I like to listen podcasts on my morning run. This morning it was The Ramsey Show. Now I generally agree with his philosophy of money management, but I take issue with him on credit cards. He commented that responsible people use debit cards, implying you'd only use a credit card if you're irresponsible. I argue that the opposite is true. If you're not responsible enough to manage your spending, then sure, use a debit card. But if you are responsible, then use a credit card so you can take advantage of its benefits. A credit card is a tool, and if used properly, can add to your bottom line, not detract from it.
So what are the benefits of a credit card?
Rewards points
Don’t dismiss this benefit as trivial. While 1-3% may not sound like much, it can add up. Before I retired, I had 2 personal credit cards and 1 business card where I had accumulated over $5,000 in rewards. Yes, that’s a lot of charging, but it cost me ZERO! I paid my bills in full and on time each month for no cost. I cashed in that reward money to upgrade my accomodations for my vacation this summer. The photo for this post is the view from my upgraded airbnb. Thank you rewards points!
Payment delay
For the record, this is NOT about being able to buy now and make payments over a few months. Never do that. This is about the brief delay between when you make charges and when your payment is due. It's usually a matter of a few weeks or a month at most. This benefit isn’t as good as it used to be when interest rates were over 10%. But rates are creeping up and this could add to your bottom line. That brief window allows your money to continue to earn interest before you have fork it over to the bank. Again, somewhat trivial in today’s dollars but that may not always be the case.
Better fraud protections
Debit cards are getting better but they still don’t match the protections given by credit cards. Once a payment is made from your bank account, it’s much harder to get the bank to put it back in.
So how do responsible people use credit cards?
Set your budget and follow it
Know how much you can spend on your credit card each month and still comfortably (key word, comfortably) make the payment.
Check your balance often
It’s super easy to keep track of your day to day spending on your phone so there’s no excuse. I know ya'll are looking at your phones all day anyway. Set a reminder to check your balance at least once a week.
Make your payments in full and on time
Again, set a reminder a few days before payment is due or schedule your payment in advance. I recommend paying just a few days before the due date. If it helps with your budgeting, schedule your payment for right after you receive your paycheck to help with cash flow.
There’s nothing inherently “bad” or “good” about credit. It’s all about how you use it. Borrowing for a new home or to start a business can make a lot of sense. Borrowing for a car or vacation, not so much (we covered that here). Using credit cards can be great – if you pay in full, on time and don’t go over your budget. It’s not complicated and it’s not hard. And why lose out on those valuable rewards points?
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