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Last week, I covered getting out of credit card debt. I tackled some ways you can dig yourself out of debt without paying a debt consolidation company.

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.

You Spend Less Money with Cash

It's a pretty bold statement, but generally it's true. If you pay with cash for your goods, then you're expected to spend less than your peer who uses a credit card.

One thought shared from the authors:

“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 altogether. 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 between 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.

Using Credit Cards to Maximize Your Rewards

On the other side of the table, some bloggers have written about how they use credit cards to earn money and rewards.

It is possible to take advantage of credit cards and balance transfers.

Credit Card Perks

Many people don't realize they can receive some great perks from their credit card companies.

Those who use credit cards for the rewards typically are aware of them and take full advantage when possible.

What kind of benefits can you get with big purchases with credit cards?

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.

Money Green Life offered his take on Chase Freedom Ultimate rewards. What other benefits does your credit card offer?

Holds Aren't a Big Issue with Credit Cards

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.
  • Avis: Debit cards are accepted for rentals, but you have to meet Avis' eligibility requirements.

These may change as more people request having debit cards accepted for reservations.

Employers and Insurance Companies Look at Your Credit Score

With FICO becoming more pervasive, there has been an increase with insurance companies and some employers checking your credit score.

FICO scores can be lower if you close your credit cards and lower your credit utilization.

For some people, that's not a big deal as they are not focusing on FICO scores, but it could be a problem for you.

Protection with Credit Cards?

Yahoo Finance had a piece last week on some dangers of only using your debit cards.

Credit Cards: A Family Decision

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 to play the game with rewards and cashback. It just seems like too much hassle at this time. We're happy with our decision, but we're willing to adjust.

How do you guys deal with credit cards?

About Elle Martinez

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..

17 comments add your comment

  1. As most people already know… I am firmly entrenched in Camp Avoid and will battle against society’s false need for credit cards until the day of my glorious departure.

    I’ll take simplicity and freedom from credit relationships over entanglement with that industry any day thank you!

    Excellent write up here, thanks for the thorough inspection.

  2. Thanks Matt for sharing your perspective. I think you make some good points on the problems with credit card companies.

  3. I think credit cards, if used responsibly, are great. I use it as a way to track my spending. As an experiment, I spent a week without credit cards and only used cash for all of my transactions. Guess what? Not only did I have no idea where I spent everything, I also spent MORE with cash. Cash seems to burn a hole in my pocket so it will be credit cards for me.

    I have to add that I always pay the balance in full on ALL my credit cards and do not have debt other than the mortgage.

  4. Thanks Julie. I’m glad you shared your credit card use and how it works well for you. I wanted to share both perspectives with this post.

  5. Using only cash definitely limits my spending. It’s just too painful to giveaway the money.

    That said, I have one personal credit card that I use for 80% of all transactions. It helps keep track of my spending. I set a limit, and stop using it completely once i hit it. It’s a 1% home rebate card, but i never have the “spend more, save more” DOOM mindset. That’s just silly 🙂

  6. “You Spend Less Money with Cash”

    Definitely true. I buy a lot of electronics, computer parts and appliances. Although purchasing using card will allow you the option of staggered payment on some items, paying with fast cash often affords you a discount as much as 5-7%. The only thing credit cards are probably good for are online purchases, but most of the time you can do that using Paypal.

    I have never been a believer in credit cards but lets face it, I think in a few years time we’ll be done with paper money.

  7. I have to agree with Julie that credit cards are an excellent tool for those who can use them responsibly. My husband and I have no debt besides our mortgage. We have an Amex that gives us 5% cash back on gas and grocery store purchases. We then purchase gift cards at the grocery store to get 5% off other purchases. We have never carried a balance and have no annual fee. Last year we earned over $1,000 in cash back. This year we’re pacing for another $800.

    Use them as the tool they are and don’t let them use you.