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There always seems to be more bad news circulating about credit cards.
For example, last week Citibank said its credit card default rate was up for the second month in a row – the highest rate among the top six card issuers, according to the AP. Those defaulters are going to take a credit score hit. Meanwhile, Fox Business reported the average APR on credit cards hit a record high of 14.96 percent. So everybody’s facing higher interest rates too.
The news has this on repeat: Credit cards are dangerous. It’s true, but as with many things it applies most to people who don’t know how to correctly use them. When properly managed, using a credit card is often smarter than using debit or cash. In the video below, Money Talks News founder Stacy Johnson talks about why – and we’ve got more info and links on the other side.
How are credit cards smarter than other payment options? Let’s count the ways…
- Consumer protections. While credit cards can’t protect you from yourself, they can protect you from shady merchants or bad merchandise. Paying by credit card gives you the option to dispute charges for damaged or defective goods and to enlist your bank to help you settle disputes. The Fair Credit Billing Act also protects you from unauthorized and mistaken charges, which makes credit cards well-suited for online transactions. These protections aren’t perfect, but they’re way better than a long fight on your own over a debit card or cash payment.
- Extended warranties. Shop at a big-box electronics store and you’re likely to get the hard-sale on an expensive extended warranty. But if you have a credit card that offers warranty protection, you can comfortably say no, because it may offer an extra year of protection already. Not all cards offer this: Check with your card company or find a card that does. Failing that, read our stories about extended warranties.
- Categorized transactions. Again, this isn’t something all credit card statements do, but some organize your spending into handy categories. This can be a big help in budgeting and tax preparation, and a wake-up call if you’re overspending.
- Building credit. The most obvious benefit of credit cards is their ability to help build your financial reputation. A good credit score can mean a lower-interest mortgage, lower rates on life insurance and auto loans, and better rates and perks on the cards themselves. You just have to be consistent in making payments on time.
- Freebies. Many cards come with rewards for spending in the form of cash back, frequent flier miles, or points redeemable for gift cards or discounts. Some cards focus on a specific type of bonus, like gas reward cards. Our writer Michael Koretzky pointed out your credit card company can buy your Christmas presents. Check out some of the best credit card sign-up bonuses and the worst reward cards to get a sense of what’s out there.