There's a reason credit cards tend to get a bad rap. For many people, they're a gateway to poor financial decisions. The average American household currently holds $5,700 in credit-card debt, and more than 38% of households are burdened with some sort of nagging credit-card balance.
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While it's true that credit-card abuse can be the cause of many a spender's financial downfall, using your credit cards the right way can reap far more benefits than you'd see by sticking to cash. Here are some reasons to use your credit cards and leave the cash behind.
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Credit cards can actually help you build credit. If you use your cards regularly and pay off your balances on time and in full every month, you can actually boost your credit score. Now, if you charge more than you can afford, or fail to pay your bills on time, using a credit card can work against you. But if you treat your credit card like a debit card, and make sure your balance doesn't exceed what's in your checking account, you'll be in pretty good shape.
Discounts and rewards
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When's the last time you paid for a meal in cash and had your waiter come back and slip you a few dollar bills as a thank you? When you use a credit card, you can often capitalize on rewards programs that put extra cash back in your pocket. Say your card offers 3% cash back on groceries, gas, and restaurants, and you spend a total of $10,000 a year across all three categories. At the end of the year, you'll have $300 coming your way -- for free.
Furthermore, some credit cards offer discounts on the things you already need. Certain store cards, for example, run promotions where cardholders get an extra 10% off their purchases. If you're doing your holiday shopping and are able to save 10% on a $400 haul, that's $40 extra coming your way just for using your card instead of paying cash.
Tracking your spending
Unless you're meticulous about recording your cash purchases, when you use cash, it's easy to lose track of where your money goes. With a credit card, however, there's a detailed record of every single thing you buy, from that $40 takeout order to that $3 latte. And that's important for two reasons.
First, the more aware you are of your spending, the better your chances of sticking to your budget -- or creating an accurate, attainable budget in the first place. Secondly, your credit-card records can be a lifesaver during tax season when the time comes to tally up your charitable contributions, medical expenses, and other things that might impact your filing. Without a solid record, you're more likely to file an inaccurate return, which could spell trouble if you happen to get audited.
Managing cash flow
While it's true that you should never spend money you don't have, sometimes you run into situations where you need to cough up some cash that you've earned, but don't yet have in your pockets (or bank accounts). In this regard, credit cards can help you avoid debt by giving you the option to charge an expense while you wait for your next paycheck to come in.
Imagine you're hit with a $400 car repair that you need to pay for right away, but don't have the money in your checking or savings account. (Of course, that's not a good scenario to begin with, but it happens more often than you'd think.) If your next paycheck, which will more than cover that amount, is a week away, but your credit-card bill won't come due for another two weeks, you can use your card to pay that bill, use your paycheck to pay the bill on time, and come away (relatively) financially unscathed.
Better purchase protection
While all credit cards are different, many offer free purchase protection, which covers you in the event that something you charge is then damaged, lost, or stolen. Some cards even offer protection against travel delays.
Plus, many cards offer price rewind programs that go something like this: If you use your card to buy something and then find the same item for a lower price someplace else within a certain amount of time (usually 30 or 60 days), your credit-card company will pay you the difference. Better yet, some cards will even do the legwork for you and search for lower prices on your behalf. That's not a benefit you'll see with cash.
Credit cards can be a very dangerous thing in the absence of self-control. But if you use your cards wisely, you'll enjoy a world of perks that cold, hard cash simply can't offer.
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