You make decent money, and you’re good at managing it. You have more than enough cash to pay for the things you need, plus some left over for discretionary spending. You know people with credit cards who have staggering amounts of debt and they’re miserable. You don’t want debt, and you want to be happy, so you decide to pay cash for everything. While it’s true that mismanaging credit cards can make a person’s financial life uncomfortable, the pros far outweigh the cons when it comes to using credit cards to pay for purchases and some bills versus paying cash. Let’s consider the compelling reasons to use your credit card, even if you have plenty of cash to pay for goods and services upfront.
Bigger Purchases
Being able to take on a bigger purchase like a home is a compelling reason to start paying for things with a credit card instead of cash. You need a loan to make most home purchases, and lenders won’t know if they should risk lending money to you if you don’t have a credit history. Your cash savings are only one piece of the puzzle when it comes to getting approved for a home loan with a low interest rate. To build a credit history, it’s important to use a credit card, but you’ll need to be smart about it. Lenders prefer that you use no more than 30% of your total available credit, a practice known as low utilization. Say all your credit cards add up to a $5,000 credit limit. To build a credit history and good credit rating, charge no more than $1,500, and pay off the balance monthly. This lets lenders know that you’re savvy when it comes to managing your money, which makes you a good risk.
Rewards
The fact is that using cash to pay for goods and services gets you little more than the good or service in return. Using credit cards allows you to think strategically about spending, so you actually get more for your money. If you happen to have good credit when you apply for a credit card, you have more choices when it comes to selecting a card that lets you maximize your cash. So while you won’t find offers for free gift cards, cashback, and discounts on gas, car rentals, hotels stays, airline tickets on receipts for purchases made in cash, with the right credit card, you can amass rewards that give you perks like these and much more. Credit card rewards might not look like much when tallied on a monthly basis, 1% and 2% cashback and points add up to significant amounts of money when you use a credit card strategically all year long.
Buyer Protection
The reasons to use a credit card for online transactions are obvious -- you don’t know the quality of the service or good being sold or if the seller will even deliver. But is it better or safer to use cash in face-to-face transactions? The answer is no. You need the buffer a credit card provides because satisfaction isn’t automatically a guarantee just because you buy goods or services in person. Buying with a credit card gives you access to deals like extended warranties and price protection that retailers and service providers don’t offer to consumers who pay cash. When you travel, using a credit card with travel perks lets you take advantage of travel insurance that covers a wide range of things like lost luggage and missed connections.
Theft
You make lots of purchases in the course of the day, from your morning coffee to flowers for your significant other. You spend your day in your hometown where you’re completely at ease, but you never know who’s standing behind you, waiting for you to lower your guard. Your cash could be stolen in the blink of an eye, and there’s nothing you can do about it. But should someone steal your credit card, you won’t be liable for any unauthorized charges once you report the theft. This kind of protection is the reason it’s a good idea to use credit cards -- not debit cards -- whether you’re at home or on the road.
Even if you’d rather pay cash, think of it this way -- a credit card is a convenient way to protect your cash. When you keep your credit card utilization low and pay off your bill monthly, you get the protection and perks a credit card provides and avoid the risk of getting into debt.
