Credit cards are the topic where everyone has an extreme opinion. Either they're a free travel hack or they're evil and you should cut them all up. Alex's take is neither. A credit card is a tool, and the tool isn't good or bad on its own. What matters is how you're using it, and I am living proof that you can use one very badly for a very long time.

The Solution

The four types of credit card users. The credit card company's favorite customer, who carries a balance and pays minimums. The rewards optimizer, who pays in full and uses the card strategically. The avoider, who usually got there by clawing out of debt and is now scared of the thing. And the fourth type we added mid-episode, which is me: pays it off, but has no idea what benefits the card even has.

How credit card companies actually make money. Interest, annual fees, late fees, and interchange fees paid by merchants. That last one is where your rewards come from. If you're paying 25 percent interest to earn 2 percent cash back, you are not beating the credit card company.

The biggest mistakes. Carrying a balance to "build credit," which does not work. Paying only the minimum, which your statement will tell you takes anywhere from five to fifteen years. Buying things you can't afford yet. Opening too many cards. And doing a balance transfer without changing the behavior, which can leave you back charged for all the interest you thought you skipped.

The four rules if you're using them well. Pay the full balance, not just the statement balance. Treat the card like a debit card, so if you have $500 in checking you have $500 to spend, not your $5,000 limit. Set up autopay. Know your due date and review your spending monthly.

Should you cancel old cards? Audit them first. Check for annual fees, how old the account is, whether you actually use the benefits, and what canceling would do to your credit utilization. And ask about a downgrade option before you close anything, because most companies would rather keep you than lose you.

How to maximize rewards without wrecking yourself. Pick a card that matches spending you already do. Never manufacture spending to hit a welcome bonus. Actually redeem your points. Alex parks her cash back in a high yield account earning three and a half percent, and she and Derek are sitting on about $6,000 in points earmarked for a cold plunge and a sauna, which is a choice.

This week's homework

Pull up one card. Look at your total spending, the rewards you earned, the interest you paid, and the annual fee. Then answer one question: am I making money from this card, or is this card making money from me?

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