Credit Cards vs. Debit Cards
Before I fully understood how to get value from them, I was afraid of credit cards. I just saw them as unnecessary debt traps that would lead to an endless cycle of financial obligation. I was wrong! Credit cards are financial tools and, just like any tools, when used properly, they can be instrumental in helping you achieve your goal. Using credit cards can help you achieve your financial goals (in ways that debit cards cannot) without creating a cycle of debt. Let’s look at 5 reasons to use credit cards instead of debit cards:
- Build credit. Building and maintaining a good credit history and credit score are essential parts of creating a healthy financial profile. With responsible usage and on-time payments, credit cards can help you achieve your desired credit score. In order to make sure that credit cards are working for you and not against you in this regard, make sure that you pay your monthly bill on time (even one late payment can be detrimental to your credit score), only spend what you can afford to pay off in full each month, and keep your total utilization to 30% or less each month.
- Get rewards. Many credit cards offer a wide range of perks and rewards, from cash back and gift cards to airport lounge access and concert tickets. Debit cards don’t offer the same level of benefits. Depending on the card(s) you choose and your spending patterns, you could end up with hundreds or even thousands in annual savings and rewards just by spending how you normally would. And, as long as you pay off your balance in full each month, you won’t undercut these savings and rewards with hefty interest rates.
- Enjoy added security. When you pay for your purchases with a credit card, you are protected from fraud liability. Furthermore, if the merchant does not provide the product or service you paid for, your credit card company will launch an investigation on your behalf and, if you are proven correct your claim, you will not be responsible for those charges. Last, but not least, if your card is lost or stolen, most credit card companies have a simple toggle button in the app that will allow you to turn off/lock your card and get a new one. With cash and some debit cards, it can be difficult or impossible to recover lost or stolen funds.
- Prepare for your future. As you’re building a positive credit history and getting into the habit of paying off your balance in full each month, your credit card company will take notice and usually give you a credit limit increase. When other credit-issuing companies (like mortgage or auto lenders) see this history, you are more likely to qualify for the highest lines of credit at the lowest interest rates.
- Create flexibility. Because you can carry a balance if you absolutely must, credit cards can create a little added flexibility by giving you extra spending power when you need it most. If you find yourself in a bind, a credit card can definitely be of assistance, particularly if you have not yet established a sufficient rainy day fund.
Now that we’ve covered 5 reasons to use credit cards instead of debit cards, I want to share some advice. Prepare yourself with information and do away with your fears. Credit cards are not just big, scary debt monsters. When used wisely, credit cards are some of the best tools when it comes to building a healthy financial profile. You can even enjoy some rewards and perks along the way. Be sure to check back for reviews on our top credit card picks and rewards programs to help get you started on your journey to financial health. This all is much easier than it seems. Together, we can get it done!
That’s what ithinkie.
