A lot of consumers are wary of using credit cards, but they might be losing more than they could gain if they use them responsibly.
Many people are afraid to use their credit cards because they don’t want to go into debt.
That’s a valid fear, but credit cards can be valuable, convenient financial tools if you use them responsibly – and you might be doing more harm than good if you keep them under lock and key.
Keep reading to find out the ways using your credit cards can benefit you more than harm you.
More Americans use debit cards than credit cards
“When it comes to payment methods, most American consumers use debit cards,” said Marc Mezzacca, founder of CouponFollow.
In a recent CouponFollow survey, more than half (53%) of the 1,700-plus respondents said they use a debit card most often for purchases.
In addition, nearly two-thirds (63%) of American consumers said they own two or fewer credit cards and 15% said they did not own any credit cards.
The survey also showed that 42.6% of millennials said they’ve charged more than they could pay off right away while online shopping in the past six months, compared to just 29% of consumers overall.
Mezzacca pointed out that more than 1 in 4 (27.9%) American consumers have carried a credit card balance of $1,000 or more, so the hesitation towards using credit cards is warranted.
“When used appropriately, however, credit cards can be a valuable tool for any generation,” Mezzacca said.
See related: Poll: Many U.S. adults plan to spend less after the pandemic than before
Credit cards are a great way to build your credit
Lauren Bringle accredited financial counselor at Self, once had a deep fear and distrust of credit cards because she feared going into debt she could not afford to pay back.
“Since I learned more about them, how to use them well and how to stay within my budget when buying on credit … they have unlocked thousands of dollars’ worth of freebies for me over the years, and helped me build my credit score,” she said.
Credit cards are often one of the easiest ways to build your credit and open up opportunities for yourself because typically, issuers report your activity to all three credit bureaus, which use it to formulate your credit score.
With excellent credit, you can qualify for the best credit cards, a mortgage or an auto loan – and get good interest rates, which means you’ll end up paying less on the money you borrow.
But if you don’t actually use your credit cards, you won’t build a positive payment history, and your cards may eventually be closed by your issuers.
See related: How to build credit
Use credit cards to reap rewards
Katelyn Magnuson, founder of The Freelance CFO, said she’s all about accruing easy-to-use travel and cash back rewards.
In the last five months alone, she has earned more than $1,000 in travel credits on her primary credit card, which she plans to use to fly to Europe as soon as things are safer.
“Earning rewards for things you’d be buying regardless can significantly help offset total trip costs, which will keep more green in your pocket,” Magnuson said.
Even better, she pointed out, many rewards and travel cards have killer introductory bonuses.
Several have rewards that don’t expire, meaning if you’re not able to travel for a year or two (like right now), those points keep accruing.
You can take advantage of them when you cash in for that vacation you’ve had in your sights for years.
Magnuson uses her United℠ Explorer Card, which gives her early boarding, free checked bag, lounge access and the ability to cash in miles for flights or upgrades.
She also uses her Capital One Venture Rewards Credit Card – it earns her a flat 2 miles per every dollar she spends, which she uses to “erase” travel-related charges right off her card.
See related: How to maximize credit card rewards
Credit cards can protect you from fraud
Jacob Dayan, co-founder and CEO of Community Tax, noted that credit card fraud is much easier to handle than debit card fraud.
Debit cards offer less protection than credit cards because they don’t offer zero fraud liability (meaning if a thief uses it the cardholder is not responsible for those charges), which most credit cards do.
Cash is king when it comes to fraud protection. But it’s more difficult to use cash in a society that is increasingly drifting toward the adoption of digital currency and transactions, Dayan added.
Credit cards themselves are relatively safe as far as money protection goes.
“Your card information might get stolen but since the money on the credit card is the issuer’s, they will fight tooth and nail to get that money back,” Dayan said.
Use debt as a tool
“I’m a big fan of using credit to my advantage, and I’ve used my cards to make strategic investments in myself and my business,” said Magnuson.
Because most credit cards have a higher interest rate than you can earn on investments, she recommends taking on debt when you know that the benefits will outweigh the initial investment.
For example, she said, if you pay for an educational or coaching program with a credit card but the skills you learn allow you to make significantly more than the cost of the course, then you’re “money ahead” in the long run, even if you pay interest.
See related: Low interest credit cards
Credit cards can be a lifeline
Credit cards can also be lifeline in tough times.
Available credit can give you the financial runway to leave a bad marriage or living situation, to pay for groceries or to get you through a stint of unemployment, Magnuson said.
It’s not ideal to use credit cards for these types of things, but when you need to do it you shouldn’t sweat it, she said.
Just make sure you have a plan to pay it back as soon as possible.
See related: How and when to use ’emergency’ credit cards
Remember that debt does not equal your personal worth
“Dropping the shame around my debt that society told me I should have was a game changer in my overall wealth and abundance,” Magnuson said.
In her early 20s she was living paycheck to paycheck, juggling which credit card her groceries could go on and working more than 60 hours a week.
When she filed for divorce and had to take on even more financial responsibility, she no longer had time to feel shame about money.
Magnuson leveraged her job experience and doubled her salary in just a few years, using credit cards to get her through the tougher times.
And that debt was something she looked forward to being able to pay off as her income climbed.
“Drop the shame–you’re not a bad person because you have credit debt, you’re simply a person using the tools and resources available to you to create a better life for yourself,” she said.
See related: 8 things you must know about credit card debt
If you already have the money in your account to pay for what you’re purchasing, you’re better off paying with credit than debit, said Nishank Khanna, CFO at Clarify Capital.
When you pay with debit, you’re not gaining any extra value. But if you use credit and pay your card in full at the end of each month, you’re potentially saving a lot with little extra effort, he added.
Credit cards tend to get a bad rap, but a lot of the negative consequences of credit card use come from poor financial habits, not cards themselves.
If you’re financially responsible, credit cards can actually help you get ahead and save more.