I read a lot of personal finance blogs, and one thing I hear over and over again is ďdonít use credit cardsĒ, "credit cards are evil!" or ďthey are what got you into debt in the first place.Ē I personally donít think this is the case at all. Credit cards arenít this evil entity that manipulates my life, and forces me to overspend. They arenít pushing me into debt any more than a fork is jamming pie into my pie hole, and forcing me to carry around the extra 25lbs I am currently hauling around. Like that fork, a credit card
is a tool. Nothing more, nothing less.
What makes credit cards bad is the person that uses them. Yes, you heard that right ladies and gentlemen. I am placing the blame squarely on the person using the card. Think of a credit card as wine. When used in moderation wine actually has some health benefits that can lower your risk of heart disease
(not to mention it's tasty!); however, if you drink wine in excess you can get addicted to it. Not only will it pickle your liver, it can destroy relationships with friends and family. Itís the exact same thing for credit cards. If you use and abuse your credit cards, you will head down a dark path of financial destruction. If you use them responsibly, they can provide you with many beneficial perks. What kind of perks you ask?
Credit Card Perks
- Convenience: Credit cards are accepted almost everywhere, and if you are out of the country, many donít have costly currency exchange fees. If someone steals it, or you lose it, you may only be liable for around fifty dollars of the fraudulent charges. With cash, it's just gone, with very little chance of recovery. This is the main reason I rely on credit cards when traveling.
- Cash Back: Most credit cards entice people with cash back on all purchases. This doesnít mean you should spend money for the cash back, but it can be used to your advantage. You will always need to pay for gas, groceries, and utilities. Instead of paying for these with cash or check, pay them with your credit card and earn a little cash back on them. The key is to stick to your budget, but use your cash back credit card to pay for everything on that budget. If it's NOT in your budget, you STILL donít buy it, itís that simple.
- Extended warranties: Many popular credit cards will extend the warranty of your new items for an extra year (depending on how long the factory warranty is). This comes in handy when you have to spend money on higher dollar items you need, and don't want to pay for an extended warranty you will probably never use. I have personally used this within the last two years. My old microwave failed, and I forked out a couple of hundred dollars for a new one. It only had a factory warranty of one year, but I paid for it with my AMEX card, which extended it for another year. At the 18-month mark it died. I filed a claim with American Express with all the info they needed and they credited my account within two weeks. Simple, painless, and it didn't cost me a dime out of pocket for that extended warranty.
- Building your credit score You donít ďneedĒ credit cards to build your credit score, but using them and being responsible with them will help your credit score. While this perk seems pointless, a better credit score has several very large impacts. The better your credit rating, the better interest rate you will get on a mortgage, or car loan.
Your credit score also has an impact on other necessity spending as well. Car insurance, and rental/home owners insurance companies are all now looking at your credit score. Better credit scores may change how much companies charge you for these services.
- Sign up bonuses: While many of you may disagree, when I need to make a large purchase, I always look for credit cards that offer bonuses for signing up and spending X dollars in Y days. Example: My friends had closed on a house and were looking for ways to save some cash on appliances (the house didn't come with any). I pointed them to a couple of credit card offers with decent cash sign up bonuses. One was spend $1000 in 90 days, and get 40,000 points (which can be turned into $400 cash), the other was spend $1000 in 90 days, and get a $150 cash back bonus. They applied for both the same day, spent $2100 on appliances and paid the cards off at the end of the month. After that they cashed out $550 (+3% FatWallet cash back) in bonus rewards, and canceled both cards to avoid the annual fee. Their credit rating took a 20 point hit but rebounded in around 8 months. If you have good credit, this is one perk that can literally save you hundreds!
So what have we learned today?
It all comes down to personal responsibility. Credit cards donít ruin your financial life any more than a fork causes you to gain weight, or that glass of wine turning you into a brown bag carrying drunk. However, they do take self control, and this means you will still need a budget, and you absolutely need to stick to that budget. You know that rolling a balance, or charging more than you can pay off at the end of the month is where the debt snowball starts, and should be avoided at all costs.
I will admit some people with certain personality traits should avoid credit cards. If you know you cannot be responsible when using your credit cards, then please don't take the risk. This is where I finally agree with what Dave Ramsey
said; ďcut them up, throw them away, and get a debit card, or use cash."
Have a different opinion, or just want to brag about all the perks you get with your credit cards? Feel free to let us and others know in the comment section below.
Thanks for reading my ramblings.