There has been an ongoing debate about whether a credit card is a healthy tool to have in one’s financial repertoire. If a person is not disciplined, there are many reasons why he or she should not have a credit card. Running a credit card balance can result in exorbitant interest accrual and can damage a person’s credit score. However, with a little bit of self-discipline, the good far outweighs the bad. Despite the good characteristics, some financial experts completely disavow owning and using a credit card. I haven’t owned a debit card in years, here’s why.
Credit cards don’t accrue interest if you don’t have a monthly balance
If a person can manage to pay off the credit card balance every month, there won’t be any interest on the credit card. There may be an annual fee to use the credit card, but many (if not most) credit cards don’t have an annual fee. Moreover, if you can establish automatic monthly payments linked to your checking account, you can keep the worry out of trying to remember to keep up with payments. Obviously, you don’t want to overdraft the checking account, so being mindful of your balances is a good idea.
Cashback is basically free money
Virtually everybody knows about cash back. However, I recently heard an interesting perspective. Consumers get cash back when using a credit card. Merchants pay processing fees when accepting credit cards. The fees paid by merchants are factored into establishing the price of the good or service being offered. Sometimes merchants only charge an additional fee when a consumer uses a credit card, but this isn’t the norm. The point is, if you’re paying with a debit card, in a way, you’re probably paying for someone else’s credit card rewards. You are part of the credit card chain of events, you might as well be a winning part of it.
Building credit
A credit score is evaluated virtually any time you need a loan, especially a home loan. A credit card is a good way to slowly build a good credit score. When using a credit card, there are a few factors that can affect a credit score. For instance, paying on time, running a balance, regular usage, and the amount of credit card applications.
Payment Dispute
In general, both debit cards and credit cards offer chargebacks. However, the rules for debit card chargebacks are a little fuzzy and it’s sometimes unclear when a transaction might qualify for a chargeback and how much liability protection is in place. Many times, credit cards offer a more straightforward chargeback policy. Here is a great resource regarding debit card chargebacks vs. credit card chargebacks.
Be wary of wealth counselors that preach about how you should live modestly and only have a debit card. Rich people telling poorer people to ditch the credit cards and simply “live within your means” is disingenuous and pretty cringe-worthy. If you can use (even a little bit) of self-discipline, the debate between using a credit card vs. using a debit card is not a close debate.
MoneyManeuvering 