There Are Advantages To Credit Cards

Written by on June 23, 2012 in Money - No comments | Print this page

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Credit Cards have many advantages

Credit Cards are dangerous, but used responsibly they have many advantages.

Cut up your credit cards! Cut up your credit cards! Credit Cards will destroy you! NO ONE CAN HANDLE A CREDIT CARD!

You can panic and go that route or you be reasonable and view credit cards as just another lending opportunity.  Like any other loan it is not normally a good idea to use it for the purchase of trivial items, but also like other loans they do have many valuable uses.  Revolving credit should be respected, but it should not be feared.

There are advantages to credit cards and it is important to understand those advantages, even if they are not going to be used, for a complete picture of personal finance.

Credit Cards can be used to buy things.
Imagine you are driving down a highway on your way to work. Then suddenly your not.  The car has lost power.  You just have enough time to get off on the shoulder before the it stops moving.  Now you are on the highway in a dead automobile and quickly becoming late for work.  Superman is not going to save you.  He can’t save you, but a credit card can.  With a credit card you can call a taxi, a tow truck, and a garage and get the ball rolling on repairs with very little hassle.  Pay the cards bill before the end of the month and there are no fees.  This is a free convenience that is hard to argue is evil.

Develop a strong credit score.
You credit score determines how much you will pay for things like car loans and home mortgages.  It is fairly important.  Regularly using, then paying back a credit card is the easiest way to build a credit history.  Credit utilization is a large chunk of a persons credit score, so having credit cards with low balances greatly improves a credit score.

Keep track of those purchases.
How much did you spend on rent last month? How much on your electric bill? How much on car payment.  Most people know that information, and they take steps to contain those costs.  Now quick, how much did you spend on gas for you car last month?  What was the total cost of groceries?  Few people keep track of that information, but they should.  It is far easier to buy cheaper food or travel less than it is to cut costs on rent.

The first step to figuring out how to cut costs is to know where the money is being spent.  This is accomplished much easier if purchased with a credit card.  Pick one item, such as groceries, to buy with the credit card.  Then pay the cards bill once a month.  This turns the multiple small purchases of grocery shopping into one large monthly bill that is easier to track.  Use that information to determine if it is an area that needs trimming.

Make money with Credit Card Arbitrage.
Many credit cards offer a 0% intro APR.  Using one of those cards it is possible to actually make money.  As an example lets say there is a man named Joe that wants to buy a $1500 television.  Joe is decent with money so he is not going to go into debit just to get a TV, so he saves his money.  Then once he has the $1500 instead of purchasing the television he puts the money into a high yield savings account with a 3% return.  Then gets a credit card with a 16 month 0% APR offer and purchases the television with that.  He makes the minimum payment every month for the 16 months then pays off the card in full.  Doing this he was paid interest on the money he used to purchase the television.

Cash Back
While not as common as it used to be, many cards still offer cash back on purchases.  If you always pay the full balance every month then this cash back is free money.

Warranties
Often credit cards offer warranties on the items purchased with them.  This is especially useful for online purchases where sensitive items are sent over the mail and handled by many different people.

Summary
Many people have gotten into a lot of problems using credit cards.  That doesn’t make them evil.  Credit cards are a tool that must be used with caution.

 

Image(s): FreeDigitalPhotos.net

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About the Author

Matt Brand

Matt Brand is QLR's money saving expert. His experience with credit cards and student loans have made him take a strong interest in personal finance, saving money and sharing his knowledge. He is passionate about teaching others how to avoid the trap and make smart financial decisions. View all posts by Matt Brand.