Here's Why Credit is Better than Debit!

Never get into debt, avoid credit cards, only pay cash! At least that’s what my parents always taught me… but were they right?

For the longest time I thought they were right. I thought that any debt was bad and the only people who used debt were those who didn’t have any money. That I should never use credit cards because they were evil and would lead to all my money going to interest. Boy were we all wrong!

Most of the wealthiest people, and companies, in the world not only use debt but they actually see it as a good thing. Additionally, using a credit card doesn’t actually mean you’ll pay any interest - when it’s used correctly. That’s what I want to talk to you about today.

You see, over the last decade I’ve learned that credit cards can be extremely useful to the average person for a variety of reasons. I think the 3 main ones are protection, points, and perks. Let’s go over each one in detail!

Protection (from fraud)

If you’re the kind of person that uses cash, you know that sometimes that cash can get misplaced, or stolen, and is often lost for good. There’s no way to submit a claim somewhere to get your cash back or anything like that, it’s just gone. Debit cards aren’t too far behind either. If you lose your debit card, or it’s stolen, someone basically has access to your checking account. Generally, you can file a claim with your bank and, depending on the amount of time that you took to report the lost card, you can be liable for as little as $50 to, well, an unlimited amount. The amount of time it takes to get your money back, though, can be approximately 45 days.

This is where I think credit cards can come in handy. Most credit cards currently offer zero fraud liability. That means that if your credit card was lost or stolen you aren’t liable for any of the fraudulent purchases made. In my experience, credit cards generally credit the account back for the fraudulent purchases within a few days. There are some banks that offer zero fraud liability but it isn’t as common as with most big name credit cards.

Points (or cash back)

This is probably my favorite perk. Anytime I use my credit card, I get rewarded. The amount I get rewarded is based on the card I use and what I use it for. For example, one card earns me 5% in points on my groceries or streaming services while another earns me 3% on restaurants. Some credit cards offer points that are specifically designated for travel purchases, others offer points that you can cash in for gift cards, and some simply offer cash back that you can apply to your balance.

When deciding on what card works for you, I suggest starting from the end and working backwards. It’s important to understand what rewards are more important to you and finding a card that offers those incentives, rather than getting a random card and being unhappy with the rewards. I like to travel, so I have structured all of my credit cards to give me all my rewards in travel whether it’s in points for flights, car rentals or hotels, or companion certificates.

The best part of points? They are generally not taxable!! So it really is just a nice perk… speaking of perks, that gets me to the last point!

Perks

Yes, the fraud protection and points are great, but in my opinion this last point is really the cherry on top. If you use cash to make a big purchase, like a new washing machine, you will likely get a 1 year warranty from a manufacturer unless you elect to pay for additional coverage. If you use debit, it’s likely the same. However, when you use credit your credit card company likely gave you an additional warranty that kicks in after the manufacturer warranty expired. The perks don’t stop here though.

The perks vary by credit card, but here are a few more that I see with the credit cards I use:

Free first checked bag and free companion certificate, free statement credits for hotels, various ride sharing or traveler programs, car rental insurance, complimentary food delivery memberships, roadside assistance, trip cancellation insurance, no foreign transaction fees, free cellphone protection and SOOOO much more.

As I mentioned, I have structured my credit cards to give me the most bang for my buck with travel. As such, a lot of my perks are travel related. I encourage you to look at the perks offered as well as the rewards you can earn when finding the right card for you.

As you can see, the benefits of using credit cards are endless. I must also tell you about the not so great side of them though. If you are someone who cannot control your spending or you cannot commit to paying off the balance every month, credit cards may not be for you. If you can’t control your spending, the large amounts of money available for you to use may be too much temptation to resist. If you can’t pay off the balance every month, the interest you are racking up can outweigh the benefits of all the points, protections, and perks. Use credit cards ONLY if you can commit to using them responsibly.

I hope you found this useful! See you next week 😉 

Neyra

Please remember that while I am a CPA, I am not your CPA. Please consult a licensed professional on any financial, tax, or business decision you contemplate

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