“Wait…where’s your credit card?”
If I were to ask you that question and your answer is that you prefer cash or debit cards, I’d be very confused. After all, I typically don’t even activate my debit cards in the first place!
Why? Well, as someone who wants you to get the most for each dollar spent, you’re losing out if you use debit cards (or cash) over credit cards. There’s simply no comparison and, in this article, I’ll give you three reasons why.
Reason #1: Meager rewards and sign-up bonuses
If you’re using cash or debit cards, it means you’re not using credit cards, which is your first mistake. Credit cards will ALWAYS have superior bonuses. I don’t care if you’re a Rakuten user or have sold your soul to the Chase gods, most credit cards point schemes will provide better long term benefits than any cash back offers a bank may tout, if they offer anything at all. For example, with my three points-per-dollar spent (3% cash back) on restaurants with a Chase Sapphire Reserve, I’ve earned 4.5 cents, or 4.5% back when redeemed for travel. That’s exactly how I fly around the world for free, and in luxury (this card also happens to offer free lounge access at airports).
And, when I talk about points, I’d be foolish not to mention the sign-up bonuses for a new credit card, which is the prime opportunity for a big return on spending. For example, when I opened up my Chase Sapphire Reserve, I received an offer of 50,000 points for spending $3,000 on the new card within 3 months. What did I do to spend that money? I didn’t use it on Indian takeout (my favorite) and drinks at the local pub. I instead paid my rent, cell phone, and grocery bill. And with that 50,000 points, I bought myself a roundtrip ticket to Thailand for the vacation of my life!
Reason #2: You can’t stack debit card bonuses
This is a point that merits its own blog post, but apps and websites have popped up, such as DOSH and DROP (as well as Rakuten, mentioned above), that give you additional cash back for spending at certain restaurants and retailers. They give you rewards ON TOP of those from your credit cards.
For example, if I were to buy an iced coffee at the local Starbucks, not only would I have received the points from Chase for using the credit card, but I also would have received 5% cash back from Dosh. That comes to a total of at least 6 – 9.5 cents for each dollar in value. Over time, if you spend 600 per month on food and shopping expenses, that could mean up to $60 back!
Reason #3: Build Your Darn Credit!
Nearly all American loans use credit as the basis for determining eligibility. Some folks will pay hundreds or even thousands to boost their credit in hopes of securing a mortgage or business loan, others will open many credit cards hoping to build their score up through spending.
Whatever the reason, credit cards are the key to boosting your score. After all, banks want to see you can handle credit already in order to issue a loan. Using credit cards is the best means of demonstrating just that. A recommended credit score for the best rates would be anything over 740, and you can check yours online.
A good launching point is a secured credit card, one that has a set limit. From, there, you can see about other cards, whether for travel rewards or cash back (avoid store-specific cards). My only warning is to not hold any credit card debt, as the interest rates can be merciless and are completely avoidable.
Reason #4: Where’s the purchase protection?
Lastly, if you buy something and it’s a total dud, like a defective iPhone or even a travel ticket, wouldn’t you like peace of mind about the purchase?
That’s exactly what credit card companies have done. With purchase protection and warranty clauses, you can get reimbursed if you buy a product that’s not working, or needs returning. Of course, these clauses differ from card to card, but to provide one example: my Wells Fargo Cash Wise card provides free phone insurance for certain damages. That saves me from having to buy insurance through my phone carrier, and keeps at least 5-8$ a month in my pocket just for owning the card (which has no annual fee, by the way)!
So, to wrap up, it is nearly ALWAYS better to own and use credit cards if you have the discipline to do so. Debit cards just don’t give you the value, and if a financially savvy person like yourself knows, it’s how to spot value.
What do you think? Whether you agree or disagree, feel free to reach out or leave a comment. Bookmark our blog for future uploads, and tell your friends!