This is a guest post by Kimberly Peterson. While I’m not a big credit card user, I think she makes some good points about why a credit card can be a useful tool. As she says, these are good reasons only if you pay your bill on time and don’t carry a balance–otherwise you pay more than they’re worth.
We’ve all heard time and again that credit cards are the fastest roads to debts and that we need to reduce using them if we are to stay as far as possible away from this devil. We’ve also heard how debit cards are safe alternatives to credit cards because they keep you out of debt since you’re spending what you already have rather than living it up with borrowed money. But even so, there are reasons to use your credit card instead of its debit counterpart (ONLY if you’re the kind of person who pays your full bill on time and does not carry over a balance to the next month), and they are:
- You earn money: When you use a credit card, you’re borrowing money from the bank for a certain period of time at zero interest. But when you use a debit card, you’re spending your own money. When you borrow instead of drawing money from your account, the money is earning you an interest, small though it may be.
- You build credit: When you use a credit card and pay off your bills in full every month, you’re showing the credit industry that you’re responsible with money. This reflects well on your spending habits, and your credit score goes up, which is again an advantage when you’re looking to apply for new credit cards, a mortgage or a loan.
- You have more leverage: In the event of a dispute with merchants regarding a purchase, you have more leverage if you’ve paid with your credit card because the money has not yet reached the merchant’s hands. You can stop payment in case the product is defective or if the transaction turns out to be fraudulent. But if you’ve paid with your debit card, the money has already been paid, so your leverage power is considerably diminished.
- You earn rewards: Most credit cards come with rewards and incentives for their usage – the more money you spend, the more points you can collect and redeem for travel miles or products. Not many debit cards offer the same kind of incentives to spend money.
- Your money is safer: Your debit card can be used to commit fraud if someone is able to steal your card and PIN number. In fact, the crooks don’t even need your card to steal your money or use it to buy goods; all they need to know is your name and card number, and they can buy online or on the phone. While you’re responsible for only $50 when your credit card is used fraudulently, with a debit card, if you don’t report the loss or misuse of your card immediately, you could be liable to pay as much as $500.
This post was contributed by Kimberly Peterson, who writes about the accounting degree online. She welcomes your feedback at KimPeterson2006 [at] gmail.com
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Will be interesting to see how many of your readers decide to share their anti-credit card views.
I, for one, completely agree and love our AMEX Blue Cash. 🙂
No Debt Plan’s last blog post: Anything Worth Doing is Difficult and Requires Sacrifice
Good point, and I agree that using CC has its advantages. I try to do a balance between the two, because I know using Debit I can see what I am taking out and how much it is affecting me. But I always pay my CC off in full each month and know the benefits of using and doing that. No one right way, but I think a fair balance of the two is best.
Craig’s last blog post: The Ways to Combat Whooping Interest Rates
Paying your bill on time and not carrying a balance are not all that is required for this to make sense, in my opinion.
For me, when I use debit cards I always think, at least for a split-second “Do I have the money for this?” It’s more tangible and real. This helps me prevent a certain percentage of impulse buys.
Everyone may not have the same thought process as I do, however, there’s no doubt that the average credit card user spends more when using credit.
Be sure you take diligent steps to help curve increased spending through lack of attachment! I think this is important in addition to paying bill on time and in full.
Baker @ ManVsDebt’s last blog post: May’s Budget Recap, Net Worth Update, & Future Battle Plans
I admit it, I use my credit card all of the time for these reasons to earn frequent flier miles and because of safety concerns. I never pay with my debit card when ordering online or anywhere my debit card will be out of my sight, for example in a restaurant or in situations like ordering pizza or ordering via telephone.
Yeah, they could steal my credit card number as easily as my debit card number, but at least my cash isn’t tied up while it’s being straightened out if they steal my cc#.
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@nodebtplan I’ve heard good things about Amex Blue.
@Craig yep, debit gives you the advantage of seeing what’s in your account change to reflect your purchases. With a credit card, I suppose one could use a spreadsheet.
@Baker I’ve seen studies which substantiate that. That’s why if I do use a card for purchases, it’s either for fixed expenses or for regular budgeted stuff where I’m paying more attention to the budget than my bank account (gas, groceries, etc). Maybe it helps that I have so many years of using a debit card to help me with this mindset.
@Tracy, indeed. We found that very handy when a hotel once billed us accidentally for the wrong nights.
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