Last week, I covered a about on getting out of credit card debt. I tackled some ways you can dig yourself out of debt without paying a debt consolidation company.
Have you weighed the effect of credit cards?
Now I wanted to talk about the pros and cons of using credit cards with your finances. There are a few personal finance bloggers who are very vocal on credit cards. Instead of finding some middle ground, they kind of fall into two camps: use credit cards aggressively for their rewards and avoid credit cards at all costs.
I’ve been weighing the pros and cons of using credit cards and wanted to see what you guys think on the subject.
Living Off of Cash and Not Credit
We live a cashless society for many things. It’s become standard to swipe your debit or credit card at check out. I rarely see people use checks in my day to day routine.
When I use ‘cash’ in this post I’m also referring to debit cards which is limited by the amount you have in your bank account. Living a life without credit cards is possible and comes with some benefits and inconveniences.
“The studies suggest that less transparent payment forms tend to be treated like [play] money and are hence more easily spent (or parted with)”
Have you found this to be true for you? Do you spend less with a cash system?
Avoid Credit Card Companies’ Fees and High Interest Rates
Wall Street Journal ran an article last week on how credit card companies are getting more bold with new fees and consumers have to decide if they want to make up or break up with them. In fact,
Some Citigroup Inc. customers have seen their credit limits cut, their interest rates jump as high as 29.99% or their cards canceled altogether.
Last month, Bank of America, another large card issuer, said it is testing annual fees ranging from $29 to $99 on a small number of card holders, which may include some who pay their bills in full every month.
Companies are skyrocketing fees and interest rates to improve their profits. I can see how this motivates people to get rid of their credit cards all together. It’s completely valid in my opinion to not want to deal with companies that do this as a policy. There is a big difference with making a profit and taking advantage of your customers.
No Credit Cards = Simplifies Finances
I’m not saying that having credit cards is a huge increase on your financial managment, but it does increase it to some degree, depending on your method. Having one credit card is a minor addition to the finance chart.
Do Rewards Add Up? Run the Numbers
You see the 5% cash back for some cards, but is it a really a good deal? Have you ran the numbers to see if it works out in your favor?
Expiration Dates: Sometimes your rewards have to be used by a certain date or you’ll lose them.
Fees: Some credit cards with decent rewards come with annual fees. Will the rewards earned cover the cost?
Reward Limits: It’s not as if rewards are unlimited. Many have limits on the rewards you can acquire with their program.
In many cases, you can automate your price protection for free, and you might even qualify for a free extended warranty…
What few people realize is that, simply by paying with a credit card, you may already be getting an extended warranty. For example, the American Express Buyer’s Assurance program doubles the manufacturer’s warranty up to an additional year. Many MasterCard- and Visa-branded cards offer something similar.
Why pay for something that you’re already getting? Call the customer service number on the back of your credit card and ask about their extended warranty policy. Just be sure to save your receipts, as you’ll need proof of purchase to make your claim.
If your check card has a hold, such as a car rental,you may not be able to access your money for a few days. That can be a hassle if you have upcoming purchases. On the other hand, you can put it on your credit card and then pay it off from checking with online bill pay.
Hertz: Accepts debit/check cards with Visa or Mastercard logo (make sure you have $200 in addition to your rental fee. Prepaid visas not accepted
Enterprise: Accepts major debit/check cards (no details)
Budget: Debit cards not accepted at some locations to reserve a vehicle. Payment can be made with a debit card.
Thrifty: Major credit card is generally needed for rentals. Payment can be made with a debit card.
Alamo: Debit cards are accepted for rentals, but you have to have proof of round trip, such as a ticket.
Right now, we have a credit card between the two of us. It’s paid off every month and we use it occasionally to keep it open. I don’t plan playing the game with rewards and cash back. It just seems like too much hassle at this time. We’re happy with our decision, but we’re willing to adjust.
Elle Martinez helps families at Couple Money achieve financial freedom by sharing tips for reducing debt, increase income, and building net worth. Learn how to live on one income and have fun with the second..