Whether we want to accept it or not, money rules a large part of our lives. Being able to trade goods/time for money as really allowed us as a species to pursue other things to the point where we could develop as a society. When it comes to buying things though, there are a few different ways to do so: cash, check, debit, and credit cards. The saying always goes “cash is king”, but I’ll show you why it’s in your best interest to always use a credit card whenever you can.
Dave Ramsey and fans may want to cover their eyes, but credit cards are the best possible way to pay for every single purchase you make… as long as you do it responsibly. The biggest argument against using a credit card is the high interest you’ll pay on the card. However, as Dave himself believes, you should not buy something (with cash or with a card) unless you can afford to do so. To me, that’s the first rule of using a credit card. Assuming you pay your card off every month, the interest rate could be 200%. It doesn’t matter, because you’ll never pay interest if you pay your card every month.
What happens if an emergency comes up, and you need to pay for something you can’t afford? That’s the perfect case of why you should use a credit card. If you had to use cash or a debit card, you straight up would not have enough to cover the expense. That would mean having to either overdraft your account (which would come with an accompanying overdraft fee), or having to rely on other people with cash. With a credit card, you can put the entire charge on the card itself. From there you’ve got a couple of options.
The first one being that you’ve got 1-2 months to earn enough to cover the expense before paying interest. With the way credit cards work, you’re not charged interest immediately (some predatory cards do however), but instead you’re charged interest as much 2 months later after the second statement has closed. In essence, you’re getting a free short term loan every time you swipe your card. Of course, it’s in your best interest to pay it off immediately.
The second option includes transferring out the debt. Many credit cards offer a 0% interest balance transfer. If you have multiple credit cards (from different issuers) you can transfer a balance from one card that has interest, to another card that is offering a 0% APR promo. These promos help you pay down a high balance without interest for a certain amount of time. After the promo, the remaining balance will be the original APR on the card, so it is in your best interest to pay off the balance within the time allocated on the offer to avoid any interest.
If you’ve disagreed with me on every point thus far, there’s definitely one huge reason to use a credit card for everything, and that simply security. When it comes to online purchases or subscriptions, you cannot use cash, so you’re forced to use some sort of card. Keep in mind that debit cards are linked directly to your bank account.
As much as we may want to ignore the dirty truth, systems are not as secure as we like to think they are. Nothing is unhackable, people even hack into NASA, so what’s stopping someone from hacking a place you buy things online from, or from a subscription service you use? If you’re paying for something with a debit card, you’re giving the hacker the key to your bank account. It doesn’t matter how much or how little you have in there, it’s fair game for a savvy person.
The problem lies here, and that is how fast your bank will help you out. If a hacker uses your card to purchase tickets to New Zealand (happened to me), would you prefer they use your bank account, or a credit card? With a credit card, there is zero liability, and because it’s the bank’s money, they will handle the problem right away. Now, if said hacker bought those same tickets with your bank account, it could be days before you see that money return to your account. Why? Because while your the bank’s customer, it’s not the bank’s money! They straight up don’t care as much as if it were their own money. That’s not to say they won’t fix the problem, because they will. But you may be out of money for a few days. If you rely on those funds for essentials, you’re straight up out of luck until the bank gets around to fixing the problem.
I don’t know about you, but I don’t necessarily feel safe walking around with much cash in my wallet. I’ve been mugged before, and while losing $40 wasn’t the end of the world, imagine if I would have had more on me? If I was on my way to pay for a car repair, what would I have done? If someone steals my wallet, and gets a hold of my credit cards, it’s no big deal. I let my credit card company know, and they’ll cancel my existing card and usually overnight (free) me another card with a different number. In my own personal experience, it’s taken a few business days to get a replacement debit card.
I could have brought this point up first, but I really wanted to bring up the other points first. This was the obvious pick, so it’s important to remember the other benefits of using credit cards as well before we delve into this one.
Now remember, our first rule when earning points on a credit card is do not spend money you were not planning on spending to earn points. That’s a dumb game and you’ll lose money! If you pay interest on a reward credit card, you would have lost money as the points are not worth the interest paid.
However, if you’re responsible with your credit card use, and you pay things off every month, you will actually make money using a credit card for every purchase you make. There are two types of ways to get rewarded, cashback and points. Cashback is the easy way to go about earning money. For every single purchase you make, you’re technically getting rebate, anywhere from 1-6% back. Imagine how much money you would have saved over your lifetime if for every purchase you made back 1% if you started at 18 years old? Now what if we optimize that strategy, and we’re earning at least 2-3% for every purchase minimum? That can really add up!
If we use points/miles, each individual point can be worth multiple cents. Points are earned the same way, using credit cards that earn points. However, if we redeem them correctly, it’s possible to get outsized value, in extreme cases up to 10+ cents per point! That’s a huge return on your spending, and really is what makes expensive traveling possible on a cheaper budget.
One Last Case Against Cash/Debit Card
Let me ask you one thing, credit card issuers have to pay out rewards to their credit card users, who do you think pays for those rewards? Well there’s actually two people.
The first is the business that you use the credit card itself. There a certain fee imposed by the credit card company every time someone swipes. So, if a business is setup properly, it accounts for people paying for credit cards. Businesses will generally raise the price of their products to account for the fee, regardless of how you pay. This means no matter if you pay with cash, debt, or credit, you’re still funding credit card reward points. You pay as well get rewarded for the higher prices you’re paying.
Secondly, the people who pay interest on their credit cards also help pay for the rewards. If you pay any interest on a reward credit card, you pretty much lost money. The points will ever be worth the high interest some of these cards charge. So whatever you do, make sure to always pay on time!
Now, I understand the reason why Dave Ramsey says what he says about credit. There are a ton of people that are just irresponsible when it comes to credit, and he was one of them too. What works for one person doesn’t necessarily work for everyone though.
On this blog here, I’m teaching you to be responsible with credit. If you are responsible with credit, you can earn a ton of rewards which can really transform your life. However, even for people that are not, there are many advantages to using a credit card for your purchases. If there’s one takeaway, reason, it should be the added level of security that credit cards provide. Credit cards just add an extra layer, so if things go sour, hackers don’t have access directly to your bank account.
Of course, there are other reasons why I prefer credit cards that I didn’t lay out here, but I’d love to hear your thoughts on the matter too. Let us know what you think, or why you prefer one setup over the other in the comment section down below.