Much of America has is in debt. Sometimes it's good debt and other times it's bad debt. I wrote about good debt vs. bad debt last week. Credit cards that you don't pay off are an example of bad debt. Many of them charge upwards of 20% interest. For that reason some people have decided to not to use credit cards at all.
It doesn't have to be all doom and gloom with credit cards though. For those with the means and fortitude to pay them off every month, there are definitely rewards. Just be sure you can you handle the responsibility before you try. Here's a list of the benefits that responsible users of credit cards enjoy:
- Free Money/Rewards - I get 5% back on gas with my credit card. With my local gas prices at $4.55 a gallon, that's nearly 23 cents a gallon. (My credit card doesn't seem to available, but the Chase PerfectCard seems to be a good alternative with 6% for the first 90 days and 3% after that.) I get the same 5% off of grocery and drug stores. I get 3% off of restaurants, home improvement stores, and office supply stores. Every few months Chase sends me couple of hundred dollars. That's one piece of mail I don't getting. It is a lot better than using a debit machine that rarely gives you rewards.
- Free interest - The extra time that I have to pay off the credit cards is time where I'm making a small amount of interest by keeping the money in the bank. Admittedly this is a very minor, but real benefit.
- Enhanced warranties - Many credit cards double the warranty of many consumer products.
- Consumer Protection - Have you been wronged by a merchant? Often times the credit card company will go to bat for you. I don't use this benefit very often. I don't want to be the one that cries wolf. However, once every 12-18 months, it proves to be a very valuable perk.
- Building Great Credit - By paying off my credit cards each month, I have been building great credit for years. It paid off when it came time to get a mortgage and I qualified for the lowest rate - the teaser rates that very few people qualify for.
- Emergency Protection - You never know when something is going to come up. I don't want to carry that much cash on hand. Debit cards help, but I like to keep money earning the most interest possible. As such, I don't keep a lot of money in accounts where I have debit cards.
- Spending History - I can give a service like Mint, or Quicken my credit card transaction file and it will analyze where and how I'm spending my money. If I see I'm spending too much on eating out, I curtail it.
This is just another example how emotional control can add up to very real, tangible gains.
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