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What's the point of having a credit card anyway?

By , CardRatings Contributor

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While cruising around the blogosphere recently, I came across a reader question about credit card usage. The person posting the question asked if you are suppose to pay off your balance every month, why bother even putting purchases on a credit card. Why not use the cash in your bank account instead?

In other words, what is the point of credit cards?

Cynics may say the point of credit cards is to put you in debt, but for self-disciplined shoppers, paying with plastic doesn't have to equate to a trip to the poorhouse. What's more, there are five good reasons to pay with a credit card instead of using cash.

1. Earn credit card rewards and perks

Every month, you have to put gas in your car, food on the table and clothes on your back. Wouldn't it be nice to save a little money on all those purchases?

Rewards credit cards give cash back or award points or miles that can be redeemed for gifts or travel. In addition, some credit cards offer perks beyond the typical rewards. For example, some cards may provide product warranties or airline credit cards may extend travel insurance automatically when used to book flights.

2. Avoid wiping out your bank account

Even if you have the money in the bank, you may not want to bring your account down to zero. For example, let's say your transmission goes out or the hot water heater suddenly decides you will only have cold showers from now on. Using zero apr credit cards can be a smart way to take care of immediate emergencies while still leaving cash in the bank in case any other unexpected problems arise.

3. Minimize risk and reduce payment hassles

Credit cards are simple and easy to use. No need to worry about whether your check will be accepted and no stress about the possibility of losing the cash in your wallet. Credit cards can be used almost anywhere, and they come with great fraud protection too.

In the event your card is lost or stolen, your liability is capped at the first $50 of any fraudulent charges, however so long as you notify your issuer in a timely manner, you will likely not be liable for any amount. On the other hand, if your wallet disappears with a couple hundred dollars inside, consider that money gone for good.

4. Make budgeting easier

Building a strong financial foundation means creating a workable budget and attainable goals. Credit cards are a perfect tool to help with both.

Rather than trying to reconcile multiple accounts or manually categorize cleared checks, some households use a credit card for all their bills. Then, at the end of the month, they have a record of everything they purchased in one place. Some issuers even offer online tools to analyze spending and track trends so cardholders can easily see where their budget may need to be tweaked.

5. Build credit

Finally, cash doesn't build credit; credit cards do. At some point in your life, there is a good chance you are going to need to buy something, such as a house or a car, with a loan. And when you go in to fill out that application, you are going to want your credit score to be high enough to score you the lowest interest rate possible. It may seem unfair but lenders use the same word to describe someone with no credit as they do someone with bad credit: risky.

On first blush, it may seem as though there is no reason to use a credit card when you have enough money to use cash. However, the best credit cards offer perks and benefits that make them a smart choice for everything from monthly bills to emergency spending.

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