According to Investopedia, mortgages are the most common type of debt consumers carry, but credit cards seem to be the most problematic when making plans to pay off debt. They generally carry the highest interest rate and they’re “revolving debt” that changes frequently if you don’t monitor and control your credit card spending.
Does that mean it’s dumb to use credit cards for everyday purchases? Not necessarily.
The Wise Side of Credit Cards for Everyday Purchases
There are instances where credit cards protect the buyer from fraudulent charges after the initial purchase. They’re also good for ensuring you can stop payment if the merchandise you order is defective or was falsely presented. Other points on the “wise” side of this are:
• Maximizing Rewards Points: Most credit card companies have rewards programs that offer discounts and/or free merchandise for using your credit card. When used wisely, these rewards can add up, especially when it comes to travel expenses.
• Increasing Your Credit Score: You can’t build a good credit score without having and using credit. Responsible use of credit cards for daily purchases, combined with making monthly payments on time, can increase your FICO credit score.
• Eliminating the Need to Carry Cash: Cash is nice to have. The dangers to it are a tendency to overspend and the risk of theft. Using credit cards instead of cash can help eliminate both problems when you do it responsibly. Keep a few dollars in your wallet—leave the rest in the bank.
• Purchase Tracking: According to CNBC, consumers spent $900 billion more online in 2020 than they did in the two years preceding the pandemic. Using a credit card for those purchases helps consumers track their spending better.
The Dumb Side of Credit Cards for Everyday Purchases
Take each of the “wise” reasons for using credit cards for daily purchases and there’s an equally “dumb” reason not to. While credit cards can protect you from fraud, they can also open you up to it. Just ask anyone who’s had their credit card number stolen. The more you use your cards, the more likely that is to happen. Here are a few more reasons in this category:
• Danger of Overspending: It’s easy to fall into the trap of thinking credit card spending isn’t “real money” because you don’t have to pay it back right away. Having high credit card limits doesn’t help. Consumers will often spend money they don’t have.
• Restrictions on Smaller Purchases: Some brick-and-mortar retail stores have minimum purchase requirements before they allow you to use a credit card. This is common with smaller merchants, like variety stores, who try to avoid credit card processing fees.
• Large Balances with High-Interest Payments: This is the best argument on the dumb side of this equation. Using your credit card instead of cash or a debit card means that you’re accumulating a balance, which you’ll have to pay interest on if you don’t pay it off right away.
• Cash–Only Merchants: Some merchants don’t take credit cards at all. These are rare in an increasingly cashless society, but they exist. Check for this policy whenever you
shop or eat someplace new. You don’t want to get stuck at checkout with no means to pay.
The Bottom Line: Wise or Dumb?
The glass isn’t half empty or half full. It’s both, and neither at the same time. In other words, this is purely a situational question. There are certain times when it’s a good idea to stick to using your credit cards, if you pay your balances in full every month. It’s also recommended that you carry at least some cash in case you need it.
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About The Author
Kevin Flynn
Kevin is a former fintech coach and financial services professional. When not on the golf course, he can be found traveling with his wife or spending time with their eight wonderful grandchildren and two cats.
