Benefits of Credit Cards

Credit cards have become a very popular method of payment, and their popularity is still growing as more and more people discover the benefits of using them.

While credit cards can certainly be used incorrectly, and it’s pretty easy to get in trouble with credit cards if used incorrectly, using them correctly can provide both convenience and utility to the credit card user.

Benefits of Credit CardsWe do need to ask ourselves why we would want a credit card, why we want the amount of credit cards we have, and what we’re looking to get out of them. It may turn out that we may want them for purposes that may not be in our best interests, for instance to use them as a tool to spend beyond both our current means and our expected future means, which just means that we’ll probably be getting in over our heads with them.

This will come at a price of course, although we might be willing to pay that price, taking on the burden of being in default and all the negative consequences that comes from that, or devoting a large part of our income, too much, to paying the interest that result from poor decisions in the past.

Credit cards are really a double-edged sword, and like all swords, they will perform well or not so well depending on the skill of those who wield them, but we want to always focus on the potential of both sides of the blade, the one facing outward that we’re looking to gain usefulness from, and the one facing us, which can cut us if we don’t handle the sword skillfully enough.

Let’s look at the positive benefits of credit cards, why we would want to have them and use them, and how they are to be used for good and not evil.

Credit Cards Are a Convenient Payment Method

The convenience of credit cards as a payment method used to be a lot bigger deal in the early days of credit cards, prior to the coming of the debit card. If someone these days has a credit card or credit cards, they almost certainly have a bank account as well, as one needs a way to make payments on the credit card, which does require a bank account.

All bank accounts come with debit cards these days, which generally can be used as conveniently as credit cards, although in some cases a debit card may not have a contactless payment feature where their credit card will, and credit cards tend to be more on the leading edge of technology. These days though most cards of any type contactless payment.

One may want to use mobile devices to make their payments though, and this is an area where credit cards are ahead of debit cards, although some debit cards can now be used for this as well. If not though, one may have to link a credit card to take advantage of this feature.

Credit cards have the advantage of being able to be used for online purchases though, although many debit cards have come to utilize Visa or MasterCard payment processing, and come co-branded with logos from these payment processors. If this is not the case with a debit card though, credit cards can offer this advantage.

Both types of cards offer clients a way to easily track purchases and manage their accounts, although credit cards tend to be a little ahead of the curve in this area as well and often offer more robust software to manage this.

Credit Cards Offer Enhanced Security

Due to the nature of credit cards, it is easier to have fraudulent transactions reversed with credit cards than with debit cards, and this is something that most people don’t really think about much. Debit transactions are instantly permanent, and a separate transaction must be executed to offset the original one to effectively reverse it.

This can take some real time, and meanwhile your money is held up while you are waiting for the investigation to conclude and the money to be returned to you. Several weeks may even pass while you’re waiting for this, and this may mean that you aren’t able to meet your financial obligations in the meantime if money is tight.

With credit cards though, transactions are initially only pending, so that they can be cancelled and not processed if caught during the pending phase. Credit card processors have sophisticated software to detect fraudulent activity, much more so than banks have with their debit cards.

Even if you don’t catch this in time, and the transaction is processed, the credit card issuer can simply take this off what you owe with them as soon as they discover that the transaction is fraudulent, and credit cards also offer more robust fraud protection than debit cards do.

With that said, credit cards are more likely to be defrauded than debit accounts are, although both carry some risk. On balance though, while your credit card is more likely to encounter such a problem, these issues are generally dealt with quickly and efficiently and the most you usually have to worry about is not having the card for the time it takes for another one to be sent to you.

Credit Cards Offer Free Short-Term Credit

The fact that credit cards have a grace period, which means that purchases during the current billing period only have to be paid off during the next billing period to avoid interest charges, is going to matter more for some people than others.

Those with adequate cash flow won’t really see this as much of a benefit, and the proper way to use credit cards is actually to make sure that you have the funds in the bank before you put anything on a credit card, which means you won’t really be using the credit card to satisfy a need for short term free financing, although you could.

For those whose cash flow is tighter though, this certainly can be a real benefit, and can even make the difference between putting food on the table or not, should they be short during a given month. As long as they can pay it back next month, there’s no negative consequence involved here in putting something on a credit card for now.

Some people maintain this state all the time, for instance they may get paid and all their disposable income may go to a credit card or credit cards, leaving them broke but freeing up the available credit on their card or cards to be used for needed purchases during the period. This is not as bad as it sounds provided one does not let this get out of hand and exceed their ability to keep this all interest free.

While debit cards may allow for borrowing if they are used to debit a line of credit, these borrowing products never offer interest free financing like credit cards do.

Credit Cards Offer Long Term Credit

Should one need to borrow longer term, credit cards do offer the ability to borrow and pay it back over a period longer than the grace period. Interest will be paid in these situations, and while it’s always preferable to put this debt on a lower interest product like a bank line of credit, not everyone who qualifies for a credit card qualifies for these lower interest options.

Such purchases must always be made with due consideration though, and this is where the side of the blade that points towards us is located, where one may either get in over their heads or get in a situation where the purchases made become far more expensive over the long run to justify.

Still though, this has a time and a place and one may be in a situation where one truly does need to use this longer term credit facility in spite of the rates.

Not all credit cards have very high interest rates though and if one has one with rates that are competitive with lines of credit from a bank, then using them this way will make more sense.

It’s best to apply for the best rates you can get, instead of just being lazy about this, as the time spent opening up better products at least in terms of the cost of interest should you need to borrow is always worthwhile.

Credit cards can also help build your credit, and you don’t even have to use them to take advantage of this, although they can hurt your credit as well if abused,

Credit Cards Offer Rewards

One of the biggest reasons why people use credit cards is to earn the rewards that many of them pay. Some credit cards don’t offer any rewards, and among the ones that do, some offer better rewards than others, so it pays to be selective here.

Credit cards charge merchants a certain percentage, and they of course also charge their cardholders interest if they don’t pay them off in a timely enough way, and they make money from both of these.

In an effort to encourage people to use their cards more, they will provide a kickback to cardholders based upon their usage of their credit cards, usually a percentage of the amount spent.

The rewards may be in merchandise of various forms, air miles for instance, or selecting from a catalogue, or they may be paid out in cash. Cash of course is something that appeals to everyone, where the other rewards may have differing levels of appeal depending on how much you value the goods or services you may receive.

There’s lots of reasons to have and use credit cards, and many people put everything they buy on them, or at least everything they can, which is pretty much everything these days as most merchants take them as payment.

When used properly, credit cards can indeed be a benefit, but only if used properly.

Ken Stephens

Chief Editor,

Ken has a way of making even the most complex of ideas in finance simple enough to understand by all and looks to take every topic to a higher level.

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