10 Compelling Reasons Why You Need Credit Cards

Estimated read time: 8 minutes

We've all heard horror stories about credit card debt. Maybe you’ve even lived one, or if you’re reading this, you may be living one right now and questioning why you need credit at all.

There's no question Americans are addicted to plastic, which comes at a staggering cost. The average American has $4,028 in credit card debt, according to a Gallup analysis.

We can't stop ourselves.

For this reason, to some it might seem smart to avoid credit cards altogether, but it's just not that simple. Credit cards are useful—once you know how to use them properly. In other words, if you spend responsibly, you have nothing to lose—and a lot to gain—by regularly using a credit card.

From building credit to earning rewards like frequent-flyer miles, here are ten good reasons you should be using credit cards. We take a detailed look at each one of these smart reasons to use a credit card.

And if you can use credit responsibly, we have just one thing to say: happy swiping!

Credit Perk 1: Borrow Free Money

When you put a charge on a credit card, you essentially borrow money at no cost. Pay with cash or debit card and the money is gone from your checking account immediately.

Like all loans, there is a certain amount of interest that you agree to pay the bank for the privilege of using their card. However, the one unique thing about credit cards is that if used wisely they can be an interest-free loan.

Let's say I go out to eat and spend $17 on August 6th. That $17 charge will be on my statement for August 5th – September 4th and due on October 1st. This means that I don't have to actually pay the credit card company for my $17 dinner until almost 2 months after I went out to eat.

So you can eat dinner in peace without worrying whether it will put you in the red. Plus, during that one or two month grace period, your money can earn interest in the bank. Anything you can do to get your money earning interest should be your ultimate goal.

Credit Perk 2: Earn Rewards

The right credit cards will give you amazing perks: a free flight to Europe, hotel stay or train tickets. Cashback cards literally hand out money just for using them. Sometimes the signup bonus alone scores you enough miles to fly to Aruba. Before you jump up and apply, there are so many deals out there—and companies competing for your business—that it's worth running the numbers before you apply for a card.

Given the free vacations and other incredible perks i.e. cash back in your pocket, it makes no economic sense to use a debit card when you could be earning tangible rewards on the same purchases with a credit card.

Credit Perk 3: Build Your Credit Score

If you don't know your credit score number, its past time to find out. There’s no reason to put it off any longer.

These three digits will affect whether you can get—and how much you'll pay for—a mortgage, buy a car, rent an apartment, or receive a business loan. A bad credit score, below 640, makes it difficult to get a loan.

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The higher the score, the easier getting an affordable loan will be. In the middle range, you might get approved, but will pay higher interest rates. Those towards the upper end of 850 will have access to money at good interest rates.

Regardless of the rates you are eligible for, paying your bill on the due date helps consumers avoid paying interest and build credit. Otherwise you’re throwing money away toward the credit card abyss.

Credit Perk 4: Emergency Bailout Fund

A credit card is an immediate source of funds in an emergency, provided you can reliably pay off the balance each month, especially if you are borrowing cash for an emergency.

Most people only carry a little bit of cash at any time. It's usually just enough to cover daily purchases like a cup of coffee or gas. But sometimes you need more than that fifty bucks—and you need it right now. Maybe you have a sudden health problem or you need to book a hotel room when a flight is canceled. Personal finance experts recommend that we all should have an emergency fund with about three to six months worth of our monthly spending inside.

But if you are a responsible credit card user and have a steady source of income, instead of putting a large bulk of cash aside, you could use your credit card instead i.e. free money. If you can pay off your balance, it's okay to accrue a little extra debt for a few weeks.

Credit Perk 5: Protects Funds Against Theft

If you misplace a wallet stuffed with cash, you're unlikely to see that money again. If your credit card is lost or stolen, you're safe. When you discover that a card is missing, you can report it to the credit card company to freeze your account or refund illegal purchases. Your credit card issuer makes sure you don't pay for things you didn't buy. Sometimes credit card companies are a step ahead of you, blocking suspicious transactions in advance. Credit cards protect your money. The peace of mind is just as valuable, especially if you are traveling.

Credit Perk 6: Great for Travel

When abroad, credit cards are cheaper and safer to use than cash. Credit cards can save on foreign transaction fees. A credit card with no foreign transaction fees simplifies traveling. Check yours to make sure your card doesn't have any. If it does, consider changing to a new card that doesn't charge transaction fees or call your card issuer to see about an exemption. Credit cards also give you the current exchange rate without the surcharge applied at pricey airport currency exchanges. And they are safer than carrying around a wad of cash through a busy airport terminal.

Credit Perk 7: Budget Assitance

Keeping a budget is key to financial health, such as paying off your credit card bill each month. Your monthly statement helps you do that. It logs a record of all your purchases, a handy tool for anyone trying to track their spending. Instead of keeping paper receipts, you can go on the card website to see an itemized list of expenditures. Even disorganized or lazy budgeters can stay on top of their spending this way.

Some card websites even break down purchases into categories, so you can see where the bulk of your charges are and what needs trimming. It can also be linked to money management software like YNAB and Mint, which automatically track your spending and offer savings tips – for free.

Credit Perk 8: Consolidate Due Dates of Recurring Bills

One interesting perk of credit cards is their ability to automate the payment of recurring bills. Once you’ve attached all recurring autopays to a credit card, you simply have to remember the credit card due date each month. It's one less thing in our busy lives to worry about. Plus, if you have a rewards card, then you'll be accumulating points and other benefits just by paying your bills.

That said, consumers can lose track of bills when they're paid automatically. It's important that you regularly check your credit card bill to make sure you're not paying for services you long ago stopped using.

Credit Perk 9: Protect Your Purchases

Many credit cards come with yet another built-in perk: free insurance. If you buy something and it's lost, damaged or stolen within a set period of time, you get the money back. Some cards even include car rental and travel insurance or extended warranties.

Benefits could include:

  • Consumer protection for accidental damage
  • Return protection if you change your mind about a purchase
  • Price protection to cover a discount that occurs after you buy something
  • Reimbursement for tickets you can't use
  • Roadside assistance
  • Lost luggage reimbursement
  • Travel accident insurance
  • Car rental insurance
  • No foreign transaction fees

These extra value-added services—besides the ability to borrow money for free—make credit cards even more worthwhile.

Credit Perk 10: Build a Healthy Relationship with Money

The perks of credit cards are dependent on paying the bill on time. Those who do so not only build good credit but they learn important personal finance habits. This can be especially helpful for college students. While parents debate whether it is wise to give their older children a credit card, those who do have a chance to teach them how to use it responsibly. After graduation, parents lose influence over decisions.

It's important to teach children these lessons early in life.

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During college, it's usually cheaper to recover from credit mistakes than after graduation, when they may also face student debt.

In summary, students should get credit cards because:

  • It's important they learn about compound interest and how to control spending.
  • Students will start building a good credit score early on.
  • They will learn that smart spending habits lead to a good credit score.
  • Good credit will ease the transition to adulthood, leading to lower deposits for apartments and lower premiums for car insurance.
  • It helps graduates get a job since employers increasingly look at credit history.

Taking a hands-on approach at first will show kids to be responsible and financially independent later. Even if you have been burned in the past with credit cards, it's important that you note all the powerful benefits responsible use of a credit card offer.

Remember, it's not the card that's often the problem, it's when the balance exceeds what you can reliably pay off each month. Once you know how much you earn and how much you spend, which a simple budget can tell you, then you can start to safely put most of your expenses on your card.

By paying it off each month you can rack up sizable bonuses and offers – not to mention a stellar credit score. It’s a win/win.