4 Reasons Credit Cards Are Better Than Cash
With the country in billions of dollars of credit card debt, the argument to use cash instead of credit is gaining steam, especially among people who have been burned by credit card debt. The logic is sound; if you don’t have credit cards, you won’t be tempted to go into debt. But what about the benefits that credit cards can have on your finances?
If you are tempted by credit and can’t be counted on to control your spending habits, then by all means, stick to cash. However, if you are able to use your credit card like cash and pay off your balance at the end of every month, credit cards can offer some great benefits. Here are a few:
1. Credit Card Rewards
Credit card rewards were designed to entice people to sign up for credit cards. The hope of credit card companies is that users will accrue more in fees and interest charges than the companies are paying out in rewards, so it’s a good deal for them. Here’s how to reverse the flow of money and actually make some cash from your credit cards:
Avoid interest and fees: Pay off your entire balance each month. This will keep you from paying any fees or interest (unless there is an annual fee.) If you are not paying any fees or interest, all the extra money you get from rewards is cash in your pocket.
Get the most from rewards: Pick rewards credit cards that make the most sense for your lifestyle. If you travel a lot, get a travel rewards credit card. If you prefer cash back, get a cash back rewards credit card. Some cards offer 5 percent cash back on groceries or 3 percent cash back on gas, so only use those cards when you are grocery shopping or filing up. If you are constantly flying on a certain airline, get their rewards credit card and start racking up free flights. Make sure your credit cards are being used to get the maximum amount of rewards. Here are some credit cards with the best rewards.
You don’t have to stress about rewards: If you don’t want the hassle of figuring out which card to use when and for what, many credit cards now offer big rewards on every purchase. You can get up to 2 percent cash back on whatever you spend money on, which can keep you from playing the rewards game and still get a good amount of rewards for your typical spending.
2. Raising Your Credit Score
Many people don’t realize this, but not using credit can dramatically hurt your credit score. Your credit score is mostly based on your credit history and how you utilize credit. If you don’t have a history and don’t use credit on a regular basis, there is nothing to base a score on, so your credit score will be pretty low.
Bad credit can cost you money. Even if you don’t have use for credit cards, having bad credit will cost you when it comes to taking out a mortgage or getting insured. Insurance companies can factor in your credit score when deciding on your premiums. And banks will hit you with a much higher interest rate on loans or mortgages if your credit score is low. If you don’t know your credit score, these credit cards offer your updated credit score each month on your bill, so you can keep track of your progress while you raise your score.
Using cash should be safer, right? With all the hacking going on recently, it would make sense that using cash would help deter identity thieves. Sadly, that’s not the case, unless you are stashing all your cash under your mattress. Banks are just as susceptible to hacks as credit card companies, many of which are banks. If you are using a debit card or are banking online, your account can easily be hacked.
The worst part about using a debit card for purchases is that you have to enter your PIN when you are paying. This gives hackers direct access to your bank account, and they can easily drain your accounts before you can blink. While fraud protection is built in to many credit cards and it’s easier to get refunded for fraudulent charges, getting the money back into your bank account when it’s been drained is much more difficult.
This is a pretty simple point, but one of the most important when it comes to saving money. The convenience of being able to swipe your credit card instead of constantly running the ATM or having to count out the exact amount is pretty obvious. Many car rentals, hotels and airlines also won’t take cash or even debit cards anymore.
The major benefit, though, is having a detailed list of everything you’ve spent money on each month. Having an online account of all your transactions makes it easier to set up and enforce a budget. You know where all your money is going, which is very hard to do with cash.