I will tell you from the beginning that I LOVE my credit card. Before I had a credit card, I used my debit card for everything. There are good and bad things about debit and credit cards. Only you know what will work the best for you but this is why I use credit over debit.
1. You are protected if your card gets stolen
Under federal law, if your credit card gets stolen, the most it will cost you is $50 (and many companies won’t even hold you responsible for that). It happened to me when someone tried to use my card online to buy luggage from Italy. I reported the transaction to my bank and they took the $700 charge off of my statement. The money in my checking account was never in jeopardy and after I reported it, I never had to worry about it again.
With debit cards, the rules are more complicated. If your card is stolen and you report it before the card is used, for the most part, you won’t be held responsible. If your card has been stolen and you report it within two business days, you may be liable for up to $50. If you don’t notice your card is missing and you don’t check your bank very often and wait until after two days to report a stolen card, you could be responsible for up to $500. If after 60 days, you still don’t report an unauthorized transfer or withdrawal, you risk unlimited liability.
2. The rewards
There are so many types of rewards on credit cards and you could be missing out on hundreds of dollars of swag for using debit. I used my debit card for all of my purchases for years and I never got anything in return. Now that I use my credit card, I get at least one free $500 flight every year from using my credit card. I have a free credit card that I got from my credit union with no annual fee. I can choose from cash back, gift cards, or free flights. Other cards offer valuable benefits like a free FICO score once per month, hotel stays, gas cards and more. No matter what you like to do or what you enjoy spending money on, there is a card with rewards for you.
3. It helps your credit
A credit card is considered revolving credit (as opposed to fixed credit like car, home and student loans). It is important to have both of these types on your credit report if you would like to be able borrow money in the future at a low interest rate. Having a good credit report and score is also important because more employers and landlords are looking at credit reports before hiring employees or renting apartments. By keeping your credit card debts low in comparison to your limits can really help to improve your credit score. It can be really difficult to build your credit report without a credit card.
4. I stick to a budget and treat my credit card like a debit card
One of the major problems with credit cards are that they allow you to spend money that you might not have right now. In essence, you are spending money and they are keeping a running tab for you. This can get some people in to trouble. Most credit cards will allow you to “carry a balance’ or in other words, you do not have to pay off the balance at the end of your billing period (usually 30 days). When you don’t pay your credit card off at the end of the month, you get charged interest. The average interest rate on a credit card is between 12%-27% but can go as high as 36%.
I try to treat my credit card as a debit card and I only spend money if I know I can pay it off by the end of the month from my checking account. I don’t spend money that I don’t have. This requires self discipline and a budget. If this is something you struggle with, using a credit card for all of your purchases may not be the best for you. If you would like help creating a budget, our office can help.
I love my credit cards and I don’t think I will ever go back to mainly using my debit card. Everyone has different values, habits and goals with their finances and it is important to weigh all of the options and find something that really works for you. When choosing a credit card, consider all of the options and read the fine print. Know what your interest rate is, consider if the annual fee is worth the rewards and know how to redeem your rewards before they expire. Don’t forget, we are here to help with all of your financial questions.
University of Utah Peronsal Money Management Center
8:00AM – 5:00PM
200 S Central Campus Drive, Salt Lake City Utah, 84112
Olpin Student Union, Room #317