I always get asked, “Why do you use a credit card”? Many people shy away from credit cards and possibly go into debt. For some people, that’s a completely sound choice, but I’m here to tell you credit cards aren’t as scary as many make them out to be.
But First, a Warning
If you are an impulsive shopper, a habitual spender, or someone with really unhealthy financial habits, this post is not for you. This game is not for you and you should never try to extract “value”. And that’s OK!
Take Dave Ramsay for example. His whole life brand and motto is to never take any debt for any reason. I don’t have a problem if that’s what someone chooses for their life. But when they start preaching to the choir, I get a little annoyed. Like I said above, credit and debt aren’t for everyone, but that also doesn’t mean nobody should do it.
Let me ask you: if I gave you a thousand dollars today on the premise you’ll pay me back in a month, would you do it? Would you be able to use it responsibly, so that my trust can grow with you? If so, then read on!
The Financial Reason
Fraud is rampant. We see more data breaches, identity thefts, and fraudulent purchases than at any point in history. At its core, there is one primary reason I use credit cards – extra security.
The 2013 Target breach showed the world just what was possible. In mere days, over 40 million card numbers, PIN numbers, and personal information were stolen. Now it’s not a matter of IF, but rather WHEN.
So when it happens, I don’t want an attacker to get my bank card number and PIN. It’s a lot easier to steal money, either at a different retailer or worse – an ATM, where the cash becomes untraceable. I don’t want attackers to get a PIN number that most people share with other accounts. (Your bank PIN is probably the same as your phone PIN or your locked safe, isn’t it?)
Even if they got through all those defenses, I have one final move left – charge disputes. When you spend money on a debit card, you are fighting to get your money back. Banks are a lot less likely to help you if they don’t necessarily lose value. Meanwhile, on my credit card account, the bank is fighting to get their money back. I can just refuse to pay the charge and now they’re on the hook to figure it out, lest they lose money.
The Value Reason
I extract maximum value across my credit cards. Credit Card A might earn 5% on groceries while B earns 4% on dining. I’m definitely using A for groceries but then switching to B when eating out! I’m currently at a point where any purchase I make is no less than 3%. Often this value exceeds that, which I highlighted briefly in my post about airfare value.
Over the past 5 years, I’ve received thousands of dollars in cash back value simply by using a credit card. Doing the same things I would already be doing, paying with cash or debit simply costs more.
The Benefits Reason
Each of my cards includes a variety of benefits, most of which I use. The Clear, TSA PreCheck, and trip delay insurance benefits are all useful for travel. The automatic elite benefits and codes make my hotels and car rentals much cheaper, especially with saving on the young driver fee. The extended warranty coverage has, on occasion, allowed a few extra days for defective products to show their true colors. The concierge on premium cards has gotten me reservations in multiple booked-out restaurants.
All these are not possible if I just used cash.
Would you use it?
That’s the question I ask you. Say you don’t have a Netflix subscription and you’re ok with that. If I got you a card with an annual fee but it had Netflix, you might see it as a nice perk. However, you shouldn’t get it just for the Netflix benefit. The “value” shouldn’t include anything you wouldn’t already use.
Take the Platinum Card for example. If someone uses Uber every month but doesn’t travel much or use streaming services, it doesn’t make sense. The “value” they get is only the Uber credit, $200. They should not be getting the card, paying the hefty $695 annual fee, then trying frantically to use the credits just to “get value”.
The Myths
The biggest misconception I hear about credit cards is that having too many of them will hurt your credit score. I can tell you right now I have 11 credit cards and my credit score is very healthy. The key is responsible use. Pay it off in full every month, and there shouldn’t be any problems.
I’ve also heard that everyone who gets a credit card goes into debt. Again, I have many credit cards and consider my financial habits to be quite healthy. But this ultimately boils down, once again, to responsible usage. Pay off in full and don’t accrue interest. But most importantly, do not spend more money than you can afford, simply because “you can”.
Final Thoughts
I hope this post sheds some light on what the true value of credit cards is. It’s not for everyone and we all need to be smart about how we use it. Don’t blindly follow advice saying credit is evil. But I’m also not responsible for overextending oneself :). Do what’s right for you.