With credit card debt on the rise and many millennials using debit cards, it might seem logical to conclude that credit cards are bad. But while the risk of credit card debt and overspending is very real, labeling all credit cards as bad misses an important point. It all depends on how you use the card.
You can get the most out of your credit cards by paying off the balance in full each month without paying more than you can afford. Responsible credit card use will not only help you improve your credit score, but it can also earn you travel rewards and cash back.
3 benefits of responsible credit card use
Credit cards offer different types of rewards, and managing a credit card account or two responsibly can even help improve your credit score. Of course, this is only possible if you use it responsibly. This means you pay your balance in full each month and only bill for what you can afford to spend. Basically, treat your credit card like a debit card and don’t use it as an excuse to overspend.
Credit cards indeed come with a variety of enticing rewards, ranging from cashback to travel points and other perks. Effectively managing one or two credit card accounts can indeed contribute positively to enhancing your credit score. However, this outcome hinges on responsible usage. Essentially, this involves paying off your balance entirely each month and limiting your charges to what aligns with your financial capacity. In essence, it’s about treating your credit card akin to a debit card, refraining from using it as a license to overspend.
Maximizing Rewards Responsibly
Credit card rewards can be alluring, offering benefits like cashback on purchases, points redeemable for flights or hotel stays, or even discounts on specific purchases. To make the most of these rewards without falling into debt, strategic planning is key.
Paying Balance in Full
Paying off your entire credit card balance monthly not only avoids accruing interest but also demonstrates responsible financial behavior. It reflects positively on your credit score, affirming your ability to manage credit responsibly.
Staying Within Your Means
Responsible credit card usage entails spending within your means. Avoiding unnecessary expenses or splurges ensures you can comfortably cover your credit card bills without stretching your budget.
The ‘Debit Card’ Approach
Treating your credit card like a debit card means only charging what you have the funds to cover immediately. This mindset shift helps in curbing impulsive spending and prevents accumulating debt beyond your means.
Avoiding Temptation to Overspend
Credit cards can create an illusion of having more money available than you actually do. Using them sensibly means recognizing this limit and refraining from overspending or making purchases beyond your financial capability.
Regular Monitoring and Adjustments
Frequent monitoring of your credit card activity allows you to keep track of your expenses and make adjustments if necessary. This habit not only helps in identifying any irregularities but also assists in maintaining control over your spending habits.
Setting Spending Limits
Some credit cards allow users to set spending limits. Utilizing this feature can act as a preventive measure against excessive charges and help you stay within your predetermined budget.
Credit cards can boost your credit score
Credit cards can help you improve your credit score if you pay every month and have no balance. Your payment history and credit utilization are two of the biggest factors that determine your credit score, so making your payments on time and managing your credit limits responsibly will help, not hinder, your credit. This is one of the reasons why parents choose to add their children as authorized users to their accounts. This can help your child get credit because the activity on your credit card account will be reflected in your child’s credit score.
Intro APR offers can help you finance large purchases and pay down debt
New interest cards can help you pay off credit card debt or finance purchases that require a personal loan. Also consider balance transfer credit cards that can help you consolidate and pay down debt with introductory APR offers. The initial interest rate is temporary. To avoid paying higher interest, you must pay the balance in full while the offer is valid.
You can receive travel gifts or cashback
Using a credit card gives you rewards that you can’t enjoy with a debit card. You can redeem them for anything from award flights to cash back, and rewards cards can sometimes offer a lot of value without an annual fee.
Credit cards are more secure than debit cards, too
Another advantage of using a credit card is that it offers much stronger protection against fraud than a debit card. If someone uses your credit card to make an unauthorized purchase, you can report the transaction (unless your credit card company does) and you won’t risk a fraudulent charge. Even if you get your money back from a fraudulent debit card charge, the money will be taken out of your account immediately.
Credit cards aren’t bad, but they may not be right for you
Credit cards aren’t inherently bad, but if you don’t think you can use them responsibly, they might not be for you right now. If you’re worried about overspending and currently have credit card debt, your main goal should be to develop good financial habits and pay off your outstanding balances. Only open a new credit card if it helps you achieve these goals and doesn’t make your problems worse. It can be tempting to rack up points and miles, but remember that there are rewards for not paying off your balance in full compared to the interest you’ll be charged.
Find the right credit card for you
Once you’ve decided that a credit card is right for you, the next step is to find the perfect option that fits your goals.
From annual fee cards to popular travel cards to premium credit cards, here are some of our favorite cards.
- Chase Freedom Unlimited®: With no annual fee, this card earns 1.5% cash back on most purchases (Free Unlimited recently started offering bonus cash back on eligible travel, grocery and drugstore purchases). It also offers a relatively long introductory 15-month 0% APR on your purchase. At the end of this period, the APR increases by a variable range of 20.49% to 29.24%.
- Chase Sapphire Preferred® Card: Earn 2 points per dollar quickly on travel and dining purchases and enjoy a reasonable annual fee of $95.
- Capital One Venture Rewards Credit Card: This card offers up to $100 credit toward Global Entry or TSA PreCheck and lets you use miles to “clean” travel expenses from your account. The annual fee is $95.
