The common wisdom these days is to avoid using credit cards whenever possible. True, if you often forget to make monthly payments and have a history of racking up credit card debt, the risks outweigh the benefits. However, if you can use your credit cards responsibly and pay off the balance each month, it’s actually wiser to use credit over debit for a few big reasons:
- Using your credit card allows the money in your account to accumulate interest until it’s time to pay off the balance. It might not seem like much at the time, but gradual gains in interest add up big over the long haul.
- If you pay off at least the minimum amount required each month by your creditor, you build a solid credit history that looks attractive to potential lenders when you apply for loans, mortgages, and other credit cards. Using a debit card won’t help you out there.
- Credit cards don’t typically charge any transaction fees, unless you’re traveling in another country. Banks, however, often charge between 25 cents and $1 for each debit card transaction.
- Using your debit card doesn’t provide you with any rewards, while credit card companies are constantly trying to outdo each other by offering better rewards. Air miles, cash back and other freebies can be earned easily while using a decent credit card.
- Your major purchases are often insured when you use a credit card, and you can usually reverse a transaction if you’re not happy with the purchase and you’re having trouble with the retailer who sold it to you.
- Travel health insurance and auto rental insurance are often included in your credit card benefits.