The advantages of credit cards are hardly known. It's no wonder why so many financial pundits hate them. I believe it's because people don't know the proper use of credit cards. Fortunately, you're about to learn some benefits.
The love for our credit cards didn't start early. I remember in college, whenever my friends and I would hang out, they'd throw down their plastic to pay for everything. But after the fun was over, I'd hear horror stories of increasing balances. (My friends may still be paying for the drinks they bought me.)
This behavior of many people has driven them to denounce the existence of plastic money. Dave Ramsey, a financial guru in many eyes, believes that the advantages of credit cards are non-existent. He thinks:
These definitive statements stop you from thinking. But if we're trying to be different, then let's think differently. Let's question to explore the benefits of credit cards.
|Lazy Thoughts||Engaging Questions|
|They destroy your budget.||Could they help me budget?|
|The rebates are useless.||Could I utilize the rebates?|
|Only use debit cards.||Why not use a credit card instead?|
|There is no reason to have them.||Is there a good reason to have them?|
|They are targets for identity theft.||Are there ways to prevent identity theft?|
A lot of companies allow you to break down your statements online. You'll be able to see where you are spending your money. Our American Express Blue Cash Card allows us to view the spending categories of Travel, Restaurant, Merchandise, Auto, Other Merchants, and Fees and Adjustments.
One time we were looking at our account and noticed our cell phone bill was roughly the same for the past few months. It triggered us to call the company and we dropped down to a lower plan since we were not using a lot of minutes.
With relative ease, you can get a big picture of where you are spending your money and if it's time to adjust your budget (or implement these money saving ideas). There are free budgeting tools available to help you, like our Personal Budget Tracker..
Could I utilize the rebates?
This is one of my favorite advantages of credit cards.
When I was with my first company, I travelled in and out of New York on the client's dollar. I applied for an AAdvantage Credit Card and a Hilton HHonors Credit Card. For every dollar I spent on my AAdvantage card, I received one point towards free flights. Whenever I booked a Hilton hotel room with my Hilton card, I received five points per dollar towards free stays.
For our week honeymoon in Hawaii, our flight was 100% paid for by points and our hotel stay was 50% paid for by points. I still had a lot of points to last us a few years. Those points were totally free to me because I was ultimately reimbursed by the client or my company. That's a good enough reason for me to have credit cards.
Now, we use our American Express Blue Cash card, the best cash back credit card in my opinion. We get 5% cash back on everyday types of purchases like groceries and gas. Now, does paying for gas with my card make me drive more? No. But I'm using it to recapture dollars that I would have paid with cash otherwise.
Why not use a credit card instead?
Dave says if he has to, he only uses a debit card (i.e. for travel). I'm not sure how that feels any different, only the fact that you immediately spend your money. But now you'd have to worry about how much is in your bank account. Ever been charged an overdraft fee?
And have you ever experienced this: You want to withdraw money using your debit card. You can't find your bank ATM. Now you've just got double charged by the ATM bank and your bank for pulling out your money. To me, a debit card is fine...but a credit card can offer so much more.
Is there a good reason to have them?
I know one good reason: emergency. You may be in a situation where plastic is your only option for payment. You may not have a bank or an ATM from which you can withdraw money. There are even merchants that won't accept personal checks.
One of the advantages of credit cards is that they are accepted almost everywhere (even pre paid credit cards with the VISA, MasterCard, and American Express logos). Consider having one just in case you need it. It's always better to be prepared and not need it, than need it, and not have one.
Could I use it for investment purposes?
This is one of the hidden advantages of credit cards.
Let's say you are presented with a great deal. You have no cash on hand and you don't have enough in your bank account. Taking out a loan would take too long and there are no hard money lenders available to you.
You can use a credit card cash advance check linked to your card. You can fill it out like a check and it can be used as funds. If you are in need for funds in a hurry, these checks are always an option.
Are there ways to prevent identity theft?
The advantages of credit cards are plenty, but they can be an easy target for identity theft. However, there are strategies you can put in place to protect yourself.
See our Identity Theft Prevention 3 part series:
You can start off by making photo copies of the credit cards in your wallet (both sides). Keep those copies in a safe place.
If you so happen to lose your cards, you have a resource to call the credit card companies and quickly close your accounts.
Also, instead of signing the back of your cards with your signature, sign "ID REQUIRED".
For more identity theft prevention strategies and resources, see our 3 part series on the right.
Another one of my favorite advantages of credit cards is that I don't have to carry a wad of cash everywhere with me. It's probably been months since I've paid cash for anything. It's convenient and I think it's safer as well. When you lose cash, or someone takes it, it's gone. But if you lose your card, which I have done, you can cancel it.
The problem people encounter with plastic money is not the card itself, it is their lack of control. Learn to control your spending. Because if you can't, it doesn't matter if it's plastic, metal, or paper...you'll squander it.
We understand the benefits of credit cards. We've been using plastic for years. Now, it's up to you to learn the proper use of credit cards.
Don't try to beat the credit card companies. Just use them as a resource.
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