Most of the time, when credit cards are in the news it’s for bad reasons. The average American household has over $16,000 tied up in credit card debt. Common criticisms are that interest rates are high or that store credit cards are a “scam.” Actual scammers are taking advantage of increased online shopping to steal people’s hard-earned cash, or installing tiny scanners in gas-station pumps to steal your identity.
You could be forgiven for not rushing to your bank to open a credit card.
But despite their evident flaws and possible pitfalls, using a credit card isn’t just a luxury, or necessarily a way to spend money you don’t have. It’s increasingly a necessity and can be a part of a healthy financial life. Here’s how credit cards can help you:
They Establish Credit
It might sound counterintuitive, but in today’s lending economy, a little debt can go a long way. For most major purchases and many financial agreements — buying a car, renting an apartment, taking out a mortgage — a credit check is in order, and if you don’t have any credit history, it’s hard to convince a landlord, bank, or dealership that you’ll be able to make good on your payments. Signing up for a credit card and making your payments on time, while also keeping under 10% of the limit, will put you on the way to a good credit score. And that, in turn, can lower your interest rates and make you a more attractive lessee in the future.
They Make Travel Easier
Travel is great… but booking flights, renting cars, and reserving hotel rooms can be an expensive drag. One of the best reasons to open a credit card is to streamline your travel experience — especially if you fly often for business. There are dozens of travel rewards cards that incentivize spending with airline miles, hotel points, and car rental discounts. If you’re responsible with the card, making sure to pay it off every billing cycle, you can make your next trip a breeze — not only that, you might qualify for pre-boarding and free checked bags.
They Help You Avoid Overdrafts
Overdrafts are embarrassing — and, given the fees, expensive. Often, they occur when automatic billing conflicts with daily, unpredictable spending. But why should you suffer the indignity of a bounced check just because you wanted to pay your electricity bill and buy a four dollar tube of toothpaste? A credit card is a great solution to the problem of pay periods that don’t quite match up with your daily schedule of needs.
They’re a Safety Net
Life can come at you fast. An unexpected repair, a last-minute plane ticket, a dinner bill that’s higher than you expected — without a credit card, these expenses can throw your entire financial life into disarray. But there’s no reason the unexpected should ruin your day-to-day. That’s why an emergency credit card — one that you don’t use for daily expenses, but keep in the back of your wallet just in case — is a good idea. You shouldn’t have to choose between new brakes for your car and groceries. An emergency credit card allows you to spread the impact of the unexpected expense across several billing cycles.