8 reasons to use a credit card
Credit cards can be a benefit, as long as you use them responsibly and pay off your balance in full each month.
This guest post comes from Ron Haynes at The Wisdom Journal.
Over the past three years I've spent a lot of time and energy on The Wisdom Journal writing about the dangers of irresponsible credit card use. I fought many personal battles with those little pieces of plastic and, while I'm still wary (with good reason), I know that credit CAN be used responsibly.
In many cases, you may actually be better off paying with credit over debit. There are a lot of ways that a credit card comes out on top.Post continues after video.
Cash-back programs. If you sign up for the right card, you can earn anywhere from 1% to 5% back on your purchases.
Frequent-flier miles. Virtually every airline has at least one credit card. Cardholders can rack up frequent-flier miles at varying rates. Many offer a substantial signup bonus to get you started on your way to a free airline ticket.
Points for whatever. Many card rewards work on a point system where you earn points per dollar spent. When you reach a certain point threshold, you can redeem your points for gifts, travel, hotels, or something from their catalog.
Safety. Paying with a credit card can make it easier to avoid fraud. When your debit card is used fraudulently, the money is missing from your account instantly and it may take a while to get it back. Any scheduled payments or checks may bounce, causing NSFs and making your creditors (and you) very unhappy.
If your credit card is used fraudulently, you won't be out any cash. You just notify your credit card company of the fraud and the credit card company resolves it.
Holding on to cash. When you make a purchase with your debit card, your money is gone instantly. When you make a credit card purchase, your money stays in your checking account until you pay your credit card bill (hopefully in full). There are two advantages:
- If you pay your credit card from an interest-bearing checking account and earn interest on your money during the grace period, the extra interest is yours to keep.
- When you pay with your card, you don't have to watch your bank account every day to make sure you're not overdrawn.
Insurance. Most credit cards automatically come with a host of consumer protections that you may not realize you have, such as rental car insurance, travel insurance, and product warranties that may exceed the manufacturer's warranty.
Easier acceptance. Despite television and radio guru claims, certain purchases ARE more difficult to make with a debit card. Try renting a car or booking a hotel room and you'll almost always have an easier time with a credit card.
Rental car and hotel companies prefer credit cards because it's easier to charge customers for damage to a car or a room with a credit card. Using a debit card may result in the company putting a hold of several hundred dollars against your checking account to cover those just-in-case events.
Also, when you're traveling in a foreign country, many merchants won't accept your debit card, even when it has a bank or credit card company logo on it.
Building credit. If you're trying to improve your credit score, using a credit card responsibly will help because credit issuers report your payment activity to the credit bureaus. Debit card use doesn't appear anywhere on your credit report.
Not everything is rainbows, unicorns, butterflies and sunshine in credit card land. There's the potential for late fees and other fees, and also interest charges if you don't pay your balance in full each month. Many of us abuse them and end up in high-interest debt, then fight for years to get out of it.
But if you can manage yourself and use your card responsibly -- i.e., like an adult! -- there are a lot of benefits to using your credit card.
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Mitch Lipka has been warning people about scams and shining light on questionable business practices for more than 20 years. Mitch, the consumer columnist for The Boston Globe, has also been a reporter and editor at The Philadelphia Inquirer, Consumer Reports, South Florida Sun-Sentinel and AOL. He won the 2010 New York Press Club award for best consumer reporting online and was honored in 2011 for his reporting on child product safety.
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