If you seek out advice on the best ways to manage credit, most of the available information advises paying for things with cash and only using a credit card when absolutely necessary. This advice is a step in the right direction. Using cash means you’re less likely to purchase items you can’t afford, plus cash protects you from debt.
But while cash might be king in your book, there are times when credit cards rule the throne.
1. When you can get paid to shop
Shopping online is an easy way to earn cash back. Sites like Ebates, allow you to earn cash back for things you are already purchasing. In addition, just about every bank offers at least one rewards credit card where you can earn points or cash back for using the card. In most cases, you earn a minimum of one point for every dollar you spend or 1% to 5% cash back for every purchase. This creates an incentive to use the card, and if you commit to paying off your balance in full every month, a rewards credit card is an excellent way to get freebies or discounts on merchandise, travel, gift cards, etc. You can also redeem points as statement credit to help pay down your balance faster.
2. When you don’t want to risk losing cash
For every vacation we take, we always save enough cash so we don’t return home with debt. And in the past, we would carry a lot of cash in our wallets. We felt this was better than tracking down ATMs in our destination city, plus cash made it easier to stick to our vacation budget (sometimes, I tend to spend more when using a debit card).
However, we broke this habit after one of our friends went on vacation and lost her wallet with $500 cash inside. Needless to say, she never saw her wallet or the cash again, and she had to get a wire transfer from family to get through the remainder of her trip. This was a wake up call for us, and from that point forward, we kept our vacation cash in the bank.
We’ll bring some cash, just in case we purchase from a vendor that doesn’t accept plastic. But for the most part, we use credit to pay for meals and entertainment, and then pay off the card once we return home.
If you lose your wallet or purse on vacation, you can’t replace the cash inside. But if you lose your credit card or debit card while on vacation, your liability for fraudulent charges caps at $50. Just know that it can take your bank up to 10 business days to reimburse fraudulent transactions made with your debit card, which is another reason I prefer credit over debit.
As a tip, travel with a list of contact numbers for every credit card you bring, and make sure you bring an emergency backup credit card, in case your wallet is lost of stolen. Keep contact numbers and the secondary credit card in a separate location from the primary credit card.
3. When you can’t keep up with receipts
If you’re eligible to write-off business and non-business expenses, using a credit card can help you maintain an accurate record of your expenses. You can also retain receipts. But sometimes, receipts become lost or damaged. If you purchase with cash and you don’t have a receipt, you don’t have proof of a particular write-off. If you put charges on a credit card, however, you can pull up the appropriate statement and retain a copy for tax purposes.
4. When you don’t want to pay for an extended warranty
If you’re buying electronics, furniture or clothes, there are benefits to using a credit card instead of cash. Many credit cards include an extended warranty and price protection as a cardholder perk. If you purchase electronics, retailers may offer you an extended warranty at checkout which provides additional coverage after the manufacturer’s warranty expires. The price of the warranty is based on the value of the item.
If your credit card offers an extended warranty, you can decline the extra warranty sold by retailers at checkout because you’ll likely receive similar coverage through your credit card at no additional charge.
Contact your credit card company or read the credit card terms to see if you’re eligible. With price protection, if you purchase an item with your credit card and you find the exact item cheaper elsewhere within 30 to 90 days, your credit card company may refund the difference. There are some exclusions, so read the terms of the program.
A cash-only mentality can protect you from too much consumer debt and you’re forced to only spend what you have. But this doesn’t mean you should give credit cards the cold shoulder. If you aren’t disciplined to pay off credit card charges in full every month, you should definitely stick with cash. But if you have self-control and you’re committed to spending within budget, using a credit card for certain purchases might benefit your pocket in the long run.