Why Do You Need a Credit Card?

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I’m serious. I understand the many varied reasons why people WANT a credit card. What I’m more curious about is why people feel they NEED a credit card. Are they just confusing wants and needs? Or are there times when you really do need a credit card.

Like Guns, in the Hands of the Untrained and Impulsive, Credit Cards are Dangerous

Some friends of ours are poster children for how to use a credit card properly. They only buy things if they already have the money in the bank waiting to pay for them. They read their statement carefully looking for fraud and errors. They pay off their balance in full each month. They even take advantage of a few discounts by using a card (gasoline) and get a few points once in a while (Air Miles.) I’m quite sure VISA hates them.

But credit cards can be very dangerous in the wrong hands. If a person lacks self control, even once, they can end up buying something they can’t pay for when the statement arrives. Then the evil interest starts accumulating. The interest rates on credit cards are outrageous. At a time when you are lucky to get 1.5% on your cash investments, credit cards are charging 5-20% interest! It’s easy for a purchase to end up costing twice what it cost when it was rung up at the till.

Credit cards are also dangerous in a more subtle way. Apparently people are more likely to buy more items and spend more per item if they shop with a credit card than if they shop with cash.  There’s no physical, tangible pang of loss when handing over a credit card like there is when handing over a crisp new $20. In fact when using a credit card you often don’t hand over anything: the card never leaves your hand.

Why Do People Want Credit Cards?

There’s quite a variety of reasons people want credit cards:

  • They want to be like their friends.
  • They don’t like to carry cash
    • …because of germs
    • …because they can’t get to the bank easily
    • …because it’s bulky
    • …because it can get lost easily
    • …because it can get stolen
  • They need to buy items online and the vendor asks for a credit card.
  • They want to rent a car and the auto company doesn’t want to rent if they don’t have a credit card.
  • They want to buy something that requires on-going payments and the service provider wants to bill it to a credit card.
  • They want to collect reward points or miles.
  • They want to earn “cash back.”

When Do You Actually NEED a Credit Card?

Of all these wants, there are only a few situations when you actually need a credit card.

  • buying airline tickets
  • renting a car
  • booking a hotel room
  • paying for work-related expenses where you have to wait to be reimbursed and yet you don’t have the cash to cover the costs until then

I’d argue that in most of those cases you could still work around it through a combination of debit or cash deposits. People who cannot get a credit card manage, although it is probably difficult, embarrassing and time-consuming.

But Do You Need a CREDIT Card or Just a Delayed-Payment Card?

When you mention cards and plastic, you usually think of a credit card like VISA or MasterCard. There is a second type of card, though. The most common brand-name is AMEX, American Express. These cards allow you to delay paying your bill until the end of the billing month. You can’t carry a balance past that same month, however. Payment in full is due when the bill arrives.

These delayed-payment cards, or charge cards, may be the answer for some people who need the convenience of a credit card but who don’t want to risk over-spending.

Pre-Paid Credit Cards

Another option that might work for some people are cards where you load money on the card and you can use it to spend until the money is gone. Personally, I don’t see many advantages for these cards over debit cards. You’d have to check for fees and transaction fees before getting one. If they are like the VISA and MasterCard “gift” cards of a few years ago the fees might be a problem.

So Do You Need a Credit Card?

Do you really NEED a credit card or just want one? Or are these cards just so common now that you figure you should have one like everyone else does? What do you think? Please share your views with a comment.

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