Personal finance experts are constantly telling us not to use credit cards, for fear we will overuse them or end up in debt. But, credit cards have an important place in this world. As long as you can use them responsibly, credit cards have a lot of benefits to offer us. Here are just some of the ways in which we can gain from owning a credit card:
1. Build your credit.
Building your credit score is important for big purchases in the future, such as a house or a car, or for obtaining loans, because a higher score also means lower interest rate on loans, which could amount to thousands of dollars in savings over the life of the loan. If you have poor credit, there are cards designed specifically for building or rebuilding your credit ratings so that you can access better deals in the future.
2. Get rewards and cash-back.
If you were already planning to go shopping, why not earn rewards from those purchases? You can research to see what different cards will give you the most benefits. If you fly a lot, consider an airline credit card that offers mileage or discounts.
It is just more convenient to carry cards and have some leeway in paying off large purchases or unforeseen emergencies. Using a debit card will take that money directly out of your account, but with a credit card, you can pay off a purchase over several months.
4. Protection between merchants and your money.
Extended warranties and protections. In most cases, purchasing on a credit card automatically gives you more choices if you encounter a problem. Many credit cards extend the manufacturer’s warranty, and some offer purchase protection of some sort if it is not covered by the warranty. For more info, see section 75 of the Consumer Credit Act.
5. Cut costs on overseas spending.
Most debit cards charge a foreign loading fee for purchases. Credit cards can as well, but some will waive this fee on transactions made overseas.
6. Renting a car/staying at a hotel.
Renting a car does not necessarily require owning a credit card as long as you can cover the deposit, but having a card means getting rental car insurance. Hotels also require a deposit to rent a room, but if you use a credit card, the deposit is merely a temporary authorization placed on the cardholder’s account, while on a debit card, that money is actually taken out and unavailable for other use.
7. Track your spending.
You can track your spending with cash as well, but with credit cards, there are many personal finance software packages that allow you to import your statements, analyze your spending habits, and locate areas where you can save money.