Credit card use is something that those specializing in personal finance strive very hard to dissuade us from doing for many different reasons.
Many of us have irresponsibly used credit cards, ultimately leading to financial hardship.
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Nevertheless, contrary to what most people believe, if you can make responsible use of plastic, it is, in fact, to your advantage to pay with a credit card rather than a debit card and to do the bare minimum of your financial transactions in cash.
Let's look at why your tried-and-true credit card is the best option, as well as specific uses for credit cards and tactics for using them.
One-Time Bonuses:
When applying for a new credit card, there is nothing quite like the possibility of earning a welcome bonus.
Many times, candidates with excellent credit can get accepted for credit cards that offer bonus payments worth $200 or more in exchange for having to spend a certain sum for the first several months the profile is open.
This is often the case with credit cards that offer sign-up bonuses to meet spending requirements.
Other cards lure applicants with extra reward points or miles that may be used for vacation, gift cards, goods, statement credits, and even checks, in addition to being able to be redeemed for statement credits.
On the other hand, a regular debit card that a bank provides and a checking account often do not come with an introductory bonus or recurring opportunities to earn rewards.
Cash Refund:
Discover is credited with popularizing cashback credit cards in the United States for the first time.
The concept behind these cards was straightforward: Customers who used the card received a cash refund of one percent of their total expenditures.
The idea has developed and progressed to its current state today.
Some credit cards now offer cash back rewards of 2%, 3%, or even as high as 6% on particular purchases; however, these enticing deals typically come with restrictions on how much money may be spent monthly, quarterly, or annually.
Credit cards with the highest rewards rate while still charging a low annual fee and minimum interest are considered the most acceptable cashback cards.
You need to deposit your money into an investment account to receive the high rate of cashback rewards offered by certain cards.
Points for Rewards:
Credit card companies typically allow their customers to earn even more points for every dollar spent using their cards.
Most credit cards that provide rewards will award extra points for specific types of spending, such as at restaurants, grocery stores, or petrol stations.
When a particular amount of earnings has been attained, points can be exchanged for trips, gift cards from merchants and restaurants, or goods items through the online rewards system provided by the credit card provider.
Your choices for earning points with your credit card are practically limitless.
You may use the money you spend daily to earn substantial benefits if you have a co-branded credit card, such as one issued in cooperation with a clothes shop, a hotel chain, or even a charitable organization such as AARP.
Finding the credit card that corresponds most closely with how you spend your money is challenging.
It may not be in your best interest to adjust your spending habits to use a specific credit card since this might have the opposite of the desired effect.
Why not use the card to inspire your ongoing patronage by providing you with enhanced rewards, discounts, and perks?
For example, if you already spend money every month with a specific retailer or have a preference for a specific hotel, why not use the card that will promote your ongoing patronage?
Frequent-Flyer Miles:
This benefit was offered much before virtually all of the others.
By developing a partnership with a major credit card issuer in the early 1980s, American Airlines could start providing its customers with an innovative method to earn frequent-flier miles even when they weren't traveling.
At this time, every international and domestic airline has at least one credit card made available by major credit card companies as part of a partnership.
Cardholders can earn miles at a rate of one mile for every dollar in net purchases or occasionally at a rate of one mile for every two dollars spent on lower-end cards that do not have an annual fee.
The value you actually receive from this reward is directly proportional to the class of airline ticket you buy with your points and miles.
The mileage-based initial benefits that come with several frequent flyer cards immediately multiply the value of such cards by a significant amount.
After meeting the minimum initial spending requirement associated with the card, these are frequently sufficient to put you between 50 and 100 percent of the way toward an award flight.
Safety:
When you pay with a credit card, avoiding financial loss due to fraud is much simpler.
If a criminal uses your debit card, the money will be stolen from your account as soon as the transaction is processed.
There is a possibility that valid expenditures for which you have prearranged online payments or mailed checks will bounce, resulting in fees for insufficient funds and adversely affecting your credit.
These past due payments can hurt your credit score, even if they were not your fault.
When the bank looks into the fraudulent activity on your account, it may take some time before the transactions are canceled and your money is returned to you.
In contrast, if someone uses your credit card dishonestly, you won't lose any money because you must notify your card company of the incident.
When it takes them to resolve the issue, you won't have to pay for any transactions you didn't carry out.
Credit card systems like Mastercard and Visa provide 0% liability coverage for illegal purchases, encouraging customers to use their cards rather than paying with cash or a check.
This is done to cut down on fraud and theft.
Keeping Vendors Honest:
Let's say you decide to install tile flooring in your doorway and hire a professional to do it for you.
Workers use the weekend to complete tasks such as cutting, measuring, grouting, inserting spacers and tiles, and allowing the entire project to set.
After then, they will charge you a fee of $4,000 for all of their trouble.
Your foyer is currently a total disaster, and the vein in your temple gives you a constant throbbing sensation.
You take the money out of your savings and pay it with a cheque.
But what should you do when, after 72 hours, the tile begins to shift, and the grout hasn't yet been set?
You could take the matter up with the state licensing board in your area, but doing so may take several months, during which time the contractor would still have possession of your money.
Because of this, if you can do so, you should use a credit card to pay for a pricey item such as this one.
The issuer has an incentive to prevent fraud among its suppliers, and if there is an issue, they have a method to attempt to fix it.
More importantly, if you dispute the charge, the card issuer will prevent the cash from being released to the tile setter.
This means that you will receive your money back, and the card issuer may also assist you in finding a new contractor.
Grace Period:
When you make a debit card transaction, the money is deducted from your account almost immediately.
When you make a purchase using a credit card, the money you spend stays in your bank account until you pay off the balance on your credit card.
Keeping your money while you have more time to spare might be beneficial in two ways.
To begin, even a modest increase in your money's worth over a more extended period will result in cost savings.
Your purchase will be slightly more affordable if you agree to delay the ultimate payment. In the alternative, the price would be.
When you are not required to make payments on your credit card, you will still be able to make a profit if you pay for your purchases using funds from a checking account that pays interest.
In addition, if you pay using a credit card instead of your debit card, check, or cash, your money will remain in your bank account for extended periods.
The supplemental funds will, in due time, amount to a significant sum.
Second, if you make the majority of your purchases using a credit card, you don't have to keep as tight of an eye on the amount of money in your checking account.
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