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Should I use Credit Cards?

Every so often you will come across an article that is either promoting using a credit cards or completely against their usage. The answer to the question “Should I use Credit Cards” is more nuanced than that. Like many of the other topics I’ve covered, the actual decision is very much a personal one dependent on your situation. Today’s post will touch on some of the pro’s and con’s of choosing to use credit cards.

It’s important to start any post about credit cards by recognizing the monkey in the room is that not everyone will be qualified to get a credit card. Your credit score might be too low, your income too low, or maybe you don’t even have a credit score. In exploring whether you should use credit cards I am assuming you can readily obtain a card.

Pro’s of Using Credit Cards

There are many pros of using credit cards:

  1. Sign up Bonus’sWe collect about $2-3K a year from bonus’ for signing up for new cards. It’s a great way to make extra money if you have control over your finances.
  2. Theft Protection – In general, a credit card theft will leave you with 0 liability if the number is stolen and 50 dollars if someone steals the card. For a debit card there is a tiered liability limit depending on how long it takes you to report the lost card. This is $50 for 2 days, $500 for 60 days after a statement, and after that there is no cap. Needless to say if you’re not watching debit expenditures closely it can get expensive quick. Even if you do catch it you may end up with a liquidity issue while you get things back in order. Quick Tip: Always keep an eye on debit and credit card charges for signs of fraud.
  3. Cash Back – Many Credit Cards these days give you cash back. The 1-2 percent cash back you receive is like getting an additional discount on a purchase. Sometimes, but rarely you’ll get a bigger discount for paying with cash, but that’s normally limited to negotiable items.
  4. Cash Management – You can use a credit card to shift when a bill will pay to get you around a potential short term or, in the case of 0 interest rate cards, long run liquidity issues.
  5. Builds Credit – Without Credit utilization it will be tough to get a rental car, rent a house, get a mortgage, get insurance, and any number of other things. As such you always want at least one debt instrument in good standing to keep your credit score alive.
  6. Other Perks – Their are many different varieties of perks related to cards. Often these are based on the category and type of card. Most cards include some sort of rental car insurance. Travel related cards often feature free lounge access, travel insurance, priority frequent flyer status, or even sometimes global entry. Some more exotic perks include: price look back, extended warranty, accident and theft replacement, and even credits for certain types of transactions. There are many to choose from and you could spend hours determine which card is the best for you. I tend to use nerdwallet for this analysis but there are a few sites that will allow you to find the right perks for your situation.
  7. Allows for some avoidance of fees, though potentially adds different ones. You likely won’t pay an overdraft fee because most cards have a much higher limit then you would have in a debit account. Also many credit card issuers, but not all, will just deny an over draft charge. For those that do charge a fee they can do so only if you opt in. Even then it can be no more then the value of the charge that they decline. Debit Cards meanwhile typically require you to opt out of overdraft capability and thus the inevitable 25 dollars per transaction potential fee. Note going over your limit with a credit card does have one big concern, it can mess up your credit, which is likely a worse fee than the debit card overdraft fee.

Con’s of Using Credit Cards

Credit cards however are not for everyone. Assuming you can even get one due to your credit score there are two very large negatives to consider when determining whether to use credit cards:

  1. Can Encourage Bad Spending Habits: Simply put, the easier it is to spend the cash the more likely you are to do so. What could be more easy then swiping a card? You don’t need to go to the bank to get extra cash when you’ve spent it all. There is no worry about theft limiting the amount you have available to spend artificially. You don’t even need to have the cash up front. You can get yourself into a real bad position quickly if taken to the extreme.
  2. Can Destroy your Credit or cost you big money in interest if you follow those habits: The interest on a typical card is usually in the upper teens to mid 20 percent. That means if you rack up debt, your costs for anything you purchased can go through the roof quickly. Not to mention the damaging impact on your credit if you carry a high balance or miss a payment.

What I Do

Now given my personal financial position I always use credit cards. I have found other ways to manage the bad spending habits I have handled earlier like a waiting period for purchasing and asking myself if it is something I truly value. Yet, I also understand these steps are not necessarily fool proof. Everyone’s level of self control is different. I’m here to say there is nothing wrong with avoiding credit cards if it means a better overall financial position. Just remember to keep close tabs on those debt transactions and cash for signs of fraud.

Do you use credit cards or some other form of payment? If so what tricks do you use to avoid the cons of bad spending habits?

16 Comments

  1. Leo T. Ly
    Leo T. Ly May 12, 2017

    Nowadays, I use credit as often as I can. I on average, get about 1.5% in cash back for my purchases. I love using my credit cards as I always pay my balances in full every month.

    The bottom line is, be money smart and take advantage of the perks offered by the cards. Use it as a tool to build your wealth. The cards should be paying you to use it. If it’s the other way around, you are using a credit card the wrong way.

    • fulltimefinance@fulltimefinance.com
      [email protected] May 12, 2017

      It’s hard to tell our average return as we churn cards for signup bonuses. Without those bonuses 1.5-2 sounds about right. Just one more pricing discount to lower our spending on everyday items. Thanks for the add.

  2. I use a credit card for 95% of my transactions. It’s easy, and to your points above, I like the security.

    If you are using a debit card, it is very difficult for a company to give you a refund. With a credit card, the company HAS to prove that it didn’t make a mistake, otherwise they can’t charge you.

    Thanks for sharing FTF – have a good weekend.

    • fulltimefinance@fulltimefinance.com
      [email protected] May 12, 2017

      Interestingly enou, I’ve never had a true debit card. I’ve had numerous credit card returns and even one bad charge, so I do appreciate the security. Have you had to use this feature on your card? Have a great weekend.

  3. I use a credit card for everything I can. I like the paper trail and the cash back. Def not for everyone though, especially if you struggle with spending and debt.

    • fulltimefinance@fulltimefinance.com
      [email protected] May 12, 2017

      Another great plus, a paper trail for budgeting and other purposes. Thanks for stopping by.

  4. Dan
    Dan May 12, 2017

    You will note that all the “pros” are tangible benefits and occur regardless of the credit card user’s spending discipline. The “cons” will only occur if the credit card user lacks spending discipline.

    My father taught me these lessons when I was a boy on the topic of credit cards. I take them as second nature now.

    1) Only use a credit card if you have the cash to pay for the purchase at the time of the purchase. In other words, at the time of the purchase, you could write a check for the purchase without the check bouncing or go to the ATM and withdraw cash for the purchase or you could use your debit card or you could use your credit card.

    2) Pay your credit card balance in full each billing cycle. If you complied with #1, you had the cash when you made the purchase so it is simply a matter of earmarking the cash for the credit card payment. Today, you can immediately transfer the purchase amount from your bank account to your credit card account. When I was a boy, you had to keep mental tabs on the cash.

    3) Use credit cards whenever possible because a) cashback rewards, b) rewards points and c) various forms of consumer protection that the credit card company is obligated to provided under the terms of the user agreement (theft protection, investigating false/erroneous claims by the merchant, merchandise/service did not work or match description, etc.)

    I am increasingly using credit cards for every purchase I make. I still go to some places that are “cash only” but otherwise it is all credit. I used to feel self-conscious & silly charging <$5 on a credit card but that is becoming less of an issue. Due to the transaction fees, many retailers will not allow customer to make small purchases on credit cards but I am seeing that less and less nowadays.

    • fulltimefinance@fulltimefinance.com
      [email protected] May 12, 2017

      I’ve noticed that as well, cash only and cash only for small purchases seem to be a dieting breed. Then again I’m rarely carry cash so I guess I understand why. I doubt I’m an outlier. Thanks for the thoughtful comment.

  5. I make almost all my transactions via credit cards these days. I take advantage of the signup bonuses, rewards, and consumer protection. Occasionally, I’ll use the 0% interest to pay off a large transaction over time, but for the most part I pay my bills in full each month.

    • fulltimefinance@fulltimefinance.com
      [email protected] May 12, 2017

      I can see utilizing the 0 percent for cash flow management. As long as your disciplined it works well.

  6. Mr. Need2save
    Mr. Need2save May 12, 2017

    We use our credit cards almost exclusively. I can go months without spending cash. In addition to our day-to-day purchases, we also use our credit cards for recurring bills (e.g. phone, Internet, TV, etc.) In addition to all the Pro’s you mention, I also like being able to easily track my expenses. If I was using cash, there is no way that I would see that I’m spending too much on lunches 🙂

    One area that we are looking more into are cards that provide a lucrative sign-up bonus BUT also come with an annual fee. I’ve never been a fan of ‘paying’ for a credit card, but some of these bonuses (along with the other perks) possibly make the fee worth it.

    • fulltimefinance@fulltimefinance.com
      [email protected] May 12, 2017

      Normally we drop a car before the fee applies. I’ve only ever paid the sapphire reserves fee, I couldn’t turn down the 1k signup bonus. That being said I’m beginning to wonder if I should do such things more often, the Amex preferred for example seems to be similar to the reserve situation. Perhaps at some point. Any recommendations?

      I actually find not only do cards allow me to track spending, but I spend more cash then I would with a card.

  7. Mustard Seed Money
    Mustard Seed Money May 13, 2017

    I’d add one more con that you don’t feel that pain of cash leaving your wallet. If I have a $100 bill in my pocket it’s going to be really tough for me to break it. So it’s got to be something really special. If it’s a credit card though I don’t think twice about it 🙂 So I do at times wonder if I spend a bit more on my credit card.

    • fulltimefinance@fulltimefinance.com
      [email protected] May 14, 2017

      You know I have gotten to the point where I’m the opposite. I find I don’t think twice about spending cash as it’s already out of my account. I track card spending because I know the bill has yet to arrive. I think it’s an adaption over time situation. I rarely carry more then ten dollars for this reason.

  8. Troy @ Market History
    Troy @ Market History May 14, 2017

    Credit card rewards here in Australia are tiny compared to the States/Canada. In addition, I had my credit card # stolen a while ago, so I’m sticking with paying for day-to-day items with cash.
    Of course the only annoying thing is the massive pile of change I have at home.

    • fulltimefinance@fulltimefinance.com
      [email protected] May 14, 2017

      I didn’t know that about rewards in Oz. That being said it surprised me you went back to cash. Does Australia have the legal protections on cards we have in the US? If your card is stolen here you are not liable to pay for it. If they steal cash though it’s unrecoverable.

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