Credit Card Debate

Credit Cards are the subject of continuous controversy. On one side are consumer advocates who encourage the use of credit cards by people who are consistently able to manage their finances without incurring debt. On the other extreme are many personal finance authors who cater to those less able to manage their finances. Their advice is to cut up your credit cards and go with debit cards or even cash.

The Argument Against Credit Cards

Credit cards are a dangerous financial tool when used as a method of finance. Absent sound budgets and personal resolve, it is all too easy to make purchases that exceed your ability to pay for them. The result is compounding high interest rates and late fees, resulting in crushing debt. The ease and simplicity of just charging it encourages credit card users to continue to accrue more debt. Dreams have been crushed and lives have been ruined as a result of the burdens of financial ruin induced by credit cards.

Absent the possibility of debt, the use of cash and/or debit cards holds the appeal of guaranteed financial solvency. If you can’t spend what you don’t have, there is no way to go into debt at the mall or at the supermarket. Credit card opponents have created clever workarounds to be able to rent cars, book hotels, and purchase airline tickets. While this process is more difficult than using a credit card, that is a feature as it discourages luxury purchases by people who have been struggling with debt.

The Case For Credit Cards

Credit cards can be a valuable financial tool when only used as a method of payment, not a method finance. By charging only what you can afford to pay, and by consistently paying your balance in full and on time, many people enjoy the rewards and protections that credit cards can provide.For example, many savvy reward card holders have learned how to earn free travel (from cards like these) or cash back rewards worth 2% or more from their purchases (using cards like these that earn cash back).

Beyond rewards, credit cards offer security that cannot be matched by cash or debit cards. If you use your credit card and you do not receive the goods or services that you paid for, you are entitled to issue chargeback and reverse the charges. When you use cash or a debit card for your purchases, you have very little recourse.

Credit cards allow you to easily reserve a hotel or a rental car, using your card in lieu of a deposit. Credit cards offer car rental insurance that allows you to avoid paying the exorbitant coverage rates charged by the car rental companies themselves.

Finally, credit cards offer an outstanding way to conveniently manage your finances, and even interest free loans. When you pay your balance in full, you get up to 50 days of free credit. Most people make several charges a day, which can amount to hundreds of transactions a month. By running these charges through a credit card, you only have to pay a single bill, and you have a good record of all of your transactions.

Other Options

Charge cards are an option similar to credit cards. The key distinction being that charge card holders are never supposed to carry a balance. Of course, you can, but you will be in default and incur penalty interest rates. For those who pay their balances in full, there really is no distinction. While it is possible some might use the penalties of a charge card as an incentive to pay their balances every month, this is a dangerous game to play

Another option in the secured credit card. These products offer all of the protections of a standard credit card, but there is no line of credit from which to borrow. In fact, purchases can only be made once the card holder makes a payment to his or her account. Unfortunately, many secured cards are targeted at people with poor credit and riddled with fees.

In Conclusion

Credit cards are a powerful tool. Like any tools, credit cards can be extremely destructive when misused. The majority of Americans do carry a balance on their credit card, incurring interest on all of their purchases from the moment of the transaction.

At the same time, the potential for misuse is not sufficient to relegate credit cards completely. For those who can control their spending, credit cards have become an invaluable tool. There really is no one answer to the debate between credit card users and the naysayers. In the end, it all comes down to your personal ability to manage your spending and pay your bills on time. If you can spend within your means and manage your finances, you would be giving up valuable protections and rewards by limiting yourself to cash and debit cards.

If on the other hand, your credit cards encourage you to spend more than you can pay off, you might be better with other methods of payments.

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