Many people still don’t take advantage of credit cards. Whether that is because of their own personal experience with credit cards, or because of what other people have told them about credit cards.
I’ll explain why I LOVE using credit cards and how I MAKE money with credit cards.
First, let me explain a few things.
Why You Shouldn’t Use Debit Cards
Low Cash Rewards
Debit cards don’t generally offer cash rewards, of those that do, they aren’t offering you very much. Credit cards have much better rewards and as long as you are using them responsibly, you will be able to make a lot of money off of them just by buying the things you already are buying.
Few Shopping Discounts
More debit cards are offering shopping discounts, but just like with the cash rewards, the offers aren’t as good on a debit card as they are on a credit card.
Minimal Exclusive or Early Access
Very few debit cards offer exclusive or early access perks for various events. Even if they do, the credit card exclusive and early access perks are generally better.
Bad Cash Flow
With a debit card, when you make a purchase that money is removed from your account immediately. However, when your purchase is refunded, it can take several days or even over a week for the money to be credited back to your account.
With a credit card, you have almost a month after that purchase was made to pay for that purchase, by then the refund would have already been processed and your cash flow would have never been impacted.
Keep the cash in your bank account so you can pay off your credit card’s statement balance, but don’t worry about spending it directly out of your account.
No Credit Building
Credit cards are a great way to build credit and are much easier to access than mortgages, auto loans, and other kinds of loans. Credit cards are a great way to increase the number of credit accounts on your credit report in a relatively quick timeframe so you can boost your credit score.
Some Fraud Liability
Debit cards generally make you pay $50 should some fraud happen on your account. Some debit cards are now offering $0 fraud protection, but that isn’t the norm.
Credit cards are generally $0 fraud liability, so as long as you report your card stolen or the fraudulent purchase immediately, you won’t be responsible for the charges.
Imagine if you were traveling and some crooks skimmed your cards while they were still in your wallet. You wouldn’t know until you tried to buy something and your card was declined.
If this doesn’t happen immediately, some serious damage can be done to either your bank account or your credit card accounts before you even notice anything. With a credit card, as soon as you report the fraud, they begin taking the fraudulent charges off your account.
With a debit card, it often needs to be reviewed before the charges are removed. That can take days or weeks depending on your bank. If you have a mortgage or other important bills to pay, your entire bank account would be wiped out.
However, if you had only credit cards, your bank account would still be protected and you could still make your mortgage and other important payments without any issues. Only your credit card account would be frozen until your new cards came in the mail, then you could start spending again like normal.
Risk
Other than the risk of fraud, there is also a risk of your bank going under or freezing accounts. Most people only have bank accounts at one banking institution. However, when people have credit cards, they have them at multiple different credit card providers.
Diversifying your payment methods helps protect your should your bank go under or stop payments because they mismanaged your money.
This is more common now than in the past few decades, so credit cards are a great way to offset this risk. Yes, you should have bank accounts at multiple institutions, but I’ll explain how I would set that up in another post.
Why You Should Use Credit Cards
Cash Rewards Can Make You Serious Money
Imagine if someone put an extra 1-5% or more in your bank account for every dollar you spent. That is essentially what happens when you have a cash back rewards credit card.
Not all credit cards offer cash back rewards, and of those who do, there are certain categories that offer better returns than others.
Full Fraud Protection
No matter how much someone fraudulently spends, you are fully protected. Generally, especially if you haven’t had your credit card for long, you can only spend up to your credit limit amount. However, if you have had your credit card for a while and you have a good relationship with the credit card company, you can sometimes spend more than your credit limit.
If someone spends over your credit limit amount fraudulently, you are still covered as long as you report the fraud immediately just like any other time.
Delay of Payment
When you purchase something, you don’t have to pay for that particular purchase until at least a couple weeks after that statement period closes. So that helps you maintain good cash flow because if you make a return, you don’t have to worry about that money still not being in your bank account for a while. With a credit card, by the time you need to pay the statement balance for that period, your refund would have already been processed.
Better Cash Rewards
Although there are other types of credit cards other than cash rewards cards, this type of card is the most beneficial for most people because they generally cover everyday purchases.
The cash rewards on credit cards are much higher than on debit cards. So you will make more money on money that you are spending anyway.
No Risk
If you run into some issues with a merchant, all you have to do is let your credit card company know about the issues and what steps you have taken with the merchant to resolve the issue.
Your credit card company will review both your side and the merchant’s side of the story and will determine whether or not they will reimburse you outright for the charges the merchant put on your account.
Better Discounts
The discounts with credit cards are much better than with debit cards,
Credit Building
You can’t build credit with a debit card. You could potentially open a secured line of credit or take out a loan with your bank, but credit cards are a much easier and better way to build your credit.
0% Interest Possibility
Some cards offer 0% interest for a period, so you only have to pay the minimum balance instead of the statement balance like you normally would to avoid having interest charges on your account.
Things to Watch for with Credit Cards
Statement Balance
You must pay your statement balance to avoid paying interest charges. Never just pay the minimum payment or you will be paying interest on your statement balance.
You don’t need to pay the current balance on your credit card because you don’t owe that amount yet. It is better for you to leave that extra money in your savings account, especially a high interest savings account, even if you can afford to pay the current balance entirely.
Annual Fees
Be careful of annual fees on credit cards. Your goal is to find the best credit card given the type of purchases you are making. If that credit card has an annual fee attached to it, you need to make sure that including the annual fee that credit card is still better than the next best credit card that doesn’t have an annual fee.
For example, I have a credit card that I use for groceries that has an annual fee, but it gives me 6% back (the newest version of this card offers 5% back) and that makes it worth it.
Summary
Credit cards are worth it if used correctly. They can help make and save you a lot of money depending on the cards you have and the purchases you are making. Watch out for annual fees and make sure that you always pay the statement balance for your credit cards.
