Credit cards are arguably one of the most hot-button topics of personal finance and receive tons of negative attention. Numerous financial advisors scream to flee “evil credit cards” at all costs. Bring up some of the positives that credit cards bring? You’re just asking to stir up controversy. So while this differing opinion may be unpopular to some, hear me out.
Dave Ramsey, one of the most well-respected financial advisors in the country who has helped millions of people, believes that you should cut up all your credit cards immediately and should never use one under any circumstances. He feels there’s no possible way to use a credit card responsibly. This is severely oversimplifying the issue. While I’m not advocating toeing the line of falling helplessly into debt, there are plenty of positives to be gained from responsible credit card use.
Like many other things in life, moderation is key. Credit cards can be a useful tool when they are used correctly. Abusing them can be similar to overeating, drinking too much alcohol, injuring yourself with power tools, driving a car, etc. In moderation and/or used properly, these things can be perfectly harmless, but end up becoming unsafe when not used with care.
Some people have an irrational fear of credit cards, even going as far as believing they’re evil. Using a credit card responsibly takes some due diligence, so if you can’t be disciplined it is better to avoid them altogether. Many Americans are struggling with huge amounts of credit card debt, but why blame the tool for the user’s mistakes? Most of the time it is a case of consumers overspending for possessions they can’t afford. A simple rule of thumb is to only use your credit card for purchases that you would be making anyways.
Bottom line, if you can’t be disciplined to pay off your balance in full each month and will be tempted to overspend with money you don’t have, then credit cards are NOT a good option for you. However, with a level of financial responsibility, it is completely possible to utilize a credit card without getting into debt.
Check your statements regularly to make sure all the charges are correct and that there are no hidden fees, and be sure to pay off your balance in full each month. This way you’re utilizing the positive aspects of a credit card and avoiding paying any interest.
1. Convenience: Rather than carrying cash around everywhere, it just takes a quick swipe of your card to pay and then be on your way.
2. Safety: If you lose your wallet, call up your credit card company and cancel the card. Also, if you’re charged too much or wrongly charged you can easily have it corrected without going long periods of time missing the funds. For example, say you bought something online for $50 and were sent a damaged product. If you paid with a credit card, you can call up the company and dispute the charge, easy as that. You’d be under no obligation to pay for the item, until after the credit card company conducted an investigation on your behalf. If you paid with a debit card you’d be without the funds while having to deal with the hassle of trying to get a refund issued from the company yourself, no fun.
This principle can be applied to theft as well. If someone gets ahold of your debit card they could clean out your account and leave you in dire shape as you scramble to try to get your money back. With a credit card you just identify the fraudulent charges and you’re set.
3. Easy to Track Spending: Each month you’re issued a statement listing all your purchases. This makes it very easy to check for fraudulent charges, as well as knowing exactly where your money is going. With cash, you’re stuck with saving receipts or having no idea where the money went. Some cards even provide yearly summaries, which can be very helpful when the time comes to pay your taxes. Connect your card to a financial app such as Mint.com for an even more convenient way to track and categorize all your expenses.
4. Rewards: Easily the most well known perk about credit cards is the ability to receive rewards on the purchases you make. These can be in the form of cashback, redeemable points, or travel miles. The important distinction to make is to not spend money FOR the rewards. Make the same purchases you’d be making anyways, and reap the free rewards you get for those purchases.
5. Build Your Credit Score: Having a credit card and making your payments on time allows you to improve your credit score over time. This is important because it can open other financial opportunities for you later on in life. A strong credit score is most commonly used for obtaining lower interest rates for auto loans and home mortgages.
All in all, a disciplined and financially responsible person can get a lot of benefit out of using credit cards. Rather than oversimplifying the issue and writing off all credit cards as “evil” it’s much better for an individual to look at their own situation. It’s important to acknowledge the potential drawbacks and use credit cards carefully. By avoiding overspending and paying off your balance in full each month you can harness the positives while avoiding going into debt and paying any interest.