Financial guru Dave Ramsey says, “Responsible use of a credit card does not exist.” He advises using cash instead.
While he may have good advice to offer in other areas, here Ramsey is just plain wrong. I never pay interest on my eight cards, I don’t spend more just because I’m not paying cash, and I’m measurably better off financially thanks to credit cards.
Yes, some people can’t handle credit and should use cash. But plenty of people use their cards responsibly, and there are many great reasons to use credit cards instead of cash. Here are 10 reasons you might want to ignore Ramsey’s advice and use credit cards.
1. Protection on No-Return Items
A few months ago I was overbilled for a computer repair. Only when I disputed the charge with my credit card company did the manager of the business finally adjust the charge. I like having a credit card company to help me out at times like this.
Some stores don’t allow returns, or specify that clearance items are non-refundable. If you pay cash for these items and have a problem, you’re usually out of luck. But if you pay with a credit card, you can file a dispute. Just because the company says “no refunds” doesn’t mean you should pay for something that doesn’t work, so never pay cash for items that can’t be returned — use a card.
The Fair Credit Billing Act lets you withhold payment on things that are damaged or of poor quality — it’s not enough that you change your mind or bought the wrong size. It’s important to note, as BankRate.com points out, that there are a few catches. You have to first try to resolve the matter with the seller, the item has to cost $50 or more, and the law says it has to be bought within 100 miles of your home. Fortunately, credit card companies rarely enforce the last two stipulations so you can usually dispute charges for items that cost less than $50 and those bought far away or online.
2. Cash-Back Rewards
I just received a $25 check for points I redeemed on one of my cards. But it can be difficult to keep track of all the rules for cash-back rewards, so I use my PayPal Business Debit card for most purchases. I never have to make a phone call or fill out a form online; the 1% cash back is deposited automatically in my PayPal account every month. When it’s that easy, why would I want to pay cash and give up the extra money?
If you can keep up on the rules and revolving categories that some rewards programs have, you can do much better. Some cards pay up to 5% for certain types of purchases one month, and switch the reward to another category the next month. You can also get creative with rewards cards to boost the balance and earn more.
3. Signup Bonuses
My wife and I made $800 from credit card signup bonuses this year. We had to spend a certain amount to qualify, but we use a card for all our normal purchases until we hit the mark and get the bonus; then we retire the card. Here’s a question for Ramsey: If we never pay interest (we pay our bill in full every month), and we never buy too much just because it’s on a credit card, are we really better off financially by paying cash and giving up the $1,000 we’ll make this year in bonuses and rewards?
If you do chase after bonuses, you might be tempted to cancel your cards after getting your cash. But closing accounts can hurt your credit score. I close them anyhow, because the score bounces back in time and we aren’t planning to get a mortgage loan, so having a perfect score isn’t important. But if you do worry about those dings to your score, just keep the cards but stop using them instead of cancelling them. Or, if they have fees, cancel them just before the annual fees are due — in my experience, when you give the reason for canceling, the credit card companies often drop the fee.
4. Extended Warranties
Some cards offer extended warranties on the items you buy. For example, my American Express card offers up to an additional year on many items. When blogger Xin Lu’s PlayStation 3 died just after the manufacturer’s warranty period had ended, American Express picked up the cost of repairs. “AMEX’s extended warranty saved us several hundred dollars,” she wrote on WiseBread.
It’s a good reason to use the right credit card to purchase electronics, appliances and anything that has a short warranty period (five years or less). Keep the original receipts in case you need to file a claim.
5. Safer Travel
Having been robbed in Mexico, and having once lost five $20 bills on an Ecuadorian dance floor, I now carry very little cash when traveling. Cash makes you a target for criminals, and if it’s lost or stolen you’ll never see it again. If a credit card is lost or stolen you’ll be liable for $50 at most, as long as you report the theft within two days. Some cards offer zero liability.
Also, who wants to run around the streets of some unfamiliar place looking for a place to trade in those dollars? Credit cards are safer and more convenient in many places.
6. Better Exchange Rates
When my wife recently visited Spain, she exchanged some dollars for euros at the airport. Ouch! Airport kiosks often offer poor exchange rates and charge high fees. Credit cards offer better rates of exchange, according to a recent study. To avoid extra costs, choose a card with no foreign transaction fees. Here’s a list of some of the best travel cards.
7. Rental Car Insurance
When I traveled to Colorado last month, I rented a car for a week. The rental company’s collision damage waiver would have cost me $140 for the week, but I declined. Instead, I put the rental charge on one of my credit cards that offers car rental insurance as a free benefit.
You’ll want to read the rules carefully if you use your credit card rental car insurance instead of buying that damage waiver. Not all types of rentals are covered, and you still could be liable for some damages even if you do have this insurance. But it works for me, and saves me a lot of money.
8. Other Travel Benefits
There are many other benefits to using a credit card when traveling, at least if you have the right one. Here are some of the travel-related benefits offered by various credit cards, according to WiseBread:
- Extra baggage loss insurance
- Emergency interpretation services
- Medical emergency transportation assistance
- Credit card loss protection
- No baggage fees
- Tracking assistance for lost luggage
Of course you can also get airline miles for booking flights with a card. You can even use credit cards to get free access to airport lounges. Check out the benefit guides that came with your cards to see what’s available.
9. Expense Tracking
Credit cards give you a way to track expenses. Receipts can easily get lost, so it’s nice to have online statements as a backup. Some card issuers keep those records around for a long time. For example, Discover Card statements stay online for seven years.
Tracking business expenses for tax deductions is an obvious advantage of paying by credit card, but there are other expenditures you might want to track. For example, you’ll need to track any charitable contributions to deduct on your tax return, so use a credit card. You’ll also need to document expenses for a rental property, if you have one.
If you ever lose a box of old receipts during a move (or worse, a fire), get online and print out copies of those old credit card statements while they’re still available.
If you pay cash for everything, you have to make sure you always have enough currency on you. That means repeatedly stopping at the bank to replenish your funds when they get low. It also means keeping track of how much is in your wallet so you don’t have an embarrassing moment at the cash register. Plus, you have to make sure you get the correct change — mistakes can happen. It’s simply easier to whip out a credit card and swipe it.
Cash or Credit: The Verdict Is In
To sum up the case for credit cards, here are the benefits of using cards instead of cash, based on my experience this year:
- About $800 in credit card signup bonuses
- About $200 in cash rewards from credit cards
- Savings of $140 on a car rental
- Successfully disputed a charge because I paid with a credit card
- Safer overseas travel for my wife thanks to her credit cards
- Better currency exchange rates because of her credit cards
- Easier tracking of expenses
- Extended warranties on several purchases
- No interest paid on my credit cards
- No fees for my credit cards (except one — but that gets me a free night at a Hyatt)
- No extra purchases versus what we would have bought for cash
And yet Ramsey says, “There is no positive side to credit card use.” He thinks credit cards are nothing but trouble, but I think the guru has failed to make his case. The verdict is in on credit cards: Not guilty.
Your Turn: What do you think of the credit card vs. cash debate? Do you take advantage of the benefits of credit cards, or prefer to use cash?