I know this sounds pretty crazy to some people. I remember specifically, when I was young, the person in front of my bought a coffee and swiped their credit card. My dad smirked and whispered to me:
This guy put a coffee on his credit card?? He doesn’t even have $4 cash?
At the time it made sense. Credit cards had 20% interest! Why would you “borrow” cash just for a coffee? So irresponsible!
The huge point I was missing is that every credit card specifically says in the agreement that you can avoid this interest by paying the full balance by the due date. So that means that there is NO fee to borrow on a credit card (as long as you pay in full). So with that debunked, let’s look at some of the positives:
- Security – Credit cards offer way more security than using a debit card or cash do. If someone steals and uses your credit card, your bank’s fraud department will almost always side with you.
- Cash Back (Rewards) – Cards like the Citi Doublecash give you 2% cash back on everything. It’s basically a 2% discount on everything in life. And, since retailers need to pay the credit card processors a fee of 1-3%, most things you buy are already marked up to cover that fee. So by NOT using a credit card, you’re basically funding the rewards of those who do! Revolving category cards like Chase Freedom offer up to 5% cash back in some categories.
- Delayed Payment – By delaying the cash from leaving your checking account until your statement’s due, you pad yourself in case of the sky falling.
- Promo Bonuses – Spend $3,000 in 3 months and get $500, or 100k miles for your favorite hotel chain, or airfare miles, etc. Taking advantage of these promos is also a great benefit.
So next time you pay with cash, just remember that you’re leaving 2-5% or more on the table for the next guy! Pay your balance in full and start taking advantage of the benefits credit cards offer. Budgeting with a system like “You Need A Budget” (www.ynab.com) makes it so, so easy to make sure all spending is backed with cash. Meaning you’ll never carry a balance and pay interest!