The Advantages of Credit Cards

Many financial consultants will tell you to cut up your credit cards, or to never apply for one at all. They tout the benefits of operating on a cash basis, or just using a debit card. The rationale is that you can't spend more money than you have, like you can with a credit card.

But used wisely, credit cards are a secure alternative to carrying a lot of cash. It's much easier to rent a car or reserve a hotel room if you have a credit card. A credit card can save your life in an emergency, if your car breaks down or you have to buy a last-minute plane ticket home.

Credit cards give you more leverage and protection than you get when you pay with cash or a debit card. You have the option of disputing a charge and having it reversed if the product you purchased is not what the vendor promised. And there is less hassle getting a refund if that airline or cruise line goes bankrupt or discontinues service to your vacation destination.

I like to use credit cards for basic living expenses, such as groceries, gasoline, and even some utilities. I pay by credit card whenever one is accepted without an additional fee for the convenience. Many credit cards offer rewards such as gift cards, frequent flyer miles, or even cash back. So the more you use the card, the faster you earn the rewards. And using credit cards for most, if not all, your daily living expenses helps you keep better track of where your money is going. Cash tends to get frittered away.

The secret to effective credit card use is to remit the balance in full every month, on time, so you never pay one penny of interest. If you have to make a large purchase that you can't pay for when the bill comes, stop using that card until you can reduce the balance to zero again. As long as you carry a balance, you'll be accruing interest on every new purchase, so it no longer makes economic sense to charge daily living expenses in order to build up rewards.

A credit card is a convenient form of payment, and a side benefit is that you get to use other people's money for a short while. If you think of a credit card as a magic plastic wand that enables you to buy things you cannot otherwise afford, perhaps cutting yours up is a good idea.

What are your thoughts on cash/debit vs. credit cards? I would love to hear your comments. 

Sharon Marchisello is the author of Live Cheaply, Be Happy, Grow Wealthy