If you've ever been in credit card debt, it can be easy to believe that credit cards are evil. But, is that really true?
I would argue that credit cards are not evil – unless you use them to get into debt. It's how you choose to use your credit cards.
If you are spending money you don't have and creating debt, then you shouldn't be using credit cards. However, if you are using your credit cards responsibly and paying them off every month, they can have some benefits, including:
Credit Cards are Convenient:
Rather than having to carry cash at all times, credit cards are convenient to use. Of course, their ease of use has been what's gotten many people in trouble. It can be easy to forget that you're paying real money when you swipe your credit card.
Debit cards are also convenient, so you can always use your debit card to spend money that you already have in your bank account if you prefer not to carry cash. Even if you do carry cash, you can choose to use a debit card for specific transactions (like paying for gas at the pump so you don't have to get all of your kids out of the car to pay cash inside).
Credit Cards Protect Your Money:
If your credit card number gets stolen and there are fraudulent purchases on your account, you are not liable for any charges. I've had my credit card number stolen several times, and often it's the bank that alerts me to unusual charges and cancels my card and issues a new one. I've not had to pay any of the unauthorized charges on my account since it's up to the credit card company to pursue the issue.
You also get some protection with a debit card. Once, my business debit number was stolen, and I didn't have any problems with the bank crediting the money back to my account immediately while they were investigating the charges. But, I caught it the day after the charges were made, and it could have been a lot worse if I was counting on that money to be in my account when bills hit! So, you definitely need to be careful when using a debit card. I wouldn't suggest using it online or at a restaurant where your card leaves your sight.
On the other hand, if I were to lose my purse full of cash, it would likely be gone forever.
Credit Cards Offer Purchase Protection:
When we pay for a purchase with one of our credit cards, we get an extended warranty on our purchase as well as purchase protection in case it's damaged or stolen in the first 90 days.. Plus, out card also offers additional benefits like car rental insurance. We pay a bit extra when we rent a car so that we don't have to buy rental insurance. The extra credit card insurance paid off when we rented a car one Christmas and hit a bit of metal that scraped the side of the car. Our credit card insurance both handled the claim for us and made all payments to the rental car company for the damage.
Credit cards also offer additional protection from scams, travel insurance, etc. You need to check the fine print of your card to see what it covers.
You can Earn Rewards with Your Credit Card:
Now, I certainly don't advocate making a purchase using a credit card just because you're getting a reward (and no reward is worth paying interest on a balance), but you can earn rewards when you use a credit card.
We actually have two cards – one where we earn money for my boys' college (through Upromise) and the other where we earn cash-back in our pocket each year. Other cards offer rewards like points or miles that you can apply towards vacations, etc.. However, we make sure that we pay our balance in full each month on all purchases.
Some Warnings about Credit Cards:
Before you open a credit card account, you need to think carefully. Do you have the will power to only make planned purchases with saved money so you can pay your credit card bill off in full each month? Otherwise, you'll incur interest charges (as well as debt).
Some people also argue that you spend more money when you use a credit card vs. cash because it's more painful to spend cash vs. swiping a card. If you have a hard time staying on a budget and can't carefully track your spending throughout the month (we use Quicken), then a credit card is likely not for you. It can be easier to keep track of your budgeted spending if you use cash envelopes.
What about you? Do you use all-cash, debit cards, credit cards, or a mixture of both?