Simply put, there are certain times when it is to your distinct advantage to use a credit card, just as there are certain times when it is to your advantage to use cash. Knowing which payment method to use at the proper time can save you money and frustration.
Advantages of Credit Cards
- Online Shopping – Instead of using your debit card, or authorizing a direct withdrawal from your checking or savings account, using a credit card to shop online offers a layer of protection between the online vendor and your checking or savings account. And, with instances of online theft rising, you can never be too careful with online purchases!
- Carry Less Cash - You can avoid carrying large amounts of cash simply by using your credit card. Obviously, if you carry less cash, in the event that your wallet is lost or stolen, it’s infinitely easier to cancel a credit card than it is to recover or replace lost currency. Plus, you’ll have a record of your expenses, whether those expenses are for personal or business expenses.
- Travel – Most airlines, hotels, and car rental agencies no longer accept cash purchases, instead requiring credit card reservations, payments, and even authorizations for security deposits, and such.
- Purchase Protection – Many credit cards offer you additional purchase protection, and even insurance, if the goods purchased with your card are lost, stolen, or damaged within a certain amount of time. This additional protection can even extend will beyond the manufacturer’s warranty on an item. Even if you lose the receipt, your credit card statement will vouch for the original purchase, and you’ll still be covered!
- Emergencies - Let’s face it, there are times when your car breaks down, you have to make a trip to the emergency room, or something unexpected comes up, and you just don’t have the cash to cover it! These kinds of emergencies can literally ruin your budget or drain your savings account unless you have a ready source of emergency credit (like your credit card) at your disposal.
- Cash Back (and other) Rewards Programs – Used wisely, a credit card that offers cash back, travel discounts, or other rewards can actually save you a lot of money. These types of cards typically offer anywhere from 1%-5% cashback (or points) on purchases you make with the card. Provided you pay the card off every month, over the course of a year, many people can benefit substantially from these types of credit card rewards.
- Building Your Credit Score – One of the quickest, easiest ways to build a credit score, or even to rebuild a credit score, is to simply get a credit card and demonstrate a pattern of responsible use (making careful purchases, and then paying your payments on time, every time). This pattern of responsible use is then reported to the major credit bureaus, which over time, will help build or even rebuild your credit score, thus enabling you to qualify not only for other credit cards, but also for car loans, home loans, apartment rentals, and can even affect your employment opportunities.
Disadvantages of Credit Cards
- Impulse Buying – Because credit cards can seem like “free money,” some people can and do spend foolishly, racking up $500 or $1,000 in credit card debt, simply because they have the credit available. Unfortunately, you will have to pay it off, and the longer it takes to pay it off, the more you will end up paying for those original purchases.
- High Interest Rates – Even those with the best credit ratings still end up paying anywhere from 5% to 15% interest, and those with less than perfect credit will often pay much more than that, so make certain that you either pay your credit card bill in full every month, or in the event that you are using it for an emergency expense, pay it off as quickly as possible.
- Credit Card Fraud – Just like cash, credit cards and credit card numbers can and do get stolen. The good news is, if you realize your credit card has been stolen, and you report it immediately, you will not be liable for purchases made by someone else. Even if you don’t realize it immediately, you’ll only be liable for a small amount, usually around $50, even if the the thief has charged thousands of dollars on your credit card.
