It's easier than ever to spend using credit with a simple tap, swipe, or click — and millennials are much more likely than older Americans to use credit cards even for small purchases these days, according to a 2019 online poll of about 2,500 adults from CreditCards.com and YouGov, a public opinion and data company. Overall, for purchases of less than $10, consumers still prefer cash, the poll finds.
But if you avoid credit cards altogether, you could be "throwing money down the drain," warns Nick Ewen, senior editor at The Points Guy. That's because credit cards come with benefits and rewards and can help you establish good credit.
Here's how experts say paying with plastic can actually save you money.
Let's say you bought something that turned out to be defective or broken, or you paid for a product online and then never received it. Thanks to the Fair Credit Billing Act, you're protected, as long as you purchased the merchandise using a credit card. You have less institutional support if you pay in cash, says Linda Sherry, director of national priorities for Consumer Action.
The process of filing a claim to dispute billing errors using the government's guidelines can be tedious, but certain cards have their own layer of purchase protection benefits that make it easier to get a replacement or refund.
For example, many credit cards have programs that automatically extend the warranties of products you buy, typically adding up to an extra year of protection. In situations where the retailer or manufacturer won't cover you, like when your refrigerator breaks two months after the manufacturer's warranty expires, Ewen says this additional safety net can really come in handy.
When it comes to travel booked with a credit card, some cards offer have protections that kick in if you lose your luggage or need to cancel your trip. Ewen says his wife's friend learned this lesson the hard way when paying for a family cruise with a debit card. Right before the trip, her mother broke her hip. She lost thousands of dollars because her debit payment method offered no purchase protection.
Just keep in mind that only some cards offer these additional protections, and there is typically fine print.
Rewards credit cards usually come with annual fees, so they're worthwhile when you're earning at least the value of the card's annual fee, says Ewen. And when you're sure not to rack up high-interest debt.
Certain cash-back cards offer rewards on everyday purchases, like up to 6% cash back on what you buy in U.S. supermarkets for up to $6,000 for a year. And if you're strategic about spending and racking up points on travel rewards cards, you can go far, quite literally: Karen Akpan, a travel blogger, paid for a hotel stay in Europe for six people by using the loyalty points she earned on her Hilton credit card.
When choosing a rewards card, pick one that aligns with your spending habits and purchasing priorities. If you drive a lot, make sure you're getting rewards on gas, for instance.
As long as you're paying off your balance in full every month, small purchases can add up to help you qualify for rewards, says Ewen.
Paying your balance off on time and in full each month helps you establish a solid credit history, which in turn can make it easier for you to snag a lower interest rate on a home loan or a car loan. And that can save you real money in the long run.
If you apply for a mortgage with a score of 759, which Fed data shows is the median for first-time homebuyers, FICO's calculator estimates that you'd qualify for a roughly 3.6% rate on a 30-year fixed loan, as of mid-August. By FICO's calculations, if you borrowed $216,000, that would result in a monthly mortgage payment of $975. Over the life of the loan, you'd pay over $135,000 in interest.
If you had a FICO score of 760 or better, though, you'd be eligible for the best rate: 3.324%. That means your monthly mortgage payment would be $949 ($26 less), and you'd pay over $125,000 in interest over the life of the loan.
Carrying around lots of paper money can be cumbersome, and there's no safeguard if you lose it. If your credit card gets lost or stolen, though, you can report it to your issuer and get a replacement. You can also get protection for unauthorized charges.
Also, taking out cash at a bank you don't belong to can cost you. ATM surcharge rates hit an all-time high for the 14th year in a row last year, making the total cost of withdrawing cash from an out-of-network ATM $4.68, on average, according to a 2018 Bankrate survey that covered 25 large U.S. markets.
Unless a business has a minimum purchase fee, you typically won't be hit with a surcharge for using your credit card, at least not in person.
Overall, says Ewen, if you're responsible, spend within your means, and pay your bill in full and on time, using a credit card can help you save real money.
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