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?
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.
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?
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.
People have credit cards for various reasons depending upon their personal situation and uses
- Extra time to pay off (grace period)
- 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 cards offer a warranty extension up to 1 year, trip delay/lost baggage protection and other benefits.
- 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.
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.
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.
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?
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.
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.
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:
Convenience of not having to carry cash.
Delay paying your bills for a month with no penalty.
Build your credit rating for a time when you need a big loan, like buying a house or starting a business.
Provide easy access to credit for emergencies or special situations.
Many credit cards provide "rewards" of various sorts that can effectively reduce the cost of what you buy.
Protection against fraud.
Extended warranty, often up to one year
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.
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.
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.