Why You Should Always Pay With a Credit Card

How you’re potentially losing hundreds or even thousands of dollars a year

Credit cards have developed an admittedly bad reputation for plunging people into crippling debt. However, for the financially savvy, credit cards have the potential to save you great amounts of money. How?

Rewards

The most obvious benefit is the rewards. Every time you spend money, you get something back. You can get travel points or even cash for free just by switching your normal day-to-day spending onto your card.

The area with the greatest potential for saving is travel. People are able to score enough points to go on the vacations of their dreams, flying around the world for free. But even for those who never travel, a simple cash back card can give great savings. If you use a card that gives 2% back on everything you buy, and you spend $15,000 a year, that’s $15,000 * 0.02 = $300 of free money you get without doing any extra work.

Savings are even higher if you use a card that gives an extra bonus for spending in certain categories. If you spend $6,000 a year on gas and groceries and your card gives you back 4%, you earn $6,000 * 0.04 = $240 extra on that alone.

For those who don’t spend a lot of money, it’s best to go with a card that has no annual fee. For those with higher spends, a card with a fee can be the smarter choice, as the extra rewards you’ll earn will be many times more than the fee. In addition, many cards offer the first year for free or give you a large bonus just for signing up, increasing your earnings even more.

Insurance

Although the rewards seem the most glamorous, other things credit cards offer can be even more beneficial. Many cards, even the free ones, offer free insurance automatically on everything you buy with your card. This can potentially save you thousands. One common benefit is extended warranty, where your card adds an extra year to the manufacturer’s warranty. If your device breaks you’re covered without you needing to do anything or spending extra on extended warranties.

Another common benefit is purchase protection, which is often given for 90 days. This covers any damage to your device, including accidental or theft. Let’s say you buy a new phone and then crack the screen right after. Or you spend $1000 on a new computer and leave it in your car, and someone breaks in and steals it. If you bought these devices with a debit card, you’re out of luck. If you bought them on a credit card, all you have to do is call your bank and you’ll get all your money back, usually without too much hassle.

Premium credit cards can offer a wide range of other insurances too, such as out of country medical health insurance, trip cancellation insurance, car rental insurance, lost baggage insurance, and even insurance that covers all your expenses if your flight’s delayed for more than 4 hours. If you travel often, it’s definitely worthwhile to find the card that gives you the most benefits.

Chargebacks

Another great, not commonly known benefit is the ability to request a chargeback when you have a dispute with a merchant, which you can do with any credit card. Say you bought something from a dishonest person that ripped you off. They sold you a broken product and refuse to give you a refund. Or you bought a service from someone who did an unacceptable job. If you paid with a debit card, there’d be nothing you could do. But if you paid with a credit card, you can call your bank and request that they undo the charge. As long as you have some evidence that you didn’t receive what you paid for, you’ll usually receive your money back right away without any trouble.

This again is something that could result in enormous savings. Let’s say you spend $1,200 on plane tickets but the airline later goes bankrupt. If you used a debit card, you lost your money, while if you used a credit card, one phone call is all it takes to get a full refund.

Protection Against Fraud

If someone steals your card, you won’t be liable for any unauthorized charges. This is a protection that all credit card companies offer on every card. As long as you made a reasonable effort to protect your card and keep your PIN number secret, if someone steals from you, your bank will cover the loss and you won’t pay a cent.

If the thief compromises your debit card, then the money is gone from your account right away. If you’re lucky and have a good bank, then you might get it back, but it’s not guaranteed. The process is much more difficult for debit cards and the laws protecting you are much weaker.

Build Credit Score

Using a credit card is one of the best and easiest ways to increase your credit score. A good credit score has many benefits, such as making it easier for you to get a loan and letting you get better rates.

Lenders want to see that you’re responsible with your money and that you pay back the money people who lend to you. The best way to show this is by using your credit card each month and then paying off your full balance when it’s due. It’s best to use no more than than 30% of your balance each month to maximize your score, so if your credit limit is $5000, you should try to spend no more than $1600.

If you’ve used a credit card for years and always paid it off, you’ll be able to easily get the best rates for loans. But if you have no credit history, lenders have no idea whether they can trust you or not with their money. That means it’ll be much more difficult for you to get a loan, and once you get one, you’ll be paying a much higher interest rate, again potentially costing you thousands.

Extra Perks

In addition, some cards offer a variety of other benefits such as free roadside assistance (worth $100 a year), a free concierge that you can call and ask to make reservations for you, free airline lounge access, discounts at certain stores, and more.

So with all these benefits, what’s the catch? If you spend more money than you have, you’ll be charged 20% interest (or higher). Don’t ever, ever, spend more on a credit card than you can afford to pay. The interest fees will be way higher than the benefits you receive, and credit card debt can have a major negative impact on your life.

However, if you’re financially responsible and understand how credit cards work, this isn’t a problem at all. As long as you pay off your full balance on time, you don’t pay a cent in interest. You can have your full balance come out of your bank account automatically on the day it’s due so you don’t even have to remember to pay it.

So does this mean that you need to be rich to use a credit card? No, all it means is that you need to keep a close watch on your finances (which everyone should be doing) and make sure you never spend more money than you have. It you can do this, there’s no reason at all to not use a credit card. You’ll only run into trouble if you let the card tempt you into spending more, but if you can keep your spending habits the same, then using the credit card had no drawbacks. Starting to use one can be one of the best financial moves you’ll make.

This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions