Money Matters

3 in 5 Americans Are Making This Simple Money Mistake – The Motley Fool

If you’re making this mistake as well, you’re essentially losing money. 

Credit cards tend to get a bad rap, since they can easily lead to overspending. And the interest rates charged by some credit cards is borderline criminal. Still, there are plenty of good reasons to use a credit card. In fact, that’s the preferred method of payment for everyday purchases for close to 36% of U.S. consumers, according to a study published by The Ascent. 

But almost 58% of Americans use debit cards rather than credit credits for purchases. And in doing so, they’re missing out on a host of key benefits, like the following.

A man paying for groceries with a credit card.

Image source: Getty Images

1. Rewards 

Whether they come in the form of cash back, air miles, or store credit, there are plenty of rewards to be reaped by using a credit card. Imagine you typically use your debit card for groceries, and spend $5,000 on food per year. In doing so, you’ll get nothing in return. Use a credit card offering 3% cash back on groceries, and you’ll get $150 of that right back in your pocket. 

2. Price protection

Don’t you hate it when you buy something, only to see it listed at a lower price a week or two later? When you make purchases with a debit card and that very thing happens, you have two choices: Return the item and buy it again at a lower cost, or sit and seethe over the fact that you parted with more money than necessary. 

With a credit card, however, you’ll often have the option to be refunded the difference between the price you paid and the current lower price via your card’s purchase protection program. 

3. Protection against theft or damages

When you buy something with a debit card that’s stolen or damaged, you’re often out of luck. When you buy it with a credit card, you have recourse if that item is lifted out of your bag behind your back or smashed to pieces in an unfortunate accident. Depending on the card and period of purchase protection, you may be able to file a claim with your credit card company and get your money back.

4. Help building credit

Of the various factors that go into establishing your credit score, your payment history carries the most weight. Paying bills on time can boost your score, and if you regularly charge expenses on a credit card and make those payments when you’re supposed to, your score could take a turn in a very positive direction. 

Once that happens, it becomes less expensive for you to borrow money in the future, whether it’s in the form of a mortgage, auto loan, or personal loan. Debit cards, on the other hand, don’t help you build credit because you’re not paying a bill so much as having funds that are already yours deducted from your bank account

Beware of the drawbacks of credit cards

Clearly, there are plenty of reasons to use a credit card over a debit card. But you’ll negate each and every one of them if you abuse that credit card and get yourself into debt. 

Not only can it cost you money in interest charges, but it can also wreck your credit score rather than help it. That’s because credit utilization, or the percentage of your available credit you’re using at once, is another big driver in determining your score. Charging up a storm and carrying a balance will result in a high utilization ratio, thereby lowering your credit score and making future borrowing more expensive.

On the other hand, if you use your credit cards wisely, you’ll enjoy all the above perks that debit cards simply can’t match.

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