Why Use Credit Cards When You’ve Got Cash?

Our first Instagram Reel was a 30 second clipping of a YouTube video. The video was titled “Catch Me If You Can | Frank Abagnale | Talks at Google” where in one part of the video Frang Abagnale talks about why he has never owned a debit card. We were not expecting the reel to become a massive hit. It gained over 700k views on Instagram, and naturally, due to the provocative title, we also had varying opinions in the comments.

Today we’re going to talk about why we feel it is a good idea to use Credit Cards when you have enough cash in your bank account to pay for your purchases.

Cashback

Depending on the kind of credit card you have, you will get some of your purchases back in cashbacks. Cashbacks are a percentage of your total purchase that are paid back to you. Essentially, you’re getting some of your money back for free. You don’t get cashbacks when you’re making purchases with debit cards, and why say no to free money?

Credit Score

In Frank Abagnale’s own words:

Frank Abagnale talking about the benefits of credit cards
“When you use your debit card, you can use it for the next 50 years 20 times a day, you will not raise your credit score by that much…”

Every time you make a purchase using your credit card and pay back the debt on time, you raise your credit score. Now you may ask why you even need a credit score if you never intend to use credit.
The answer is leverage, when used right, credit can be a powerful financial tool. If you are buying clothes or eating at fancy restaurants and paying for them using credit, you are probably not being financially prudent. However, using your credit score to purchase income generating assets will make you richer and wealthier, and that would be a wise way to use credit.

Reward Points

In addition to cashbacks, credit cards offer reward points which can be redeemed for items and services on the rewards shop of your respective credit card company. We miss out on such opportunities completely if we pay using cash or debit cards. Some debit cards may offer reward points, but it is much more common to see such benefits with credit cards.

Lounge Access

Your credit card may give you special privileges in airports. Some cards give you lounge access along with free food inside the lounges. So you get to relax, and you get to keep your tummy happy. Why pass on free stuff?

Making Use of The Interest-Free Period

When you make credit card purchases, there’s an interest-free period before the end of which you need to clear your dues in order to not incur any interest on your debt. This means that during this period you can put your cash to use in investments or savings that can earn you an interest or a small return. Be careful with the risk though, don’t put your money where you can lose it. Not being able to pay back your credit card debt can make you lose a lot of money in interest payments.

Why You Should Not Use Credit Cards

Despite the many advantages, there are reasons to not use credit cards. Crippling credit card debt is a real issue, and if your habits or spending patterns can get you under such debt, it is better to not use credit cards at all. Here are some reasons why you shouldn’t use credit cards:

You Lack Fiscal Prudence and Discipline

It isn’t uncommon to see people splurge using money they don’t have. That is one the biggest mistakes one can make with credit cards. You make purchases, you don’t have enough money to pay back the debt without incurring interest, you continue spending in the same manner and in no time your interest payments exceed your principal amount. If you have a tendency to splurge, DO NOT USE CREDIT CARDS!

Your Income Is Inconsistent or Unstable

If your monthly income fluctuates and it becomes hard for you to estimate how much you’d be earning each month, it may not be a good idea to spend a lot of money using credit cards. You might end up spending more than you bring in, and paying interest that could have been avoided is not a good idea.

You Do Not Like To Complicate Things

With all the terms and conditions, interest-free periods, offers, and potential hidden charges that you have to know about, using credit cards can become mentally exhausting. If you’re someone who likes to keep things simple and you don’t want to keep up with all the conditions and extra charges you can incur, you’re probably better off using cash or debit cards. Because at the end of the day, credit card companies are there to make a profit. And either you, or sellers that accept credit cards will have to bear the charges that make these companies money.

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