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I'm 24, and so far I've been able to live without credit cards of any kind. My wife calls this "If we can't pay for it right now, we don't need it." Obviously this does not apply to our car and our house, but for every other major purchase we have paid cash. Is this kind of behavior sustainable? Will there come a point at which we need to have a credit card?

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There is no reason it should be obviously this does not apply to our car - why not save for the car too? –  enderland Mar 10 '13 at 16:55
    
@enderland Because the broken Honda my wife and I were driving to get to and from university finally busted, and we still needed a way to get around. If we had had the funds, we would have done exactly what you suggested. –  Matthew Jones Mar 15 '13 at 20:48
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Your questions are: 1- why do people get them: it is answered by the other question. 2 - any other aspect are you missing: nope. –  mhoran_psprep Feb 6 at 10:24

14 Answers 14

up vote 26 down vote accepted

Credit cards are great. You get free money for 30+ days and a bunch of additional benefits like insurance, extended warranties and reward programs. When vendors don't behave, you dispute the charge with the credit card and they deal with it on your behalf.

Just get a fee-free American Express card and pay the balance off each month.

There's nothing wrong with using cash either, but I would avoid debit cards like the plague.

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Why would you avoid debit cards? –  firedfly Oct 13 '10 at 20:46
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Debit cards don't have the same protections that credit cards do. –  Jim Oct 13 '10 at 22:04
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@firedfly, debit cards are not universally protected. All credit cards have protections by law, and depending on your bank, some debit transactions do, but sometimes only on certain transactions. It is a mess and not worth the risk of using debit cards to me. –  MrChrister Oct 13 '10 at 22:18
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The only advantage that debit cards offer you is protection against your own lack of discipline. If you lack that discipline, you're going to have similar problems with a debit card -- you'll just spend down to zero instead of spending up to your credit limit or some arbritary number. Cash is a different animal -- parting with physical money hurts! –  duffbeer703 Oct 14 '10 at 0:53
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Another risk with debit cards is fraud. If you get fake charges on a credit card the bank is out the money while you dispute it. With a debit card your bank account could be emptied until you resolve the dispute during which time your other checks start bouncing. Serious mess. –  JohnFx Feb 6 at 14:34

Try to buy an airline ticket, rent a hotel room, or rent a car without a credit card. Doable? Perhaps. Easy? Nope. With a debit card, you run the risk of a hotel reserving more than your stay's cost for room service, parking, etc and potentially having a domino effect if other payments bounce. We just spent 3 nights in NYC, room was just over $1000. Do I really want to carry that much cash?

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There are numerous reasons that go beyond the immediate requirement for access to credit. Many people just plain don't like carrying cash.

Before electronic debit cards became mainstream about the only way to pay for online services was with a credit card. This has now changed just about everywhere except a large number of airlines which still only sell online tickets via a credit card payment.

And then there are all those countries where governments (and some banks) have decided to charge merchants more when customers use debit cards. If you don't like carrying cash then you may find that the only card you can use is a credit card.

These concerns are gradually disappearing and at some stage someone is likely to offer a combined debit-credit card. At which point you'll probably get credit whether you like it or not.

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Or you can use prepaid cards, there is a fee to buy one, but you get the ability to pay people who only want plastic. Cash for everything else. –  MrChrister Oct 13 '10 at 18:44

You don't need a credit card anymore than you need a TV or a car. There might be many circumstances where a credit card is a convenience, there might be things you give up because you don't have a credit card. There are even some upsides to a well managed card account.

But no, you don't need it.

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People have credit cards for various reasons depending upon their personal situation and uses

  • Convenience
  • Extra time to pay off (grace period)
  • Cashback/Rewards
  • Build Credit History
  • Certain purchases where cash is not acceptable (Car Rental, Online, Airline tickets, Over the phone purchases where Debit cards offer lesser protection compared to Credit cards)
  • Many card offer a warranty extension up to 1 year
  • Protection from seller who doesn't deliver the product you order

You don't need to have a Credit Card if you don't have a reason to. But most people do.

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Also, there are some services that it's hard to buy without a credit card, like car rental. –  Mike Scott Feb 6 at 12:11

A credit card can be a long running line of credit that will help to boost your FICO score. However if you have student loans, a mortgage, or car payments those will work just as well.

If you ever get to the point where you don't have any recent lines of credit, this may eventually end up hurting your score, but until then you really don't need any extras.

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No you do not need a credit card. They are convenient to have sometimes. But you do not "need" one. I know people who only have one for use when they travel for work and get reimbursed later. But most companies have other ways to pay for your travel if you tell them you do not have a credit card.

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You don't need credit cards but there are few benefits, if you pay them off right away

  • You get a better credit score that helps later get a mortgage or any other loan or even a job
  • You get a 20-40 days delay on paying for an item. Meanwhile you can reinvest those money.
  • Many credit cards have 1% cashback on purchases. So you actually paying less.

I assume you do have a debit card, since sometimes (like unattended gas stations or shopping on the web) cash is not accepted.

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Eventually you are going to need some sort of real credit history. It is possible that you will be able to evade this if you never buy a house, or if you pay cash for any house/condo/car/boat/etc that you buy. Even employers check credit history these days. I wouldn't be surprised if some medical professionals such as surgeons check it also. Obviously if you have a mortgage and car loan this doesn't apply, but I'd be curious how you acquired those unless you have substantial income and/or assets.

Combine this with the fact that certain things like renting a car essentially require a credit card (because they need to put a hold on more money than they are actually going to take out of your card, so they can take that money if you don't bring the car back), and I think you should have a credit card unless you and your wife are individuals with zero impulse control, which sounds highly improbable.

If your concern is the financial liability of the credit line, just keep the credit line low.

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I agree that using the cards should only be done carefully. I have heard studies show consumers spend more when using a credit card than when not using a credit card. –  Paul Oct 14 '10 at 1:23
    
I've seen reference to studies as well, but never saw an actual study that wasn't contrived. Every study I've read was based on small groups using $10 vs using a gift card loaded with $10 (or similar) and as far as I'm concerned, this does not extrapolate to a real many-thousand dollar per month budget. I'm not saying the card overspending isnt true, only that I've never seen a study that proves it. –  JoeTaxpayer Dec 7 '12 at 3:28
    
Do you have anything to support the claims that employers check credit history without candidate's permission? Do any anti-discriminatory laws in US are broken that way? In many EU countries, discrimination against financial status is forbidden. –  Donaudampfschifffreizeitfahrt May 9 at 7:58
    
It is not without your permission. However, they can refuse to offer you a job without your permission to do a credit check. foxbusiness.com/personal-finance/2014/03/26/… –  Alan Shutko May 10 at 13:31

I can't answer the question if you should or shouldn't get a credit card; after all, you seem to manage fine without one (which is good). I started using credit cards when I lived in the UK as the consumer protection you get from a credit card there tends to be better than from a debit card.

I'd also treat it as a debit or charge card, ie pay it off in full every month. That way, because you're not carrying a balance the high interest rate doesn't matter and you avoid the trap of digging yourself deeper into the hole each month.

Cashback or other perks offered by a credit card can be worth it, but (a) make sure that they're worth more than the yearly fee and (b) that they're perks you're actually using. For that reason, cashback tends to work best.

I'd get a VISA or Mastercard, they seem to be the ones that pretty much everybody accepts. Amex can have better perks but tends to be more expensive and isn't accepted everywhere, especially not outside the US.

But in the end, do you really need one if you're managing fine without one?

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If you are in the U.S., without credit cards, you probably don't have a credit history. Without a credit history, you won't be able to get a loan/mortgage, and even if you do, you'll get it on very unfavorable terms. Depending on where you live you might even have great difficulty renting an apartment. So, the most important reason to have credit cards is to have a good credit score.

People have already listed other advantages of having credit cards, but another thing that wasn't mentioned is fraud protection. Credit cards are better protected against fraud than debit cards. You probably shouldn't use debit cards online unless you must.

Also, without a credit card or credit history, some simple and important liberties like renting a car while you are travelling might be denied to you.

So, in conclusion, it's bizarre, but in modern America you need credit cards, and you need them bad.

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my son had his wallet lifted and both credit and debit cards were used fraudulently within minutes. There was no difference in the amount of protection or the difficulty of getting the charges reversed. The debit card was used online by the thief. This may be a difference between Canada and the US. Debit card use is far more widespread in Canada than in the US. –  Kate Gregory May 9 at 18:58
    
@KateGregory In the US, your liability for unauthorized use of CCs is normally limited by law to $50. No such protection exists for debit cards. (I am not a lawyer). –  MaxB May 11 at 0:56
    
from cibc.com/ca/legal/debit-credit-card-fraud.html, "If you are a confirmed victim of fraud and you have met your obligations under CIBC's Convenience Banking Service Agreement, you will not be held liable for the associated losses." Specifically for debit cards. –  Kate Gregory May 11 at 1:07
    
@KateGregory It's one specific bank's policy rather than law. Also, it looks like it's in Canada, about which I know little. –  MaxB May 11 at 1:09
    
That's right, I'm telling you the Canadian situation. It is the same with all the banks and it is in their hared Code of Conduct, possibly also in law. –  Kate Gregory May 11 at 1:13

Credits are expensive, so it's a great advantage to pay in cash. Obviously, it's even more an advantage to pay in cash for a house or a car, of course if you can afford it.

But, as annoying as it could be, there are some services, where you're out of option to pay in cash, or even to pay by bank transfer. One of the most prominent examples, Google Play (OK, as I've learned, there are prepaid cards. But Groundspeak, for example, has none.). With the further expansion of Internet and E-Economy there will be more cases like that, where paying in cash is no more an option.

Booking of hotels or hostels is already mentioned. There are some that provide no other booking option that giving your credit card number. However, even if the do, for example bank transfer of, say, 20% as reservation fee, please note that international money transfer can be very expensive, and credit card is usually given only for security in case you don't come, and if you do come and pay in cash, no money is taken = no expensive fee for international money transfer and/or disadvantaging currency exchange rate.

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What's the problem with Google Play? They have gift cards for sale at every corner - pick one for cash and use it to pay online. Apple has been doing the same on iTunes as well for ages now. –  littleadv May 9 at 8:13
    
@littleadv they do have? I didn't know, in Poland or Germany there are none. Maybe it's not the best example then, but for example Groundspeak allows paying only by PayPal or credit card. –  Donaudampfschifffreizeitfahrt May 9 at 8:15
    
Well.... The OP is in the US, so the context is of the American market. In the US you can fund paypal with cash through your bank account just as well. Don't know about Europe. –  littleadv May 9 at 8:23
    
@littleadv yeah, but then you have PayPal instead of credit card. Something like prepaid credit card then. From what I've understood, the OP wants to keep life simpler, and not find the complicated way around to prevent having a credit card anyway... Credit card is much simpler in that case. Paypal account loading takes a few days if done by transfer. –  Donaudampfschifffreizeitfahrt May 9 at 8:32
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"Credit" doesn't mean paying interest month after month. Obviously, that's bad. One can charge their expenses and pay the bill in full every month, and in most countries, no interest is charged. –  JoeTaxpayer May 9 at 19:00

Like many things, there are pros and cons to using credit cards. The other folks on here have discussed the pros and length, so I'll just quickly summarize:

  1. Convenience of not having to carry cash.

  2. Delay paying your bills for a month with no penalty.

  3. Build your credit rating for a time when you need a big loan, like buying a house or starting a business.

  4. Provide easy access to credit for emergencies or special situations.

  5. Many credit cards provide "rewards" of various sorts that can effectively reduce the cost of what you buy.

  6. Protection against fraud.

  7. Extended warranty, often up to one year

  8. Damage warranty, covering breakage that might be explicitly excluded from normal warranty.

But there are also disadvantages:

One of the advantages of credit cards -- easy access to credit -- can also be a disadvantage. If you pay with cash, then when you run out of cash, you are forced to stop buying. But when you pay with credit, you can fall into the trap of buying things that you can't afford. You tell yourself that you'll pay for it when you get that next paycheck, but by the time the paycheck arrives, you have bought more things that you can't afford. Then you have to start paying interest on your credit card purchases, so now you have less money left over to pay off the bills. Many, many people have gotten into a death spiral where they keep piling up credit card debt until they are barely able to pay the interest every month, never mind pay off the original bill.

And yes, it's easy to say, "Credit cards are great as long as you use them responsibly." That may well be true. But some people have great difficulty being responsible about it. If you find that having a credit card in your pocket leads you to just not worry about how much you buy or what it costs, because, hey, you'll just put it on the credit card, then you will likely end up in serious trouble. If, on the other hand, you are just as careful about what you buy whether you are paying cash or using credit, and you never put more on the credit card than you can pay off in full when the bill arrives, then you should be fine.

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I added 7 & 8. If not welcome, please revert the edit. BTW - you failed to mention the mythical studies that 'prove' card users spend 10-15% more than cash buyers. If such a thing were true, it would be a red flag. Fortunately, the studies are flawed. 'nuff said on that. –  JoeTaxpayer Aug 8 at 17:59
    
@JoeTaxpayer RE adding 7 & 8: Okay, I don't object. I don't know what percentage of cards offer such -- I'm sure not all of them. I know I've had cards that did though personally I've never tried to make use of such a benefit. –  Jay Aug 8 at 19:48
    
@JoeTaxpayer RE studies: I've heard of such studies but never looked into them deeply. I'd think that 10 - 15% more sounds pretty plausible to me, but "sounds plausible to me" and "proven true by scientific methods" are two rather different things. (A fact that seems to escape a lot of people, but that's another story.) –  Jay Aug 8 at 19:49
    
All studies I've seen use a contrived experiment, student behavior using a $20 bill vs a gift card, or similar. I guarantee such tests will prove the card people spend more. A valid test would be with real budgets, and would clearly separate the pay-in-full users from those carrying debt month to month. –  JoeTaxpayer Aug 8 at 21:31

The key part of your question is the "so far". So you didn't need a credit card today, or yesterday, or last month - great! But what about tomorrow? The time may come when you really need to spend a little more than you have, and a credit card will let you do that, at a very modest cost if you pay it off promptly (no cost, if paid within 30 days).

I learned this when I was traveling and stranded due to bad weather. I had almost nothing in my bank account at the time, and while I actually did have a small student-type credit card, I came really close to having to sleep at the train station when I didn't have enough for another night in a hotel.

As an example, if you have close friends or family living across the country, and something tragic were to happen, would you be able to pay for a flight to attend the funeral? What if you'd recently had an accident and a big medical bill (it doesn't take much, a broken arm can cost $10,000)? Perhaps you have a solid nest egg, but breaking a CD ahead of schedule or taking short-term capital gains on a mutual fund will usually cost more than one or two months of interest payments.

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