Credit cards get a lot of hate around the PF blogosphere, and not all of it is undeserved. With easy credit on tap, it is easy to bury yourself in debt, and credit cards are often pushed on the young and inexperienced, who often end up learning about high interest rate debt the hard way.
Nonetheless, I believe that like any tool, credit cards can be used responsibly, and there are certain advantages that they have over cash that can make them a compelling choice.
Here are five ways in which credit cards can be used responsibly:
Credit cards …
- Provide protection against loss.Most people think that they will never lose their wallet or that they will never be mugged, but stuff happens. If you have $2000 in cash in your wallet and you lose your wallet, you are pretty much up a creek without a paddle. With a credit card, one call to the credit card company (perhaps followed up by a written letter) is enough to protect yourself and limit your losses. Instead of losing $2000, you may only be out $50 or so.
- Provide protection against unscrupulous merchants.Sometimes, you just don’t get what you paid for, and some merchants will beat around the bush and do everything they can to stall and make it difficult for you to get your money back. If you paid in cash or with a third-party payment processor, your options may be limited. However, with credit cards there is always the possibility of issuing a chargeback against the offender. While you might not be satisfied with the result of the investigation, you can be sure that a chargeback will get the merchant to listen.
- Allow you to recoup some of the merchant’s costs in the form of rewards.Although some stores will offer you a lower price if you pay in cash, I have not personally seen too many places that do this. If you have a lot of frequent purchases such as gasoline, then putting them on the credit card can be a very quick way of accumulating rewards. I do agree with the philosophy that one should only buy something if one has cash for it, so I do recommend that balances be paid off in full every month.
- Help you to track your spending more efficiently and effectively.When you spend using a credit card, every purchase is neatly organized into a line item on your bill. There will be no confusion over what was spent where. Of course, if you don’t want anyone to know where your money was spent, cash will fit the bill better. 😉
- Save time spent counting change and bills.When you buy some stuff for a total of $29.41, it’s not fun to either break a $20 or receive a bunch of small change back, and have to carry all those coins around you in your pocket (ladies: I suppose it’s not so bad with a purse, but no way I’m carrying around a man-purse :P). Why not make things simpler and use the credit card? One signature and you’re on your way, and since you’re probably not getting a cash discount anyways, you may as well get some reward points out of your purchase.
Just like fire, credit cards are a useful tool when used responsibly and within proper bounds. If you need to get out of credit card debt, then I recommend you focus on that first. The best personal finance software may help out with this. So long as you use them with certain precautions, such as ensuring that you can pay off the balance in full every month, then you are less likely to get burned.
So, reader, do you also make frequent use of credit cards? Do you abhor them completely, or do you also believe that they have their proper place in our wallets and purses?