Over the past several years, credit card companies have gotten a pretty bad rap. It's not to say they don't deserve it … with their ridiculously high interest rates, late fees and confusing fine print which can be hard for most of us to read, let alone understand. Credit cards DO have their place however which is why I still have a couple of cards and use them too. The secret is all in using them responsibly.
Credit cards are ideal for short term loans whether it's to finance an emergency, fix a car, or cover an unexpected debt. As long as the balance is paid off during the "float", that is, the 30 - 45 day period when no interest is accruing, credit cards can be a sensible way to borrow money. Here are more reasons why.
Credit cards make up part of your credit score. Even though my mother-in-law owns her properties free and clear and pays everything in cash (including automobiles) she has a horrible credit score. The reason? She doesn't use credit cards. Credit scores are based on overall credit worthiness and how prudently you manage borrowed money. Since credit cards account for 30% of a credit score, not having a credit card will actually drop your rating.
Credit cards are safer than debit cards. The feds cap consumer liability on a stolen credit card at $50. Debit cards are a different story altogether. As long as the debit card is reported missing within 48 hours of an unauthorized transaction, the card holder is only liable for the first $50. Miss the deadline and you could be on the hook for the first $500 or more. Aside from the high liability, there's another reason why I prefer using a credit card for online transactions. If a hacker is going to hijack my card, I'd much prefer they take the credit card company's money instead of emptying out my personal checking account.
No "hold" on funds. At my favorite gas station, using a debt card at the pump (instead of a credit card) means a $100 hold on our bank accounts until the card clears which can take upwards of a week or so. For people who are short of cash to begin with, having a chunk of funds held for a week is not only crippling, it can trigger some unexpected overdraft fees as well.
Instant access. When one of my rentals was recently damaged by an improperly installed plumbing system (which sadly wasn't covered by insurance), we had to move quickly to stop the leak and start repairs. Having a credit card meant we could get a disaster team and a repair crew on site instantly without the hassle of applying and then waiting for a home equity loan from our bank.
While I no longer have high interest credit cards, the two I do have and use regularly are low interest cards with a 7% rate. As long as these cards are paid off before the billing due date, these short term loans are interest free. For the few times our card can't be paid off within 45 days (like with our $25,000 rental repair bill), we double up the payments to keep the interest charges to a minimum.
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