This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Why the rich use credit cards

On the surface, the rich appear to have little use for credit cards. After all, they have plenty of cash, and it's probably accessible through a debit card that can be used anywhere a credit card can. But for a variety of reasons, some wealthy consumers turn to their credit cards on a daily basis.

"My wife and I have credit cards and use them all the time," says Mark VandeVelde, a certified financial planner and wealth partner with Hefty Wealth Partners in Auburn, Ind.

He says credit card use isn't about making ends meet. It's about leveraging a financial tool that can make life a little easier. Here are four reasons affluent consumers leave their cash in the bank and use a credit card instead.

1. Fewer hassles

For couples with joint finances, such as VandeVelde and his wife, using credit cards simplifies their money management.

"It's really easy," he explains. "I don't have to worry about what my wife has spent. We don't have to coordinate."

Instead, they receive a bill that includes all their expenses and pay that off each month. There are no endless debits to record or checking account register to balance, though as with other spending methods, there is no substitute for a well-designed budget -- even for the rich.

2. Streamlined tracking

Similarly, using a credit card across purchases makes it easy to see where money is going each month.

"The main reason we use credit cards instead of cash is because it's easier to keep track of what we have purchased," says Stacey Glaesmann, who lives near Houston and says her combined household income is near $500,000. "It's just more convenient than keeping a bunch of receipts to know exactly what we bought and from whom."

Not only do cardholders have access to monthly statements, some card issuers now provide annual reports that neatly categorize spending. Those reports can come in handy at tax time.

"It's so much easier when it comes to filing taxes at the end of the year," says actor and comedian Jim Dailakis, whose television credits include work on NBC, Country Music Television and VH1, according to his website. "I can see every single purchase that was made, and the fact that they categorize everything saves headaches for my accountant and for me."

3. Rewards

Credit card rewards rank highly among the reasons people with full bank accounts may prefer plastic.

"There's nothing quite like being rewarded for spending money -- in moderation of course," says Dailakis. "Recently, I received a check for my cash back rewards to the amount of $875. This wouldn't have been possible if I had used cash."

VandeVelde agrees. "We get some pretty significant rewards from our card each year. It's free money for spending my own," he says.

4. Security

Finally, some wealthy individuals prefer to use credit cards because of the security features behind most major cards.

"I feel nervous carrying around a lot of cash because if I lose it, there's no getting it back," says Glaesmann. "Plus, it can make a person a target for a robbery if someone sees you pulling out a wad of cash to pay for something and decides to follow you to your car."

In addition, credit cards limit liability in the event of fraudulent charges. Debit cards do too, but there is one important distinction: If a debit card is used for an unauthorized purchase, the account holder may be out the money until the financial institution can investigate. With a credit card, fraudulent charges won't result in a temporary depletion of the customer's bank account.

But what about credit card interest?

While the wealthy may use credit cards like everyone else, they likely differ from other cardholders in one important way: They avoid carrying a balance.

"We always pay the balance off every month so we don't accrue or pay interest," says Glaesmann.

VandeVelde says he hasn't carried a balance in 10 years. He says that interest charges of more than 5 percent can compound quickly and outweigh any benefit that rewards can provide.

"There is no point in getting rewards if you are going to pay 12 percent interest," he says, noting if his cards were ever to eliminate the grace period -- that is, the period before purchases begins to accrue interest -- he would stop using them immediately.

For those who manage their money wisely, credit cards can be a great tool for simplifying financial tracking, protecting bank accounts and earning valuable rewards. Those are perks you can love regardless of your net worth.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,279.74 +13.75 0.08%
S&P 500 2,010.40 -0.96 -0.05%
NASDAQ 4,579.7890 -13.6380 -0.30%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs