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6 Reasons You Should Use a Credit Card Instead of a Debit Card

Credit card debt should be avoided because the interest rates are high. According to credit karma, the average rate is about 15%. Let’s say you charge $2,500 at 15%. If you made a $50 payment every month, it would take you about 80 months to pay the balance off and you’d pay almost $1,500 in interest.

It’s logical, once you know how financially damaging carrying a balance on a credit card can be, to want to forgo their use completely. Here are the reasons that would be the wrong decision:

  1. Credit history is an important part of your credit score. Credit card companies report to the credit reporting agencies. Having a credit card, using it, and paying if off boosts your credit score. For more information on credit scores, check out this blog: Credit Scores: What They Are, Why They Matter, and How to Improve Yours.

  2. Credit card companies pay you to use their cards through rewards, bonuses, and cash back. They’re able to do this because they collect a fee from the vendor each time you use your card and they pay you some of it (that, and they also collect a lot of interest!). In the simplest example, let’s say you get 1% cash back on every purchase and you usually spend $1,000 per month. You’d be missing out on $120 per year in cash back. Some cards offer promotions as well, for example they may offer you 5% back on dining for 3 months.

  3. Credit cards offer fraud protection. Most credit card companies offer zero fraud liability to the consumer. They’re able to offer this because if someone uses your credit card (or your credit card number) to make a purchase, that money is not automatically deducted from your account. By contrast, if someone gets a hold of your debit card or debit card number, that money is instantly deducted from your account when they make a fraudulent purchase. This is why you should use a credit card when making purchases online.

  4. They sometimes offer purchase protection too. This could be in the form of warranties. Another perk is that if an item is damaged, you could return it and simply tell your credit card company to remove the charge.

  5. Some credit cards come with insurance. For example, if you book your rental car or travel on credit cards with this consumer protection benefit, the credit card company automatically offers rental car insurance or travel insurance.

  6. You can transfer a balance from a higher interest rate to a lower one. Let’s say instead of paying 15% on $2,500, you’re paying 25%, which is not unheard of. You can apply for a new credit card, transfer your balance, and pay a lower interest rate. Some cards even have a 0% introductory rate for 12, 15, or 18 months.

These are the reasons you should have and use a credit card. Once you get a credit card, the two most important things to remember are 1) pay the balance off every month and 2) if your balance gets close to the credit limit, it will negatively affect your credit score.

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