I’m comfortable with some people using credit cards. For some of you, I just lost you. You’ve marked me down as someone who doesn’t know what they're talking about or as someone who needs to listen to more radio shows on this topic.
But wait! Let me clarify a few quick things:
The borrower really is the slave of the lender. Debt can be a dangerous thing and should be avoided if possible. Also, even though self-control is a fruit of the Spirit, some people are simply too tempted by credit cards and should flee from that temptation. If you do use a credit card, the key is to only use credit cards on budgeted items. Then, pay the total balance off every single month.
With all that said, there are three reasons why I use a credit card for most of my purchases and why I am comfortable with others doing the same.
Reason #1: Security
Cash is so easy for someone to steal or for you to lose. And once it’s gone, it’s gone! But what about plastic? The reality is that credit cards are much more secure than debit cards. We all know someone who has bought something online that was fake, had a trip canceled, or had their account number stolen. Credit cards have protections for you in all of those cases. On the flip side, if you use a debit card, that is your money that left your bank account. You may eventually get that money back, but why not have a safeguard in place to better steward and protect your money?
Reason #2: Building Credit
Look, I loathe the fact that our financial system relies on credit scores the way it does, but it is the system we currently have. Housing is a true need for most everyone. While it’s a great aspiration to purchase an affordable home in cash, that’s simply not attainable for the vast majority of people, especially at first. If you say goodbye to all debt (which you should do) and cut up your credit cards, you won’t have any credit. And unless you have a family member or close friend who is willing to cosign for you, you are going to have to get creative and spend a lot more money upfront or in interest to purchase a home.
This is why a credit card can be so helpful. If you:
1) only use your card for your budgeted purchases
2) have a high credit card limit
3) always pay it off 100% every single time
You will build your credit over time. That’s something you simply can’t do with cash or a debit card.
Reason #3: Rewards
My wife and I were taught about the first two reasons you should have a credit card before we got married. So, we got a credit card from our local credit union and used the principles
outlined above. Then, we learned that there are rewards credit cards available that would give us free money to do what we already were doing. Cha-ching! Now we use our credit card reward points to pay for our food on vacations.
We accrue rewards over the course of the year and have the credit card company transfer the cash into our bank account so we can budget that free money. That saves us hundreds of dollars every single year on vacations and allows us to use that money to pay bills and be generous in other areas. I suggest cards with no annual fee and the least complicated rewards rates that offer cashback for most people.
Can credit cards be dangerous? Absolutely—if you don’t pay off your balance every month. But there are at least three reasons that they can be used to your advantage. So, maybe you should think twice before cutting up that credit card.