Conventional wisdom says that debt is bad, and that paying cash is good. That might be true, but there are some overlooked advantages to using a credit card over a debit card, and each of them bears a look in anxious economic times.
That’s not to slam debit cards – there is certainly nothing wrong in using debit cards to “pay as you go” and having your debt card balance online, you can easily track what’s leaving your bank account on a daily (or even hourly) basis. But then there’s the negative issue of high interest rates (especially on late payments) linked to credit cards.
But there are things you can do with a credit card that you can’t with debit cards. Here are a few that top the list:
Dollars and Cents – When you use a credit card, you’re actually coming out ahead financially. How so? Because with a credit card, you’re borrowing money from your card lender at absolutely no interest. That’s not the case with debit cards; it’s your money and doesn’t draw any interest. It’s not a pile of cash, but when you borrow money via a credit card, interest earned is interest gained.
The “Flexibility” Factor – Using a credit card requires discipline, but if you can harness that not-always natural ability to keep on top of your card payments, credit cards offer additional benefits. Take flexibility. With a credit card, you can buy goods or services with no money down, with a promise to pay the bill later (a must for credit cards to be beneficial). That allows you to take immediate advantage of big sales and discounts. With debit cards, if you don’t have the money, you’re out of luck.
Earn Rewards – Credit cards are the banking equivalent of Baskin-Robbins, with myriad flavors of card reward programs for consumers to choose from. Typically, credit card reward programs give you two, three, or even five-percent of your transaction purchase price back in the form of card rewards for things like airline miles or auto purchases. Debit cards typically don’t offer reward programs.
Fraud alert – Most credit card deals come equipped with fairly solid fraud protection features. If you lose your card, or if it’s stolen, credit card companies often insure either most or all of the maximum balance of your card (so if your card is stolen and $5,000 is charged on your card, the card company may “insure” the full $5,000. Not so with debit cards. By and large, debit cards don’t offer significant fraud protection. Plus, scam artists don’t even need your debit card’s pin number – all they need is your name, address, and your card to buy goods and services either over the phone or via the Internet.
Dispute Protection – If you use a credit card to buy a new television that doesn’t provide all you asked for, no money has actually changed hands yet. Consequently, you can stop payment on the set through your card issuer until the situation is resolved to your satisfaction. With a debit card, the money leaves your account almost immediately, thus reducing any leverage in a product satisfaction dispute.
Perhaps the biggest advantage to using a credit card isn’t on the above list, but maybe it should be. We’re talking credit … as in using a credit card to build a good history of credit that will ensure you a high credit score and save you big money down the road on lower interest rates that a good credit score can provide.
Obviously, if you abuse your credit card, and millions have, your credit score can suffer and debt loads can become unmanageable.
But if it’s used wisely, a credit card can be a genuinely productive piece of plastic – sometimes more so than your bank debit card.
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