Credit Card: Why do People Sometimes Use Credit to Pay for Items Instead of Just Using Cash?
Credit Card: Why do People Sometimes Use Credit to Pay for Items Instead of Just Using Cash?
Your everyday routine might become more adaptable with the help of a credit card. You can use credit to pay for larger purchases and then repay them in instalments that are more manageable for your finances.
According to wikipedia, ‘credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder’s accrued debt (i.e., promise to the card issuer to pay them for the amounts plus the other agreed charges).’
A payment card that permits the cardholder to make purchases against a credit facility provided by a credit card firm is referred to as a credit card.
In addition to their function as a means of payment, many credit cards today also serve as a form of consumer warranty for the goods and services purchased and travel insurance for the cardholder and their family. Credit cards give you flexibility and assistance in difficult or unexpected situations.
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It is common practice to combine debit and credit cards onto a single piece of plastic. This allows you to use the same card to make payments from your bank account or on credit. The card’s credit facility is different from the debit facility in that you will be billed for any charges you make using the credit facility after the fact.
When you pay with debit, the payment amount will be deducted from your bank account as soon as the transaction is processed. If you choose to use credit to pay, you will have the option to repay the amount you have borrowed through convenient monthly instalments.
Why Use Credit to Pay for Goods?
Personal finance experts work hard to persuade us to avoid using credit cards for various reasons. Many of us get into financial trouble because of our careless use of credit to pay for goods.
However, suppose you can make responsible use of plastic; in that case, you are most likely to benefit from using a credit card rather than a debit card and conducting as few financial transactions as possible with ease.
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Let’s examine the advantages of using a credit card and some strategies for making the most of this payment method.
1. One-Time Payments
Nothing beats the prospect of a welcome bonus when applying for a new credit card. It’s not uncommon for people with good or excellent credit to be approved for credit cards that come with bonuses of $150 or more in exchange for spending a certain amount in the first few months the account is open. That’s the case with many credit cards that give you a bonus after making a purchase.
Some cards offer sign-up bonuses as reward points or miles that can be redeemed for everything from statement credits to flights to merchandise to gift cards to cash.
However, a standard bank debit card with a checking account typically does not include a sign-up bonus or regular opportunities to earn rewards.
Credit card transactions make it much less complicated for consumers to stay safe from fraud. If someone else purchases with your debit card without your knowledge, they will immediately be able to withdraw the funds from your account.
It could take some time for the bank to investigate the fraudulent activity on your account and reverse the transactions and return your money to you.
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Similarly, inadequate funds can result in overdraft fees and adversely effect your credit score, even if the bills are legitimate. Even if the delay or failure to pay is not your fault, it can still negatively affect your credit score.
However, suppose your credit card is stolen and used fraudulently. In that case, you won’t lose any money because you can report the theft to your credit card company and wait for them to investigate and resolve the problem without paying for any purchases you didn’t make.
Credit card companies like Visa and Mastercard provide customers with 0% liability coverage for illegal purchases to woo customers to use their credit cards to pay for goods rather than cash or checks. This is done to cut down on fraud and theft.
Issuers of credit cards can mediate disputes between customers and merchants over matters such as refunds when the customers and merchants have been unable to agree.
3. Cash Back
Discover is widely regarded as the pioneering company in the U.S. market for cash-back credit cards. The idea behind these cards was simple: they would give cardholders a % cash rebate on all of their purchases.
The concept has matured and advanced to where it is now. In recent years, many credit cards have begun offering cash back rewards of 2% to 6% on specific purchases. The catch is that there are usually monthly, quarterly, or annual spending caps associated with these tempting deals.
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The best cash-back credit cards offer the highest rewards rate while charging a low annual fee and minimal interest.
The Fidelity Earnings card, for example, offers a generous % cash back on all purchases, but the rewards must be deposited into a Fidelity investment account.
4. Universal Acceptance
A few purchases are challenging to make using a debit card. Having a credit card can simplify the car rental and hotel booking processes.
Hotels and automobile rental agencies prefer credit card for making payments because it simplifies the process of charging consumers for any damage they may cause while renting a car or staying in a hotel room.
Another problem is that unless you have already paid for your car rental or hotel stay in advance, the store can’t give you an accurate estimate of the total cost of your purchase. To protect itself from potentially significant charges, the store will typically reserve a small percentage of your total credit limit.
With a debit card, you may be required to put a hold of several hundred dollars before the company approves the purchase.
Even though the emblem of a large bank is printed on your debit card, there is still a possibility that stores in a foreign nation would not accept it when you are shopping there.
5. Reward Points
In most cases, a consumer who uses his credit to pay for goods and services can earn one or more points for every dollar he spends. Most reward credit cards have spending categories where you can earn bonus points, like dining out, grocery shopping, or gas stations.
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When you’ve accrued many points, you can redeem them through the credit card issuer’s online rewards portal for travel, merchandise, and gift certificates.
There is a plethora of credit card reward options available to you. With a co-branded credit card, such as one issued by a clothing store, a hotel chain, or even a charitable organization like AARP, your regular spending can earn you significant benefits.
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6. Creating a Credit History
Credit card companies submit your payment history to the credit bureaus, so using one responsibly can assist you build or improve your credit score.
Consider applying for a credit card if you don’t have any credit yet or are trying to raise your score. However, because the use of a debit card does not show up anywhere on your credit report, you can’t increase or improve your credit score through its use.
While a down payment is required to obtain a secured credit card for making payments, doing so can help you build credit and increase your chances of being approved for larger loans or unsecured credit cards in the future.
7. Manage your spending
Carrying a balance defeats the purpose of credit card perks. If you don’t watch your spending, you could be in debt and paying off interest for years, making any potential benefits irrelevant.
Rewards cards can be beneficial, but only if you exercise self-discipline and avoid overspending.
If more than one person uses the same bank account, it is essential to check in on it frequently to avoid losing track of unnoticed purchases. Paying your credit card bills every other week or every three weeks is another way to keep your credit usage ratio from rising, as is making individual purchases through the card issuer’s mobile app.
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Cards are also helpful if you want to set up a budget. Cash is similarly tough to track unless you enjoy carrying a wallet full of receipts. However, with credit cards, it’s simple to see when and where money was spent.
The choice of whether to use cash or credit is a highly personal one. Depending on your resources and requirements, the answer may vary.
But regardless of your method, understanding your spending habits will be easier if you’ve mastered the basics of budgeting and goal-setting. And remember that to reap the rewards of credit card use, you must use your card sensibly.
Keep on top of paying off your card balances in full so that you don’t let any debt weigh you down.
Questions People Ask About Why They Should Use Credit to Pay for Goods
Is it smart to use a credit card to pay bills?
Make sure that you pay off your balance in whole and on time every single month. Never place bills that you can’t afford to pay off on a credit card, regardless of how tempting it may be.
- Utilities. It makes perfect sense to pay one’s monthly bills for necessities of the home, such as electricity, gas, water, sewer service, and trash collection, with a credit card.
- This also holds for cell phone, internet, cable services, streaming services, student loans, and other similar expenses.
- Insurance for both car and your home.
Using a credit card with a rewards program could offer you benefits such as free vacation if you put your spending on that card.
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This article illustrates why you should use credit to pay for products rather than a debit card or cash when making a purchase rather than those options. What do you think about this? We would appreciate it if you could share your thoughts with us in the comments area.