For many people, credit cards can seem like evil inventions made by banks and credit card companies to steal money from unsuspecting users. However, not all credit cards are the same, and some can actually benefit you in both the short-term and long-term. Check out this list of reasons why you should use a credit card to help you determine if it might be right for you!
1) Track your spending easily
Tracking your spending is important for saving money, but it can be hard if you don’t have a system in place. If you are diligent about keeping track of your spending and monitor your balances every month, though, credit cards can be very helpful. Without some type of monitoring system in place, many consumers let their balances grow out of control as they miss payments or forget about them altogether. Credit cards allow you to keep track of your daily spending easily and make it easy to add and subtract purchases throughout each day without worrying about whether you’ll have enough cash on hand when it’s time to pay. A simple budgeting tool like Mint is an invaluable way to log credit card transactions and keep an eye on how much money you’re going through each month.
2) Avoid late fees
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If you pay your credit card bill on time every month, it’s money in your pocket. If you don’t, you could end up paying late fees (and possibly other penalties). Late fees are per transaction and could add up quickly. Avoid them by being responsible about your payment schedule. The best way to do that is by automating payments: Most credit cards allow you to set up automatic payments from checking or savings accounts. Your card will be charged on time every month without fail. Plus, automatic payments are deducted at convenient times (like once a month) rather than when you get around to mailing in a check; that means you can spend those resources elsewhere–like on more pressing financial priorities like retirement savings or emergency funds.
3) Earn rewards
Some rewards cards allow you to earn points or miles toward future purchases or flights. Others give you cash back or even put money into your savings account. Some cards offer financing, too—meaning that your purchases are immediately deducted from your available credit line and you can take advantage of an interest-free loan. No matter how you decide to use your card, make sure you pay off your balance each month so you’re not paying anything extra on top of what you already spent for that item or service. In general, you should aim to get a card with good rewards in categories where you spend regularly: If gasoline is one of your expenses, look for reward programs geared specifically toward gas; if groceries are high on your list, then search for grocery store-branded credit cards. You may want to sign up for more than one—but be careful when doing so because some companies treat them as one big bank account. This means that if you charge $500 to one and then $500 on another within just 30 days (for example), they may total it all up together rather than running them as two separate transactions. After all, they don’t want to give away free money by letting someone walk away with $1,000 worth of free stuff!
4) Transfer balances
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If you have multiple credit cards with high interest rates, consider transferring balances so that you can start paying down your debt. But don’t close accounts without first figuring out which card has a lower rate—you may be able to save money by keeping your higher-rate card open and only paying off debts on that one. Just make sure to always pay at least your minimum payment on time each month. If you can’t afford it, then it’s better not to keep that account active for too long. Closing it will hurt your credit score (although less than defaulting). Check out our list of best balance transfer credit cards if you need more information about how it works or want some strategies for choosing between offers.
5) Boost your credit score
Keep your credit utilization rate—that is, your balance as a percentage of your credit limit—below 30%. A lower number will help you keep any interest rates low, and it will also help you avoid being denied for an apartment or car lease. And with many businesses accepting only credit cards these days, it’s easier than ever to rack up big balances. If you’re trying to pay off debt while building your credit score, don’t worry: As long as your payments are on time and reported, you can handle multiple balances. While using several small accounts instead of one large one may not be ideal in terms of overall interest paid out, it won’t hurt anything when it comes to credit scoring.
6) Build your business credit history
Building credit can help you get lower interest rates on mortgages, car loans and other personal finance products. Opening a credit card account is one of the fastest ways to begin building your business credit history. Your score will rise based on your payment history, utilization ratio (the amount you owe versus how much available credit you have) and length of time that accounts have been open. It’s important to note that if you close an account before paying it off in full, your credit score could drop.
7) Get cash advances
When you need money, it’s nice to have options. For example, if you’re in a pinch and an emergency comes up, having access to cash advances can be useful. Plus, some credit cards pay higher rewards when cash advances are used. Although using your card for cash advances isn’t ideal because they typically come with high interest rates (and sometimes fees), they can be helpful if you find yourself stuck without enough money in your bank account. If possible, try not to make any more than one or two such withdrawals per year—but don’t let lack of funds stop you from getting an emergency plane ticket home for a family member’s funeral or caring for your ill child at home.
8) Use the credit card benefits such as warranty, car rental insurance and travel insurance
A credit card is more than just plastic; it’s an insurance policy against financial hardship. If you purchase something with your credit card and it’s damaged or stolen, for example, there are many benefits that can reimburse you for its value. Many credit cards also come with complimentary rental car insurance and travel insurance. Be sure to look into these options if you frequently rent cars or travel overseas. Even some general-purpose cards offer accident insurance while traveling on common carriers (airplanes, boats, etc.). And if your trip is disrupted by an event covered by your policy (flooding in Thailand last year?), some cards will even reimburse you for other nonrefundable expenses related to rebooking flights or hotels.
9) Bigger purchase protection limits on some cards than others
Visa, MasterCard and Discover all have different purchase protection limits for cardholders. If you charge $500 on your Visa, that’s going to be pretty hard for fraudsters to buy. On other cards, however, it could be less difficult. For example, if you’re using an American Express card and somebody steals your card information online or makes charges on your account after they found out what number belongs to you (which is more likely in case of AmEx), then only $50 will get refunded as a coverage limit by American Express. In fact, most issuers don’t give out any coverage limits at all; rather they usually outline exactly how much money is protected under different scenarios like misrouted purchases or unauthorized charges.
10) No annual fee
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If you’re someone who likes to carry at least some balance on your credit card, not having an annual fee is essential. You’ll pay less interest over time if you choose not to pay in full each month because you won’t get dinged for accrued interest from using your card. For example, if you have a $500 balance on your card that accrues 20% in interest annually, it will take about six months for paying in full (at $250 per month) to be cheaper than carrying a balance and paying interest. Annual fees can really add up quickly, so keep them at bay by not committing yourself to one credit card with an annual fee if you don’t have sufficient income or savings set aside for monthly payments. Many cards have no annual fee, though if yours does just bear in mind that those cards may also come with additional requirements like higher APRs (annual percentage rates). Consider whether those conditions might fit your spending patterns better before choosing one without an annual fee.
Are rewards enticing? Rewards are another important feature of any credit card, but their value can vary widely based on how you want to use them. Do you see yourself earning points towards flights or hotel stays? Or do cash back rewards sound better? Maybe both is what entices you most—or maybe neither suits your needs.