The answer depends on another question: is it possible use a credit card like it is a debit card? Credit cards are terrible if I intend to use them to purchase anything that I cannot immediately afford. The interest rates are crippling, and any benefits derived from cards are vastly overshadowed by finance charges and late fees. The only way credit cards can be valuable tool is funds are readily available in a checking or savings account to pay for any prior charges prior to buying anything.
What are the advantages of using credit? Fraud protection, rewards, and cashflow.
Fraud Protection
While debit cards also offer fraud protection, an unauthorized purchase on a debit card will immediately impact a customer’s checking account balance. Conversely, unauthorized credit card purchases have no immediate effect on balances and customers are protected by the fraud protection policies of the issuing bank. With increases in fraud attempts both on online and using physical devices on gas pumps, using a credit card gives customers peace of mind that if they a transaction is made without their knowledge, it will not immediately impact the balances of their checking or savings accounts.
Rewards
Perhaps the most valuable aspect of using credit cards are the rewards offered for opening new accounts and making purchases. There are several cards offering competitive rewards that do no charge annual fees. There are flat-rate cards that earn 2% on everything, category cards that offer consistent 3% rewards for certain spending categories, and rotating category cards offering 5% rewards on purchases. Most card rewards can be redeemed for cash, but many travel cards are redeemable for flights or hotel stays. If a household spends $12,000 annually on credit cards earning an average of 2%, they’ll earn $240 in rewards. Factoring for new account bonuses (which are often in the hundreds) and higher earning categories, it is possible to earn much more than the 2% average.
Cashflow
Just because money is available to pay for a purchase doesn’t mean that it is necessary to make an immediate payment. Banks cannot charge interest unless customers fail to pay the entire balance of a billing statement by the payment due date. To ensure they never have to pay interest or late fees, credit users can setup autopay that will automatically draft the desired bank account for any remaining statement balance. Most billing periods are about 30 days and they are followed by an industry average 21-day grace period between the issuance of billing statement and the payment due date. Therefore, depending on when an item is purchased, it is possible to have a delay in payment anywhere from 20 to 50 days. Spending $12,000 annually or $1000 monthly and delaying payment an average of 30 days would result in a net gain of $51 annually assuming the money was kept in a savings account with a competitive interest rate of 4.30% APY while awaiting payment.
Don’t Use Credit If You Can Do This
Good credit card users need to be able to manage their accounts properly. It is a good idea to login into credit card accounts at least once per week to maintain good control of the account any missed or incomplete payments. Remember, to avoid paying interest, card balances must be paid in full. Only paying the minimum payment will prevent the charge of late fees, but it will allow any remaining balance to accrue interest.