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. ๐
- 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?

Number four is a great tip. Ironically, when my husband and I made the decision to get out of debt, we decided to do number one (just in case), but then we tried number four. That worked like a charm to get all of our spending under control. Then, we just went in half and half at the end of each month to pay off of the balance. It was a good way for us to get started managing our budget better. ๐
#4 is definitely useful, though it can backfire if, say, you want to buy an xmas gift and you don’t want your SO to find out. ๐
I like #1 to #3, but IMO #4 and 5 are in the disadvantage list.
#4 – Yes it’s true about easier to keep track of spending, but studies have shown people spend more with credit card than cash. :O
#5 – I hate carrying changes, but that’s a good thing for our change jar. A side saving if you will.
We only have one credit card and try to minimize the usage, but it still get plenty of exercise.
I also do the change jar thing, myself. In some situations it might be possible that you spend more using a CC, but to me, spending money is spending money. I feel the same in plunking down $100 at a resto whether I take out a $100 bill or use the CC. In fact, I might be encouraged to spend more money using the bills since it looks more impressive to pay large sums with cash. ๐
#4 is the best tip – I like how some track the categories.
The tracking is definitely useful, I agree.
Shop around for your card! We LOVE ours and pay it off every pay cheque. We get CASH BACK (yes, mastercard must hate us as we never pay interest) in the form of $50 cheques (we get 3% CB on gas/groceries and 1% on all other purchases)
Funny thing is, if everyone paid off their balances on time, I don’t know if CCs could flourish as well as they do. The companies would have to raise everything either from card fees or from the merchants.
People who carry CC balances: You’re subsidizing the rewards for everyone else. Just another point to think about and motivate you toward paying down your balances!
The one period in my life where I had credit card debt is long over. It wasn’t even very much of a debt (about 2k) and was paid off fairly quickly once I got married and was splitting rent with another person. I love my rewards credit card. I pay for everything I possibly can with it and then pay it off every month. The cash back bonus usually adds up to around $400-$500 annually and I just apply it to one of my monthly bills. Learning how to effectively use credit cards is a financial skill everyone should have.
Financial confession: I once had near $10,000 on the CC, but I carried that balance only for a short period of time. I needed to bridge a gap between expenses and income, and I didn’t want to sell off any assets. Probably not the best idea and I would rather not do that again, but it’s good to have that flexibility when the time is needed.
All of this is true. As soon as we pay off our c/c, the one we’ve been struggling with for the past five years (my fault mostly), I will start looking into responsible use of this c/c. I love tracking expenses and getting rewards. But for now… I just need to stay away from it. LOL
Haha, eventually I think people come full circle. I’ve burned my fingers before but I still use a lighter where it makes sense. ๐ What’s most important is having the right mindset. I agree that for now, as your mindset is paying down debt, it may be better to avoid CCs and stick with cash in the wallet. That will help you stay focused on your goal until you are ready to use a little fire again.
Agree Kevin, using credit cards wisely has a lot of advantages. For those who cannot properly handle this financial “tool”, stay away as you could burn yourselves badly.
Or just start out with a starter card. Financial education should start while young. It’s really up to the parents, too, but some people need to learn from experience, and if you end up $500 in debt and have to work a few weeks in the summer to pay it off (please, don’t encourage irresponsibility and bail your kids out ;)), while, that’s much better than $15,000 in debt and years to pay it off.
I understand your points, and I am starting to lean toward using credit cards again, but only after we fully get out of debt.
Paying with cash makes it almost impossible to overspend!
If you are already in credit card or loan debt, then avoiding the cards might make more sense. I agree that with cash, once your wallet is empty there’s no way you can spend more. I just wanted to challenge a bit of the conventional PF wisdom that credit cards should be avoided. They are a perfectly useful tool in the right time & place. ๐
I’m on the fence about credit cards. Even though we have a comparatively low rate with the USAA card, we use it sparingly. If credit is called for, we use our bank card, which is accepted everywhere credit is.
For #1, I don’t carry cash in my wallet, but in a front pocket in a money clip ( a habit acquired overseas where pickpockets were rife). Mrs. 101 usually carries limited cash. #2, we’ve not had any experience with chargebacks, so neutral. #3, agreed, points are nice to get. On our card, they eventually turned into magazine subscriptions. #4, neutral. I track expenses and categories on a budget/expense spreadsheet. #5, neutral. I agree w/ RB40, the change goes into a savings jar, which I like to see growing little by little. It’s the Scrooge McDuck in me.
Bank cards work, too, but you only get so many transactions before you pay extra fees (at least, that’s how it works here), and if a thief does manage to make off and crack your pin, then you will have to fight with the bank to get your money back. All the thief has to do is install a fake reader; it’s been done in many places before. It’s still cash in that sense.
I do the coin jar thing too. ๐
Kevin, I don’t we have a limit use on our debit bank bard, or at least we haven’t hit one yet. A couple of years back we had a $1,400 fraudulent charge on our BOA card, and they were very good at responding. They contacted us and credited the amounts immediately. We did have to wait about two weeks for a new card though. However critical I am of BofA, they handled this one OK.
I’m glad to hear that you weren’t on the hook for the fraudulent charge. If you have a good bank with a good package, then debit seems like it could offer the same advantages as credit. Banks have miffed me in the past (though not over huge amounts), so overall, I still feel a bit safer using CCs over debit. ๐
Don’t disagree there. We haven’t completely ditched our CC, we still use for online transactions like Amazon and Ebay. I don’t like the idea of having a direct link to my bank account online, it’s a little unsettling.
Discover breaks up the purchases neatly as categories. Gives you an idea where most of the money goes (and hence where to cut back). Wish more cards did that. And on the flip side, wish Discover was accepted in more places!
My CC does not break down into categories, but simply having the line items can be useful!
And what about credit score? A credit card used wisely also helps building a nice credit score to helps ask for a loan or mortgage when needed. I mean, being debt free is something all of us would like of course, but they are times in life when you need a loan, at least when you are young and try to build a life. Yes, you have to use it wisely and make sure you don’t get into deep debt. But if you shop your credit card well and use it properly, there are many advantages to it. I also think it can help for emergencies. For example, you have a car accident and the car needs repairs that your emergency fund can not fully pay. A credit card gives you a month interests free for you to get that money you need.
Yep, a credit score is important. It’s better to show that you can use credit responsibly (having access to $25,000 of credit yet using only $500 of it and paying off your balances in full shows responsibility) rather than cutting yourself off from credit completely, as when the time comes that you need credit, the banks will have no way of knowing whether you’ll be able to handle it or not.
I think if you genuinely can use them responsibly then they can be a good tool. However I get all of those advantages on my Visa Debit card except for the rewards and this suits me far better as I don’t want to have to credit again…. Everyone is different though.
Visa debit? Is that a pre-paid credit card? I have a debit card, too, but my bank plan only allows up to # transactions per month. I hate having to pay extra fees, and I know I won’t have to remember how many transactions I did using the CC. Nonetheless they are all tools with their place & time, and I use all three ( cash, debit, & credit).
Ahhh I forgot about the joys of the rip off Canadian banking system!!!
The Visa Debit is just my checking account bank card, comes with the UK account and I have no limit on transactions, no monthly account charge or charges for withdrawal (although I get exchange charges here in Egypt). I think Visa Debit is slowly coming to USA and looks like CIBC in Canada offer it: http://en.wikipedia.org/wiki/Visa_Debit
6. Save time running to bank machines for money
7. Saves wear and tear on pockets, – no need for pennies and nickles
8. Keep you from sounding like Santa’s reindeer (no pocket change jingling when you walk)
Haha, I love points #7 and #8!
I use them for only one reason— the cash back rewards. If you can’t pay the bill off in full at the end of the month you should cut up the credit card.
Maybe not cut it up, but at least lock it away somewhere. I agree that responsible use of credit cards includes paying off the bill, as the benefits are not quite so advantageous if you’re paying a high interest rate for them.
I love my credit cards. I love the rewards, I love the convenience. (Can’t tell you how much I enjoy just swiping my card at the gas station when it is 0 degrees and the wind is blowing as opposed to going into the station to pay.)
I do sometimes wonder if I might be spending more by using my card as opposed to cash. However, I really do not spend frivolously, so I don’t worry about it too much.
Haha, I wish I knew how the gas attendants set the pump to pump automatically. I would much rather do that and then go back inside my car and wait.
I actually make frequent use of credit cards, and strongly believe in paying them off in full, on time, with no interest or late charges. It makes things easier on many fronts.
The idea of using actual cash – as in actual bills and coins – is really appealing, and I would prefer to do it that way as it’s the most “pure”. However, the hassles outweigh the psychological benefits….as long as the credit cards are paid as I note above. That’s my take!
I suppose were it not for the inflation over time, change wouldn’t be as annoying. The penny used to be worth something after all… there was no debate on whether we should get rid of it because it has become so valueless (in some cases, worth less than the base metal!)
Great tips my friend!
Congrats on the great progress toward your goals so far!
Consumers need to carry credit to establish their credit scores. Credit cards are good for as long as it is used responsibly and the balances are paid immediately so that we don’t suffer on the high interest rates.
Certain types of credit cards such as the “gold” and “platinum” offer travel benefits such as travel insurance, rental car coverage insurance when you use them to purchase your travel fares or rental cars.
That’s a good point about the travel insurance. A friend of mine was able to take advantage of that a couple of years ago when his flight was cancelled due to a snowstorm and he missed his cruise…
I think it all comes down to the individual. If you have discipline credit cards can be useful tools. Also, those are some well thought and creative ways to use cards.
Whenever, I am setting up an order with a new merchant, I will typically use a credit card for the reasons mentioned above.
So, the key IMO, is to learn their game and play it to your advantage.
The ability to chargeback is valuable when dealing with new merchants, just in case you get shoddy service. Doing a bit of research before hand is good, too (which I had done a couple of searches before using Bloomex, myself!)
I was going to just respond on my blog next week, but my “response” (timely guest post) was just published here: http://blog.freescore.com/personal-finances/credit-card-dangers-around-holidays.html
You are guest posting everywhere these days! ๐
I don’t agree 100% with the “pain of paying in cash”. This might hold true if you’ve never had to pay credit card interest before, but get stuck with a balance for a few months and tell me you don’t feel pain that you’ll remember the next time you take out your card.
However, I think the overall gist of the post is pretty good, and you’re right that we can make bad assumptions. It’s good to have both sides of the story there. I could also spend cash in my chequings and then get hit by an unexpected bill, so there is really risk either way, but it’s good in knowing what the advantages and drawbacks of each are. I’ll promote the guest post during my next roundup. ๐
I don’t mind credit cards. They can be a quick, cheap and convenient way to get a low cost loan. I’m about to pay my 10K tax debt with a 0% credit card which I have a year to pay off. Who else would give me a 0% loan at the drop of a hat? No one.
0% loan for a year? Hmm… why not! So long as you have backing money elsewhere and are not overly leveraged…
Yeah, I like them too. I hate carrying cash around because I can never remember where I spent it.
Although knock on wood I’ve never had to do this, there is something to be said about having credit in case of an emergency. I could see though how this could delay taking drastic spending measures if money is available (borrowed or not).
Having access to the credit without necessarily using it is a good thing IMO. Better than having no credit at all.
Kevin, it really depends on mind set how you use your credit card, sorry for my negative opinion. So far it brings me a lot of trouble rather than good things, thinking of get rid of it,but when i look into the positive side i cant get rid of it…Its especially because of my poor money management knowledge….Hope this new year bring me some responsibilities….
Beth
Sorry to hear about it, Beth. In that case, I recommend not using the credit cards until you have worked through everything and are able to look at them in a new light. After burning your fingers you might be afraid to hold a match for a while, but eventually you will heal and there will be times when you see the flame as neither evil nor good, but as the tool that it is.
P.S. Check out this post, as you may find it interesting: http://www.investitwisely.com/importance-of-financial-literacy-education-get-some-here-with-ramit-sethis-book-i-will-teach-you-to-be-rich/
I agree with #3. I’m using a credit card with mileage points rewards and it certainly adds up. Especially true for me since I always use my credit card in all my purchases.
Recent changes to Canadian Law may make it possible for merchants to offer discounts for cash (I knew some places that always did this, but I guess it will become more widespread now), which could affect this dynamic. It’ll be interesting to see how things go forward!
This post started a lot of conversation. Nice work. I’m a huge fan of the protection. That extra layer of security is part of the reason “charge cards” came along in the first place. It’s still the best reason to have the card, I think.
Credit cards offer a lot of advantages as long as you use them wisely and responsibly. I think it only takes a system of managing your budget and finances to avoid getting in the excessive credit trap. Once you have the knack for organizing your expenses and staying within the budget, credit card is a big convenience to have in your wallet.