This is a hotly contested topic. Financial influencers worldwide have varying opinions on the necessity of even having credit at all. Credit cards can be a life saver or your worst nightmare, but a credit card is just a tool. What makes the difference is the person using the card. If you have bad habits and spend more than you can afford, you will run into trouble eventually. Ultimately, the question is: do you really need a credit card?
Credit Card “Wives’ Tales”
Let’s start off by establishing common misconceptions about the necessity of owning and utilizing a credit card.
You need a credit card to shop online – This is patently untrue. These days, a credit card and debit card are basically interchangeable. You can even run your debit card as a credit card in many “point of sale” situations and this is encouraged as it is considered the safest way to use your debit card.
You need a credit card to “build credit” – It is true that having a credit card can help you build credit if you make at least the minimum payment on time every month and keep your utilization under 30%. However, it is not essential to use a credit card to build credit. You build it by paying bills on time such as your mortgage, car payment, and student loans.
You a credit card for emergencies – Most financial experts urge everyone to have an emergency fund of at least $1,000 in liquid cash to handle emergencies. This is something you can build over time.
Credit Cards That Sound Great, but Are Actually Risky
Some financially responsible people like the idea of a “rewards” credit card. The types of rewards can vary:
Cash back – you earn a small percentage of cash back (usually 1% – 3%) and use that cash to pay your credit card bill, redeem for gift cards, etc. This sounds great, but it only is a good idea if you completely pay off the credit card balance every month. If you do not, the interest charge every month could outweigh any cash back you have accrued.
Travel miles – you accrue miles on when you use the credit card and the miles are redeemable for airline tickets, hotel stays, car rentals, etc. It is another alluring prospect, but it often takes a lot of miles to earn a plane ticket or other reward. Also, these cards often have high annual fees. Additionally, the miles can expire. You may be surprised to know that over 90% of accrued miles go unredeemed every year.
Cash back and travel miles are not something you need, and the risk far outweighs the potential reward for most people.
If you have credit card debt and you do not know what to do about, you need help. Elias Dsouza of Dsouza Legal Group has the knowledge and experience to help you navigate your debt situation and earn financial freedom. Contact Elias today for a free consultation.