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