4 Reasons why Credit Cards are superior to Debit Cards
While a lot of people use Credit Cards nowadays Debit Cards are still very popular. I always wonder why. While I can see some of the benefits of using Debit Cards, if you have a choice you should be using your Credit Cards. Here’s why.
1) Using your Credit Card Builds your Credit Rating
Credit Rating is extremely important. By using your credit card and paying your full balance every time, you are building a strong credit rating. This will help immensely when it comes time to borrow funds for a loan or mortgage and if you ever need to get another Credit Card. By having a strong Credit Rating, it gives you the extra freedom you might need. For example, while Visa is extremely popular you can’t use it everywhere. Costco is a good example where you can only use their American Express, and you would need to have a decent credit rating to get their American Express.
2) Using your Credit Card gets you Reward Points or Cash Back
Depending on the type of credit card you sign up for, you can either get points for every dollar you spend or cash back for your purchases. Of course, there are cards that have absolutely no perks because they are a no-fee Credit Card.
To side track a little, I don’t think you should ever have a Low Rate Credit Card. A low Rate card is where the APR (Annual Percentage Rate) is much lower than the average credit card. But if you pay your full balance in full every month, you’ll never have to worry about the APR. My Visa has an APR of nearly 20% but because I pay the balance in full every month, I never pay a penny of interest. Every advantage I write about using Credit Cards in this article assumes that you do the same. If you keep a balance on your credit card then you should stick to using Debit Cards because it means that you are having trouble controlling your spending habits.
I like getting points because it gives me the flexibility to choose what I get. Usually you get the best bang for your buck by choosing travel rewards like flights and this will obviously depend on your hard so take some time to go over reward schemes of your current card or potential cards. You can also get cash back with point cards but usually they’re a little lower than Cash back credit cards.
Cash back Credit cards are also nice because they usually have a better cash back percentage than point cards. Just be careful because some cards have an annual limit in regards to how much money you can get back. If you spend tens of thousands of dollars on your credit card, getting cash back might be great if there is no cash back limit on the card. If you can find a card that has a 1.5% cash back rate and you spend $200,000 on your card you get $3,000 cash back, not bad. $200,000 might seem like a lot but if you own a business and charge everything on your card, it isn’t completely out of the ordinary.
3) Using your Credit Card means No Transaction Fees
Every bank account is set up different so if you use your debit card a lot, you’ll need to spend some time to know exactly how many transactions are free if any. I put absolutely everything on my Credit card when I can so I never have to worry about transaction fees. If you’re paying excessive banking fees because you have too many transactions, then you should switch to using a credit card because you have unlimited transactions as long as you stay within your Credit limit on your card.
4) Use your Credit Card and pay for it a little later, but always on time!
Another great perk of using your Credit Card is that you don’t have to pay for the item right away. If you buy something today and your statement date is two weeks from now, then your due date isn’t probably for another 4 weeks. That means you can enjoy the item that you bought for 4 weeks without having to worry about paying for it. Having said that, again make sure you pay for your entire statement balance of you Credit Card when the due date comes. You never want to carry a balance on any credit card because the interest schemes on Credit Cards are extremely complicated and you’ll be paying interest for a while by missing just one payment.
I hope for those of you that use Debit Cards, this article changed the way you think about how Debit Cards are. I’m a strong believer of using Credit Cards and racking up points so that I can go on a trip somewhere or get cash back. There are multiple benefits of using Credit Cards as you see, as long as you are responsible with your spending. If you are an impulsive shopper or have no control over your finances, then Credit Cards are not for you and you should probably cut up the one you have. But if you are financially responsible, then there’s no reason to use Debit Cards. Make the switch today!
Resort Vacation photo by Snow Mojito on Flickr.
