I keep hearing from my friends and reading from a lot of articles that we should avoid using credit cards. Most of them suggest that use of credit card essentially means using money which you don’t have. Credit cards incite you and encourage your spending behavior. They make you careless about your lifestyle and finances. Before you realize you will be falling down the credit card debt spiral.
I do agree to most part, however I do have few reasons on why to use credit cards and how to use them. By being more efficient in using them and learning to control your habits, you can bring them on your side. Credit cards can then not only help you get a better credit score but sometimes also help you achieve some financial and personal goals.
Here are some of the reasons you should use credit cards
Most of the credit cards today offer zero liability protection. This means if your card details are hacked (which believe me happens way more often than you think). You find unauthorized transactions, you can just call the credit card company and get those charges disputed. You will never end up paying for those fraudulent charges. Some debit cards do offer this protection. But I think it’s easier to get this processed through a credit card company. Debit card provider may take a lot of time and leave you without some cold hard cash in the moment.
Fee free foreign currency Transactions
When you travel outside US, you need some form of payment. You can withdraw money from local ATM or maybe carry cash to the country by changing it at a bank. That works if you are visiting a country where primary form of payments is cash. But downside is you get hit by bad transfer rates and fees especially at ATM’s. They are notorious for this. Credit cards again come to the rescue by providing fee free transactions in foreign currencies at almost little to no extra cost. Usually banks that provide credit cards add a very-very small commission rate on top of the prevalent exchange rate between your card currency and the foreign currency. You always come ahead as compared to if you withdrew cash at ATM. One thing to remember is to always ask the merchant/cashier when traveling to charge your credit card in local currency.
Credit card companies earn money on transactions by taking a cut from the vendor when you swipe your card. They then offer you a fixed or variable amount of rewards in form of cashback or points. There is a whole world of information out there that deals with cards to maximize these rewards. I will probably not go into details of that here. But I can tell you using these rewards I have not bought a flight ticket out of my own money in the last 3 years. Just by making use of credit card rewards systems. I have been to many places domestically, internationally without having to pay anything out of my pocket. Shopkeepers usually markup and charge all customers extra in order to compensate for the 2-4 % cut of every transaction that the credit card company charges them. If you are not using a credit card and earning the cash back. You are just using your debit card/cash to pay for someone’s processing fee and not getting any rewards in return!
Purchase protection/Extended warranties
Many credit cards now come with purchase protection and extended warranties for most of the electronics you buy. These features have helped me get out of pickle many times now. I have bought smartphones from some companies that have just randomly stopped working after 13 months. I found myself out of warranty with the manufacturer (and believe me this was a very big company). They refused to help me since I was out of the standard warranty. Luckily I bought this phone using a credit card which provided extended warranty. All I had to do was just ask the manufacturer for an estimate and send that estimate to the credit card company. They reimbursed me that amount and my phone got fixed. I think this is a very big advantage and I highly suggest readers to use credit cards to purchase electronics. Companies are practicing planned obsolescence to force you into buying more and make profits.
Rental Car Insurance
A lot of credit cards come with collision coverage for when you rent a vehicle on a trip. You need to make sure that the coverage your credit card offers is primary. This will come into effect without going through your own car insurance. Many cards offer this. I think this is an excellent advantage for people who travel a lot. I will write a detailed article on this later.
Better organize finances!
When you pay by debit cards or cash, you pay then and there. Money is gone from your account instantly. When you pay using credit cards, you pay the credit card company on or before your payment date. But the transaction may have taken place 20-30 days before you made the payment. How to take advantage of this? You can ask your credit card provider to change your payment dates, so that you pay your credit card bills after you get paid from work. You can then organize your purchases on different cards with different payment dates. If you get paid twice in a month then it becomes even more easier because you can put your next purchase on a card that always has a later payment date!
This is probably the most basic features of credit cards. If you are young, starting out on a job and no credit history. Credit cards usually help to build credit history real fast. You must obviously utilize your card very carefully. Always pay of balance in full before due date. Never carry any leftover balance. Try to clear the balance even before it hits your statement to take your utilization lower. Eventually this helps you in getting better interest rates when you go out to shop for cars house and whatever!
So, with all this in mind, I do highly request readers to use credit cards. Before you go though, I would like to also write up a short note on self-control. I do believe credit cards encourages spending and makes it easier. However, we all must exercise self-control. I can only go as far as to give you tips on why to use credit cards. Maybe even how to become better in managing your money and growing it further. All of these steps require you to exercise control over your temptations which at the end of the day are the exact things keeping you from becoming financially independent and allow you to pursue other goals which bring you more happiness!