In the financial world, there’s sometimes debate on whether or not having a credit card is the best idea. Should you have one? Our answer is a probable yes – if you can use your credit card wisely.
Should you have a credit card?
There are multiple ways that having a credit card can benefit you. Perhaps the most important is that having a credit card can help you build your credit score. A higher credit score means lower interest rates and better approval rates on mortgages and other loans. Conversely, though, having a credit card can also decrease your credit score depending on how you use it. Therefore, you’ll want to make sure you’re using your credit card wisely. Keep reading to find out when it’s wise not to have a credit card.
In addition to building your credit score, credit cards also have other benefits. They offer extra security in comparison to a debit card. They can also offer helpful rewards, depending on the card and how you use it.
Credit cards offer extra security
Credit cards offer security from fraudulent activity. Although having your credit card lost or stolen is still a hassle, it’s much less of a hassle than having a lost or stolen debit card.
If your debit card is used fraudulently, sadly, the money is immediately gone from your account. On the contrary, with a credit card, it’s much easier to manage a stolen card. If unauthorized charges are made to your credit card, all you have to do is let your credit card company know. They’ll generally be able to resolve the matter fairly easily, and you won’t have to pay.
Sometimes it’s best NOT to have a credit card
Though there are certainly benefits to having a credit card, there are situations in which the best route is not to have a credit card.
While a credit card is a great way to increase your credit score, when used unwisely, it can also ruin your credit score. If you don’t pay your balance on time, you’ll be penalized and your credit score will suffer.
Having a credit card in your pocket can feel like an incredible freedom. However, it’s also a big responsibility. Psychologically, swiping a credit card is much less painful than handing over dollar bills. Therefore, it can be easy to spend more than you planned.
One way to combat this is by setting a credit limit. This way, you can decide in advance how much you have available to spend, and you’ll automatically have to stay under that limit.
If keeping to a spending limit is a problem, a credit card may not be the best option for you. Additionally, if you’re already in credit card debt, it’s probably best to switch to cash accounts for spending—at least until you pay off your debt and set some new spending limits.
Using your credit card wisely
The best way to use your credit card is to make your payments on time. Think of using your credit card in the same way that you would use cash. Only make a charge to the card if you have the cash in your account to pay for it. Always make your payments on time in order to avoid debt and avoid harming your credit score.
If you want to build your credit score but know that you struggle with spending, you can use your card only for specific purchases. For example, you could use your card only for buying gas for your car. Since you probably won’t be buying more gas than you actually need, sticking to this one category can be a great way to build your credit score while also ensuring that you don’t spend more than you have.
How to choose a credit card
As mentioned earlier, one of the benefits of credit cards are their reward systems. Different cards offer different rewards, from cashback to travel rewards to other discounts. Don’t get carried away, though. These rewards sound tempting, but they can also encourage unnecessary spending. The rewards are only worth it if you’re spending on items that you were already going to buy. Don’t make purchases simply for the rewards.
When searching for a credit card, think about what rewards would be the most useful to you and give you the most bang for your buck.
Make sure you also look into the other details of the card. You’ll want to have a clear understanding of the annual percentage rate (APR), any annual fees, charges, interest rates, and any other pertinent information about the card you’re considering.
Need advice on your financial situation?
Whether you’re contemplating credit card decisions, wondering about investing, or making retirement plans, Milestone Wealth Management is here to help with all of your financial needs. We’ve helped hundreds of individuals and families make comprehensive financial plans for the future. Call us today!
This material is not intended to replace the advice of a qualified tax advisor, attorney, or accountant. Consultation with the appropriate professional should be done before any financial commitments regarding the issues related to the situations above are made.