.

9. Avoid Unnecessary Fees

Another part of using a credit card responsibly is being aware of all of the fees you could face, and then taking steps to steer clear of those costs. Your credit card terms and conditions will spell out all of the fees associated with your card, as well as the credit card’s APR (or annual percentage rate) and the rules of its rewards program.

Many credit card fees are pretty easy to avoid. For instance, if you’ll incur a fee to send money with a credit card, simply avoid doing that and look for an alternative route. Similarly, you can avoid late payment fees by making on-time payments, and over-the-limit fees by not maxing out your credit card.

10. Avoid Applying for Too Many Cards

As you get into the swing of things with using your credit card, you may feel tempted to keep acquiring new cards, whether to keep on earning rewards or to capitalize on enticing welcome bonuses. But proceed with caution when it comes to applying for credit cards.

Applying for credit cards too frequently can raise a red flag for lenders, as it may suggest that you’re overextending yourself and desperate for funding. Plus, each time you submit an application for a credit card, this will trigger a hard inquiry, which can ding your credit score temporarily. Consider waiting at least six months between credit card applications.

The Takeaway

When used responsibly, credit cards can be helpful for a whole slew of things, from making online purchases to helping to build your credit. The key phrase to keep in mind is “when used responsibly.” To stay on top of your credit cards, tips like signing up for automatic payments, watching your utilization ratio, making the most of the rewards programming, and using the right type of credit card for your needs are all important.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

What are tips for effective credit card use?

Some ways to use credit effectively include paying your bill in full each month, never missing a payment due date, keeping your credit utilization low, and maximizing available rewards and perks.

What is the 2 3 4 rule for credit cards?

What is known as the 2 3 4 rule for credit cards refers to how a person should apply for new cards. This guideline says that the limits are typically for no more than two cards in 30 days, three cards in 90 days, and 4 cards in 120 days. If you go over those numbers, the credit bureaus may think that you are seeking too much credit.

What is the #1 rule of credit cards?

The top rule for credit cards and responsible usage is to always pay your balance in full and on time. This will allow you to avoid high-interest credit card debt.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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Buying homeowners insurance involves a few simple steps that ensure you’re purchasing a policy tailored to your needs. By investing a little time, you’ll be rewarded with coverage that protects your home and your belongings at the right price. This holds true whether you’re buying a house and insurance for the first time or shopping around for a better rate.

Insurance can be tricky, and many policies have a flurry of exceptions when it comes to what’s covered and what isn’t. Having an insurance policy with certain kinds of exceptions can wind up costing you hundreds of dollars for coverage that might fall short when it’s needed.

Fortunately, you can avoid that scenario. Here, we’ll walk you through how to buy homeowners insurance as well as offer some tips on how to find the best rate on your policy this year.

5 Steps to Shopping for Homeowners Insurance

When shopping for homeowners insurance, it’s a good idea to compare similar policies. You want to be sure you’re reviewing what different insurers charge for policies with almost identical coverage.

You’ll also want to shop around to get the best deal you can. Policies from the same company can vary widely by geography, property type, and even between two different zip codes.

It’s also a smart move to compare some intangibles, such as a company’s reputation for customer service and claims satisfaction. They can have a big impact when it comes time to file a claim.

Now, let’s walk through the steps of how to shop for homeowners insurance.

Step 1: Decide How Much Coverage You Need

When deciding how much homeowners insurance coverage you need, you’ll want to make sure that you have enough coverage to replace your most important belongings; rebuild your house in the event it’s destroyed; and cover any liability for injuries that might occur on your property. Your policy will be there in case a fire, storm, or crime causes a loss.

In industry terms, homeowners insurance coverage for the aforementioned events is typically broken into four categories:

•   Personal property coverage: Insures against losses to personal property — including furniture, clothing and electronics — in the event of a covered incident.

•   Dwelling coverage: Covers the repair or replacement of your property and any attached structures, like a garage, fence, or any sheds.

•   Liability coverage: Protects against any medical or legal expenses that you may be liable for as a result of injuries that occurred on your property.

•   Additional living expense coverage (ALE or Loss of use coverage): Pays for temporary housing and related costs in the event you’re displaced from your home due to a covered loss.

Each of the coverages listed above are subject to their own insurance limits. These are calculated based on both the insurers’ proprietary formulas and the amount coverage you choose to purchase. Here’s a closer look at each kind of coverage and how much you might want to buy.

Personal Property Coverage

Just as the name suggests, personal property coverage covers the cost of any personal property that you would need replaced in the event of a covered loss. This can include all the contents of your home, including furniture, electronics, kitchenware, and jewelry.

Generally, you’ll want enough personal property coverage to cover the cost of replacing all of your important belongings. To help you calculate how much this might cost, create a written inventory of all your major belongings and their cost. This allows you to better estimate how much personal property coverage you need and gives your insurer a reference point for how much insurance you might need. You might even consider doing a video inventory to keep track of your property.

Bear in mind that not all items are covered under your home insurance policy. For example, any vehicles damaged while housed in your garage should be covered under your auto insurance. Additionally, rare and high-value items, like art, fine jewelry, and antiques, may be subject to value caps under your policy and may require separate/supplemental insurance policies for full coverage.

Recommended: Should I Sell My House Now or Wait?

Dwelling Coverage

Dwelling coverage covers the cost to repair or rebuild the building on your property, in addition to any attached structures, like garages, balconies, or fences. When you think about the dollar amount here, you probably want to be prepared for the worst-case scenario of totally rebuilding your home. Though rare, this kind of catastrophic incident can happen.

Liability Coverage

Liability coverage helps shield you from lawsuits in the event you’re found liable for any accidents that occur on your property. These can range from slips and falls to any damage caused by falling trees from your property.

Generally, the more assets you have, the more liability insurance you’ll want to purchase. However, liability coverage will only pay out to a set dollar limit as listed on your policy, with you responsible for any balance. If you’re looking for added liability coverage, you may want to look into a personal umbrella policy.

Additional Living Expense Coverage

Additional living expense coverage, or loss of use coverage, pays for reasonable housing and living costs if you’re displaced for an extended period due to a covered event. Imagine that a storm sent a tree branch crashing through your roof and your bedrooms became uninhabitable. That’s the kind of situation that would lead you to move out and tap what’s sometimes called ALE coverage.

Typically, your loss of use coverage will encompass a fixed percentage of your dwelling coverage. Larger families may wish to opt for more coverage if your weekly living expenses are particularly burdensome.

Learn the Difference Between ACV, RCV, and GRC Coverage

Once you have some ballpark numbers in mind for the amount of coverage you need, you also need to decide what kind of coverage you want in terms of potential payout. There are three terms to know — ACV, RCV, and GRC — and these will impact how claim amounts are determined as well as your premiums.

•   Actual Cash Value (ACV): Typically the cheapest option, ACV calculates your home and property’s value based on its current market value minus depreciation. Depreciation occurs naturally over time. Let’s say you had a 10-year-old refrigerator that had cost $1,000 when you bought it. After 10 years, its “cash value” might be, say, $100, so that is what ACV would reimburse you if it were destroyed during a covered event. This would not enable you to go out and buy a similar unit.

•   Replacement Cost Value (RCV): This policy is more expensive. In the event of loss, it insures your home for the cost it takes to rebuild it like new and replace the items in it at their full cost. Unlike actual cash value, RCV does not factor in depreciation.

•   Guaranteed Replacement Cost (GRC): The most expensive policy of the bunch, this policy insures your home and property for its replacement cost value plus a certain percentage over that amount, which can help protect against inflation.

Step 2: Verify Details About Your Home

Before an insurer can give you a quote, you’ll need to provide them with details about you and your home so they can accurately price your home insurance policy.

Keep in mind that insurance agents will take steps to verify the accuracy of this information, so be sure to answer to the best of your ability. Here are some of the most commonly requested details:

•   Property size and foundation

•   Roof type, material, and age

•   Age of structure and building materials

•   Age and type of electrical, plumbing, and heating system

•   Presence of any adjacent structures, pools, fences, etc.

•   Presence and number of pets

•   Intended use of property (rental, secondary, or primary home)

You can ask your real estate agent to forward you this information or obtain it from publicly available sources. Often, many of these details can be found in your home inspection and appraisal reports. Remember to disclose any improvements or renovations that have been made over time.

Step 3: Consider Whether You Need Added Coverage

A typical homeowners policy goes a long way towards protecting you from damage to or loss of your home and property. But it doesn’t cover everything. Acquaint yourself with these details and decide if you want additional coverage.

According to FEMA, a common myth among many Americans is that homeowners insurance covers flooding. However, in most cases, it does not.

In fact, here’s a list of common events that are often not covered under most home insurance:

•   Floods

•   Earthquakes

•   Sinkholes

•   Water and sewer backup

It’s important to review your insurance policy for any exceptions or issues not mentioned that you may want covered. You may be able to purchase additional insurance coverage for the above-mentioned issues as part of a separate policy, or what’s known as an endorsement, on your existing home insurance policy.

Also remember that personal property coverage often has a reimbursement cap on valuable items, which may limit the recoverable amount on certain rare or valuable goods. If you inherited valuable artwork or saved like crazy to afford a luxury watch, you may want to purchase additional endorsements for these.

Recommended: What Does Homeowners Insurance Cover?

Step 4: Take Advantage of Any Discounts Your Insurer Offers

Before finalizing your policy, check with the insurer about any discounts they offer and how many you might qualify for.

These can take them form of bundling discounts, which reward you for purchasing other policies (e.g. auto and life) through the same insurer; retention discounts which reward you for staying with a single insurer for an extended period of time; and even safety discounts, which reduce your premiums based on various improvements that you make to your home (e.g. adding a security system).

Each insurer has its own batch of discounts that you may be eligible for. Make sure to check with each potential policy provider to confirm that you’re getting the best deal possible.

Recommended: How Much Is Homeowners Insurance?

Step 5: Finalize Your Policy and Figure Out Your Payments

Now that you’ve selected the coverage you want, at the price you want, it’s time to put the finishing touches on your homeowners insurance policy.

First, you’ll want to set your insurance policy deductible, which is the amount you agree to be personally responsible for before the insurance company pays out on any claims. This is similar to a copay on a health insurance plan and is charged on a per-claim basis.

Generally, higher deductibles lead to lower insurance premiums, because they transfer some of the financial burden of paying for claims from the insurer to you.

While you will end up paying more out of pocket when you need to file a claim, this can be a smart financial decision for newer homes and low-risk areas. Of course, this option will only make sense for you though if you are confident you can cover that deductible in an emergency.

Second, you’ll need to decide how you wish to pay your insurance premiums. Policies are typically written on an annual basis and can be paid on a monthly or quarterly basis, or even in one lump sum. Some insurers offer added discounts if you decide to pay the entire amount upfront.

Finally, you’ll need to set the date on which your policy takes effect. Generally, this should be the same day you take possession of the property if you’re buying a new home. If you’re switching insurance providers, it should coincide with the end date of the previous policy, without any lapse in coverage.

The Takeaway

Buying the right homeowners insurance ensures that your home is protected if disaster ever strikes. That said, shopping for a policy can feel overwhelming at first since there are a lot of new terms to be learned, figures to calculate, and decisions to be made.

As you gather the information and quotes you need to make your choice, you’ll be rewarded with a policy that suits your needs, is priced just right, and can give you peace of mind.

Recommended: Homeowners Insurance Resources: A Comprehensive Guide to Homeowners Insurance

If you’re a new homebuyer, SoFi Protect can help you look into your insurance options. SoFi and Lemonade offer homeowners insurance that requires no brokers and no paperwork. Secure the coverage that works best for you and your home.

Photo credit: iStock/JLco – Julia Amaral

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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If you swipe and tap with your credit card from that morning latte to a late-night movie download, you may appreciate how a rewards credit card can help make those expenditures pay off. Rewards credit cards work by paying the cardholder back with bonuses based on a small percentage of the amount spent. You’ll find different offers from credit card issuers in terms of how you can earn and redeem rewards, so you may want to review a variety of programs to see which ones best suit your style and needs.

In this guide, you can get a good grounding in how these programs work.

Types of Credit Card Rewards

What exactly credit card rewards are depends on the type of rewards your specific credit card pays out. The credits earned for making purchases can come in the form of cash back, points, or airline miles.

By reviewing the options below, you can better understand what kind of rewards might suit you best. This can help you get ready to apply for a new credit card.

Cash Back

For cash back rewards cards, reward earnings are based on a percentage of the amount charged to the card. The rate of earnings can typically range from 1% to 5%. In some cases, you’ll earn a higher rate for an introductory period or on a particular category of spending for a specific period of time.

Calculating what the rewards rate equals as money back can be simple for cash rewards: Just apply the cash-back percentage to total spending on the card.

•   Example: If you had a credit card that offered 2% cash back on all purchases, you’d earn $2 back for every $100 you spent using your card.

In some cases, cardholders will earn a flat rate across all purchases made with the card. But a rewards credit card may offer tiered earnings, as briefly noted above. This means the percentage back will vary depending on the category of purchases or the total amount spent during the year.

Recommended: What Is a Charge Card?

Travel Miles

As the name suggests, this type of rewards credit card allows you to earn airline miles in exchange for your spending responsibly with a credit card. You can either get a card affiliated with a specific airline or a more general travel rewards credit card.

It’s possible to earn a fixed rate of miles for every dollar spent, or you might earn more miles through spending in certain categories.

•   For instance, you might earn a mile per every dollar spent. Or you could get one mile per $1 in all purchase categories with the exception of travel costs, where you’d earn three miles per every dollar spent.

While they’re called miles, these rewards don’t necessarily translate to airline miles traveled. Rather, you typically redeem the miles you’ve earned to help cover the cost of flights or other travel-related expenses, such as hotel stays.

Unlike cash back rewards, where the value is pretty straightforward, the valuation of airline miles can vary by card. This is worth evaluating when deciding between credit card miles or cash-back rewards. The value of an airline mile can usually range from just under one cent per mile up to around two cents.

Points

Another way to earn credit card rewards is by getting a certain number of points for every dollar spent using the card. You can then redeem those points in a variety of ways, such as in the form of cash back, merchandise, travel purchases, gift cards, and even events.

Credit cards that reward cardholders through credit card points will pay out a certain number of points for every dollar spent on the card. Some considerations:

•   They might offer bonus categories, where cardholders can earn more points for every dollar spent in that particular category.

•   For some cards, earned rewards points may have a set redemption value — for example, every 10,000 points might be worth $100 in flight or merchandise redemptions. However, redemption rates can depend on the type of reward you choose. For instance, there might be different points requirements for flights as opposed to merchandise.

Given these scenarios, cardholders may have to be strategic. They may want to consider the type of reward they select and the actual cost of their selections to get the best bang for their buck.

How to Optimize Credit Card Rewards

It’s clear that the returns you can earn when using a rewards credit card can vary tremendously. But in addition to choosing a rewards card with the best earnings rate, there are other ways to take maximum advantage of credit card rewards.

Find the Best Card Based on Individual Spending Habits

Some rewards cards accrue points on a flat-rate basis. This means points or miles are awarded at the same rate regardless of what an individual charges to their credit card.

Others, however, offer higher levels of earning for different spending categories. For instance:

•   Some cards may offer more points per dollar spent on groceries or gas.

•   Other rewards credit cards may provide more miles back when an individual spends on flights or hotels.

For people who tend to concentrate spending on specific categories, some cards may offer added value back. Before signing up, it’s worth taking the time to assess the different types of credit cards you may qualify for and which will be most valuable given your spending habits and the kind of rewards that would be most beneficial.

Max Out Available Promotions

Some rewards credit cards offer higher introductory earning rates, as noted above. This means you can earn more points than usual for a set amount of time or up to a specific spending threshold.

Other promotions may be offered as well, such as greater earnings during a specified time period. Enjoying credit card bonuses like these is key to making the most of credit card rewards.

For instance, you may want to time big-ticket items and other purchases to take advantage of those greater returns. One important caveat: While offers to earn more rewards certainly seem attractive, it’s wise to ensure that spending is within your budget. That’s because carrying a credit card balance may incur interest and/or penalties that can cancel out the value of any increased earnings. Avoiding interest on credit cards requires paying off your balance in full.

Be Strategic About Redemptions

Given the variability in the value of rewards points, it’s a good idea to crunch the numbers before redeeming. This is especially true because fluctuating prices and redemption promotions can help to stretch earned rewards further. And who doesn’t want to squeeze as much value as possible from their rewards?

•   Get the timing right for your needs. For example, using points to book a $200 short-haul flight may not optimize the value of your reward. But booking that same route at the last minute may be considerably more expensive. In such a case, if you have to travel ASAP, using those points may yield considerably more value.

•   You might also use points for a statement credit redemption. This means the points can be translated into cash that is applied to your credit card balance. Just keep in mind that transferring points into cash against your account balance typically does not count as a payment. You will likely still owe the minimum due.

•   Be aware that rewards programs may have redemption minimums. This could mean that, say, you need to accrue a certain dollar amount or number of points so you can use your reward. For instance, maybe you have $20 in rewards that you want to use. If your card only allows you to redeem rewards when you reach a threshold of $25 or 2,500 points available, you will be out of luck. You’ll need to earn more rewards before you can use them.

•   Also look for redemption promotions or opportunities to redeem for the highest-value choices. This can help you get the most out of a rewards credit card.

Redeeming Credit Card Rewards

Once you’ve racked up some credit card rewards, it’s time to redeem them. Here’s how:

1.    Log into your credit card app or portal. You can usually find your rewards listed somewhere on the main page, though the exact placement depends on your credit card issuer.

2.    Click on your rewards balance. You should be able to see your total available rewards, as well as your options for redemption.

3.    Choose how you want to redeem your rewards. Options for redemption may include a statement credit, a check, merchandise, gift cards, or travel, depending on your specific credit card.

4.    Move ahead with redeeming your rewards. Once you select the option to redeem your rewards, that amount will get deducted from your balance. How long it takes to receive your rewards will depend on how you chose to redeem them.

Do Credit Card Rewards Expire?

It is possible for credit card rewards to expire. However, whether your rewards will expire — and how soon their expiration date will arrive — depends on the type of credit card rewards and your credit card issuer.

•   Airline miles and hotel points often expire (though not always).

•   Points or cash back earned through your issuer’s program are less likely to expire.

•   In some cases, your rewards might even get automatically credited to your account if you forget to redeem them or haven’t used your account in a while.

Check your credit card’s terms and conditions to find out how your credit card works and what the rules are for your credit card rewards.

Once you know the details, you will likely want to stay aware of any expiration date, just as you probably pay attention to when your credit card payments are due.

The Takeaway

Getting rewards — whether in the form of cash back, points, or travel miles — when you spend money is an attractive proposition. However, when it comes to how to take advantage of credit card rewards, you’ll need to do more than just swipe your card. You’ll want to be strategic about earning and redeeming your points to get the most benefit. You’ll also likely want to make sure to max out any promotions that are available.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

How do I maximize credit card rewards?

Some ways to maximize your rewards include getting a card that aligns with the way you spend and the rewards you want, charging everything and then paying your bill in full, utilizing bonus categories, and getting sign-up bonuses.

What is the 2 3 4 rule for credit cards?

The 2 3 4 rule for credit cards refers to applying for new cards. It says that the limits are typically for no more than two cards in 30 days, three cards in 90 days, and 4 cards in 120 days. More than that can look like excessive credit seeking to the credit bureaus.

How can you get the best value out of credit card points?

To get the most value from your credit card points, it can be smart to snag any sign-up bonuses, maximize bonus category spending, and then redeem points for high-value options which can include travel or shifting your points to airline and hotel partners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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If you want your money to grow more quickly and to feel confident that you’ll reach your financial goals, there are smart ways to maximize every single dollar you earn. Yes, it will take some planning and focus, but it can have very real rewards.

A few tactics to make the most of your money involve leaning into your personal finances and recognizing the importance of financial literacy. Once you’re committed to doing that, you can take such steps and budgeting well, maximizing interest and rewards on your cash, spending smarter, and automating your savings. Learn the details here.

Making Your Money Work For you

These tips and ideas can help you put your money to work.

1. Learning How to Budget

An effective budget can help you make the most of your money, allowing you to understand where it goes so that you can feel empowered to save and spend on things that are most important to you. Here’s how to make a budget.

Layout Your Finances

An effective budget is an accurate budget. If you are starting your budget from scratch, some recommendations suggest reviewing three months’ worth of receipts, bills, etc., before moving forward. This will give you insight into your current spending habits. Then, split those expenditures into needs and wants.

A budgeting tip: The information for making your budget can be accessed by a physical copy, a spreadsheet, or using a money tracking app that can help you stay on top of your budget and expenses. See if your bank offers one, or else consider a third-party tool.

Figure Out Your Net Income

After you know how much you’ve been spending, you want to compare it to how much you earn. When making a budget, it can help to work with your take-home pay. This is the total income you earn from your job, after taking out all the required taxes, savings, and insurance payments from it. Those who are self-employed may work with different deductions than those who work a regular 9-to-5. In that case, subtract your self-employment tax (the sum of Social Security and Medicare taxes).

Using your after-tax pay can help you determine an accurate total for how much money you actually have available to spend. If you have any other income earners in your household, do factor in their income as well. Also include any investments or additional sources of income.

Plan Your Budget

Now you have to create a step-by-step plan and put it into action. One method you may want to think about is the 50/20/30 budget. This budgeting method breaks your spending and savings into the following amounts: 50% for your needs, 30% for wants, and 20% for savings and/or additional debt payments. If they need adjusting, shift the numbers to suit your plan.

Tracking multiple categories may not work for you, though. If you have trouble logging expenses in hyper-specific categories, simplify them. Overwhelming yourself will only make it harder for you to stay on target.

Review and Adjust

No matter how perfect the plan, things change. You might switch jobs, have a child, move somewhere else, or gain new needs. That’s why your budget can be flexible. When things change, change your budget to reflect those new priorities. If you have trouble fixing the plan, you may need to revisit some of the previous planning stages. Your budget and money should work for you, after all.

2. Getting Out of Debt

When you’re focused on getting out of debt, there are options to consider and steps to take.

Selecting a Debt Repayment Strategy

Here are some of the most popular debt repayment strategies to review. While these tactics encourage individuals to make additional payments on some of their debts, making the minimum payments on all debt is important.

•  The snowflake method encourages individuals to put any extra cash earned toward debt repayment. Any time there’s excess to play with, you put it towards your debt. Since that helps you pay over your monthly minimum, you’ll eventually finish off the debt. You can earmark any bonuses or tax refunds to go towards debt. Or you could earn additional money, say, by low-cost side hustles or selling items you don’t want anymore.

•  With the snowball strategy, you pay off your debts from smallest to largest, when evaluating the total amount owed. During this, you still make minimum payments on all your other debts. While it’s motivating to see some of your financial troubles disappear, this may not work for you. The snowball method ignores interest rates, which could give other debts a chance to grow.

•  The avalanche method works on the debts with the highest interest rates first, while making minimum payments on other debts. High-interest unsecured debts, like credit card balances and personal loans, can grow rapidly. Focusing on debts with the highest interest rate first could help you escape debt quickly and potentially spend less in interest overall.

3. Opening a High-Yield Savings Account

A high-yield savings account is an available option that can help you build wealth to meet your financial goals. High-yield savings accounts work similarly to traditional savings accounts but they offer a greater annual percentage yield (APY), to help your money grow faster.

While you still have to pay income taxes on that interest, these high-yield savings accounts are a great way to save money for significant, short-term expenses. You may find them most often at online banks.

4. Considering Passive Income Streams

America’s workforce is changing with the times. As the cost of living rises, many people want to find ways to increase their income. Many are turning to passive income to combat these financial hurdles.

Essentially, passive income is money that you earn without active involvement, outside of what you earn as a regular wage and salary. Instead, you put something you own to work, such as a rental property. Other examples of passive income include dividends from stock investments and royalties.

So, you still might put in some effort getting started, but not as much as your full-time job. Side hustles are one of the best ways to pad that income. You can put the extra cash flow directly towards your debt and interest, weekly necessities, or your savings.

5. Considering Investing as a Part of Your Financial Plan

Analyzing your situation and finding an acceptable amount of money to invest can help long-term. Investing can be an important part of a well-rounded financial portfolio for long-term goals such as retirement.

Investing can have the potential for a higher return on investment vs. a savings account, but the reward isn’t guaranteed. Unlike cash-based interest accounts, your portfolio balance will fluctuate with the market and isn’t covered by, say, Federal Deposit Insurance Corporation (FDIC) insurance.

Because of the risk associated with putting money into the market, some people may be hesitant to jump in, especially if they don’t fully understand how investing works. Getting a headstart on saving and investing can help you get prepared for retirement.

6. Automating Bill Pay or Automatic Savings

To avoid missing bill payments, consider autopay, or automatically withdrawing funds from your bank account or credit card to make payments. Once you set it up, you don’t have to deal with the pressure of juggling repayments. Instead, you just have to make sure there are enough funds in your account for the withdrawal.

Paying bills on time history makes up about 35% of your overall FICO® score, so enrolling in autopay could potentially have the added benefit of building your credit score.

It’s also possible to automate contributions to retirement accounts or savings accounts. This could help keep you on track for your savings goals. It allows you to pay yourself first, and getting money siphoned out of your checking account right around payday can help you steer clear of spending it.

7. Ditching the Fees

Fees charged by financial institutions can add up. Here are a few to consider avoiding:

Bank Fees

The list can include fees for account maintenance, returned deposits, foreign transactions, account minimums, replacing a lost or stolen card, making too many savings withdrawals, writing too many checks, closing an account, not using an account enough, speaking with a human, paying late, or even paying off a loan too early.

ATM Fees

At an average of $4.77 a pop, out–of-network ATM fees can add up quickly. One way to avoid paying ATM fees is to always make sure that you’re using one of your bank’s designated ATMs. However, if you’re on the road or your bank only has a few networked ATMs, that can be a challenge.

Just like bank fees, however, more and more financial institutions are offering fee-free ATM usage as part of their perks. Especially if you use an online accounts, this can add up to hundreds of dollars in savings.

Investment Fees

Paying a traditional financial advisor a percentage of your account balance to manage, monitor, and optimize your portfolio could be worth the expense, but it might not be an option that is available to everyone.

Financial advising is still a confidence-booster for the majority of investors who use it. But when advisors charge a typical fee of 0.25% to 2% a year based on your portfolio balance, your total return can be significantly impacted.

Fortunately, a growing number of competitors are offering the same types of advising service for less. Robo-advisors use algorithms to optimize portfolios, thus eliminating the overhead of live employees. Remember, though, all investments can carry risk.

8. Getting Rewarded for Spending

You also can find several ways to get rewarded for spending, such as retailer loyalty programs, coupons, or rebate apps. Cashback or reward credit cards can also be an effective way to save at your favorite store, provided you pay your statement balance in full every time it comes due.

Recommended: Savings Interest Calculator

The Takeaway

Moves like effective budgeting, opening a high-yield bank account, paying off debt, establishing a passive income stream, and investing can help you make the most of your money.

Everyone’s financial situation is different, and what works for one person may not work for another. A bit of experimenting can be helpful, as can finding the right banking partner.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

How do I have my money work for me?

You make your money work for you by keeping it in an interest-bearing savings account (these are often found at online banks). Other ideas include investing in assets that can create value and/or income, such as real estate, stocks, bonds, and so forth.

How can I make $1,000 a month passively?

There are many ways you might make $1,000 passively. Some popular options are investing, renting out real estate, peer-to-peer lending, and earning interest on one’s money.

What is the 50-30-20 rule of money?

The 50-30-20 budget rule is a popular guideline that says, of a person’s take-home pay, 50% should go to needs, 30% to wants, and 20% to savings and/or additional debt payments.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

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