1. Build credit history: Charging small amounts and paying them off is a great way to establish credit history. Without credit history, it can be more difficult to get loans (including good loans such as student loans or a mortgage), secure insurance, or even land a job. If you are able to secure a loan without any credit history, your loan rate may be higher as a result.
2. Emergency source of funds: I mean for a real emergency. Not everyone has $1000 cash to buy emergency airline tickets, make car repairs, deal with a natural disaster, etc. And in my opinion, paying 15% interest is much better than taking out a payday loan in an emergency. Some payday loans have interest rates near 1000% if left for an entire year.
3. Fraud / Theft Protection: If your card is lost or stolen, you are only responsible for the first $50 in unauthorized charges. Fraud protection for debit is similar, but only if you notify your financial institution within 2 days. If you wait longer than 2 days, you can be liable for up to $500 on your debit account. Fraud and theft protection is non-existent for cash.
4. Disputed charges: When you dispute a charge on your credit card, most credit card companies remove the charge until the dispute is resolved. With a debit card, the money will not be returned unless you can prove the dispute in your favor. With cash, the money is usually gone.
5. Rewards: Many credit cards offer rewards including cash back, airline miles, discounts, rebates, gift cards and many others. Most of these rewards are designed to get people hooked into using the cards or spending more than they would otherwise, but used properly, rewards points can earn you a lot of money. Here are some credit cards that offer a sign up bonus.
6. Convenience: I don’t like to carry large amounts of cash with me. If you lose it, it’s gone. If it’s stolen, it’s gone. Credit cards are small, convenient, and carry better protection. They are also convenient to use to buy things on-line, or to buy large dollar items. Another, convenience is travel. I will be going on a cruise next week and if I use my credit cards I won’t need to exchange as much currency. Some credit cards don’t even charge a foreign transaction fee.
7. Car rentals: Some car rental agencies will not allow you to rent a car if you do not have a credit card. Some may allow you to rent a car with a debit card, but may lock up a substantial amount of money in your account until you return the car. You won’t be able to use those funds during that time. Many credit cards also provide additional liability insurance when you rent a car. Debit cards? Not so much.
8. Extended warranties: Many credit card companies provide extended warranties on items you purchase with their card. In some cases, the manufacturer’s warranties are doubled. That’s not a bad feature!
9. Short term loan: Credit cards usually have a grace period, after which your payment is due. This can be several weeks, which allows you to earn interest on purchases you have already made. While this may not be a big deal for a hundred dollars, if you charge a thousand dollars every month and add it up over the course of a year, you can actually earn some decent money with this. With cash or debit cards, the money is immediately removed from your account and you do not earn any interest on it.
10. Budgeting tools: Most credit card companies provide detailed transaction logs which are easily downloaded into Quicken or MS Money. This makes budgeting much easier to track and plan. Yes, it can be done with cash, but it is much more labor intensive. And time, as they say, is money.