Why Using A Credit Card Is Better Than Using Cash, But Use It Wisely
Why should we use credit cards instead of cash? Updated 7th Oct 2021.
A usual mindset regarding credit cards would be that it causes us to rack up heavy unsecured debt, which has high interest rates, affecting our credit standing. However, that is partially true. Most rich people still use a credit cards, and why can they still use credit cards and still be rich?
Using credit cards to pay for purchases may not be as bad as it seems to use them responsibly.
Benefits of using a credit card:
- Credit card companies offer one-time bonuses
- Credit cards offer cashback
- Credit cards offer reward points
- Credit cards offer frequent-flyer miles
- Credit cards prevent frauds (most of the time)
- Credit cards have a grace period
- Credit cards are auto-insured
- Credit cards are accepted universally
- Credit cards build our credit***
#1. Credit card companies offer one-time bonuses
When we apply for a new card, credit card companies offer cash bonuses or product bonuses because we applied for them. In addition, if we managed to clock up specific spending within a period, we can get extra bonuses and prizes.
If we are already paying for our whole familys’ expenses, it is best to use a credit card because we already have to spend money. The extra bonuses and prizes will be a cherry on the icing if we clock the amount.
#2. Credit cards offer cashback
Some credit cards offer cash back for purchases made, worth it if we have significant spending every year. If we are already clocking so much money spent, why not get cashback for them?
Credit cards help to offset your purchases and the small cashback amount will turn into a big amount as time passes.
#3. Credit cards offer reward points
Credit cards offer rewards points for every dollar spent, and we can redeem these reward points for either cash, plane tickets, travel accommodation, gift cards, vouchers, merchandise, or anything else available on the credit card companies’ rewards portal.
The rewards we can have are endless because most credit card companies have partnerships with many brands, and we can leverage our spending to earn rewards.
#4. Credit cards offer frequent-flyer miles
What is great with using credit cards to pay for purchases would be frequent-flyer miles. Some credit cards are mainly for clocking air miles, and if we are spending a considerable amount a year, we might even get free return business class tickets that many people have done before (they even get first-class tickets free, just airport taxes).
#5. Credit cards prevent frauds (most of the time)
Using our credit card to make purchases is safer than debit cards; when our card has been stolen and used fraudulently, we can notify our credit card company and do not have to pay for the transactions until the matter gets resolved.
Compared to using a cash/debit card, we cannot trace it and get it back for stolen money. For stolen debit cards, the amount swiped on our card will reflect as a transaction made by us, and it will often take weeks for the fraudulent transaction to get reversed.
If a fraudulent amount in a debit card doesn’t get settled soon, it will affect your credit score which will affect your loan chances in the future.
#6. Credit cards have a grace period
If we use a debit card to make purchases, we need to have the money available in our account before making them, and the money will be gone the amount the moment we swipe our card.
However, if we use a credit card, we have enough time to pay our credit card bill as the bill will come at the end of the month, and our money will remain with us in our checking account until we settle the bills.
#7. Credit cards are auto-insured
Most credit cards have built-in insurance to ensure the card user's safety, including rental car insurance, travel insurance, and product warranties.
#8. Credit cards are accepted universally
We want to say about the debit card that it may not be universal when we want to rent a car or book a hotel room compared to using a credit card.
Most of the time, rental car companies and hotels would only accept credit cards just in case customers damage any parts of the property, and they need to block out a certain amount of money from our credit so that they would be able to charge us.
#9. Credit cards build our credit***
Building our credit is the most critical aspect of using a credit card to pay for purchases; building credit would eventually help us qualify for loans when we need them to purchase property or do business in the future.
On the other hand, if we use a debit card or cash to pay for our purchases, it does not appear on our credit report, and there is no way to determine if we will pay off their debt promptly even when we indeed are someone like that.
Using a credit card does require you to use them responsibly because if you don’t, you will fall into the trap of paying for high-interest debt and that will affect you psychologically, and mentally.
Above is a video by Frank Abagnale Jr., who explained how important it is to use credit cards and why he does not allow his children to use a debit card and always told them to use credit cards as much as possible.
Some food for thought would be: How can rich people use credit cards and still be rich? That requires a little bit of budgeting and finance planning.
When should we not use a credit card?
- When we cannot pay our entire credit balance on time
- When we spend more than we cannot afford
- When we consistently exceed the credit limit
#1. When we cannot pay our entire credit balance on time
If we cannot pay our credit card fully, and it always happens, stick with a debit card so that we will not fall into debt and incur high-interest rate charges to our name.
#2. When we spend more than we cannot afford
If we spend more than we cannot afford, using a credit card may be detrimental to us, and sticking with a debit card will limit our spending.
#3. When we consistently exceed the credit limit
If we consistently exceed our credit limit, it will have a costly fee to do so, affecting our future credit score.
Conclusion
If we are disciplined and can pay our bills fully at the end of the month, it is best to get a credit card because it will build up our credit score and offer our rewards and bonuses when we apply for them. However, if we cannot resist the temptation to spend more, stick to a debit card because it would limit our spending.
This article is for informational purposes only, and it should not be considered financial or legal advice. Consult a financial professional before making any significant financial decisions.
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