Credit cards
Credit: Sean MacEntee on Flickr/CC by 2.0 with Attribution

Today credit has evolved to become a way of life. It's reached the point many people are trying to reduce it because debt has gotten too far out of hand. According to statistics provided by the U.S. Federal Reserve in January 2015 the total outstanding consumer debt in the United States was a whopping $3.33 trillion. 1

Rather than risk the temptation to succumb to the ease of using a credit card for spontaneous purchases, the philosophy is to cut them up and close the accounts. And this is often a good strategy, however carrying credit cards does have its advantages.  While closing credit accounts eliminates the temptation to overspend beyond one’s means, getting rid of them completely may potentially create other dilemmas.

There are many situations where having a credit card is very beneficial and, while the easiest solution to avoid accumulating debt may be to simply get rid of the plastic, it might not be a bad idea to hang onto at least one or two cards. Just be sure the one(s) you choose carry no annual fee and offer a low annual percentage rate. If there are fees attached, be sure the benefits that come with the card are worth the tradeoff of paying a fee.

Reasons why it may be beneficial to hang onto at least one or two cards:

Convenience / Online Shopping

Convenience is also another reason why people like to hold onto plastic. It is way easier to scan a card at a merchant than it is to constantly go to the bank or ATM to withdraw cash.  Not to mention online shopping has continued to boom and shows no signs of stopping and, as more and more shopping and purchasing opportunities become available via the Web, it simplifies things if you can charge your purchase on credit. Many companies now offer "web specials" where discounts are given only if the purchase is made online.

In this respect, if you are strictly "cash and carry", you miss out on the convenience of shopping online, but also may miss the chance at snagging some of these terrific discounts. (Keep in mind though with the availability of gift cards via major carriers such as MasterCard, Visa and American Express, and/or having a PayPal account, you can more easily bypass needing a credit card to get good online deals - so you do not necessarily need to rely on plastic anymore to get these types of deals).

Boost Your Credit Score

One of the many benefits associated with possessing a credit card is it gives you the opportunity to build good credit and keep a decent score. It may not seem important, but if you ever want to make a large purchase, such as a car or a home, having a strong credit rating may make all the difference in the interest rates you receive on your big ticket acquisitions. Bad or no credit will probably cost you in the long run.

Credit score
Credit: Lendingmemo. com on Flickr/CC by 2.0 with Attribution

Car Rentals

Whether renting a car, some car rental agencies may require a credit card to accompany the agreement contract. While you may not frequently have the need to rent a car, if you ever do, you might end up sorry you do not have a card to pull out to give to the rental agent. Those agencies that do not require a card will most likely ask for a cash deposit to ensure the car is returned in the same condition it was in when rented. The amount of the deposit can range in hundreds of dollars and the amount will often be determined on a renter's credit score. 2

Under this philosophy, if you don't use credit and have no score and/or have a low credit score, the renting company is going to want a lot more cash.

This goes back to the convenience thing - it's just easier to have at least one piece of plastic on hand.

Making Reservations

These days it often seems next to impossible to reserve a hotel room or buy an airline ticket without a credit card, either online or over the telephone. Some hotels may allow it, but they will either want your checking account information or require a cash deposit. Even the automated check-ins at the airport nowadays requires an I.D. to be swiped through the machine in order to obtain your ticket, and this frequently is requested in the form of a credit card. It is not impossible to buy a plane ticket without credit, but it is certainly a lot easier. Although, PayPal is also potentially an option for reservations.

Travelers at Denver Airport
Credit: Leigh Goessl/All rights reserved

Carrying plastic while traveling does increase the convenience factor.

Emergency Use Only

There may come a time where you are stranded with a broken down car or left in a dire situation where you need to make an emergency purchase (for instance, big ticket appliances that are needed in the home). Chances are you won't be carrying around a huge stash of cash, and having a credit card can quickly get you out of your situation fast and at least provide a temporary solution.

Get Cash Back

This isn't a given, but it's quite possible you might be able to obtain a card which actually pays you to use it. Some credit lenders provide a percentage of cash back from total of purchases, and consumers receive a rewards check or credit. If you use your card for all your purchases (and pay it off totally each month), this can equate to a tidy sum over the long term. Just keep a close eye on all of your purchases, as data breaches involving credit is steadily on the rise. The more places you use your card, the more you increase being caught up in a retail data breach. Keeping a close eye on monthly purchases also helps prevent overspending.

Theft and Consumer Protection

Consequently, while data breaches are a huge concern these days, using a credit card does offer protection in the event of a theft. Many lending agencies offer a zero liability policy if a card is stolen. In terms of actual purchases, it also offers you recourse if you have a dispute over a purchase (i.e. it's a piece of junk and the merchant won't exchange or refund your money). These types of purchases may fall under the Fair Credit Billing Act (there are criteria to meet, however, in the event of a problem, your situation could potentially be resolved easily since you made the purchase with plastic. In this respect, credit lenders value your business and often work to help you). 3 In the United States, if your card is stolen, under federal law, if you report the theft before any unauthorized purchases are made, you have zero liability. If reported within two business days after you learn of the theft, liability is limited to $50.

Possessing a credit card does not mean it's a good idea to max out the credit line or carry a high balance month to month; this is one of the pitfalls to avoid. When making purchases using credit, make a pact with yourself to pay it off every month. This way you earn the interest (as small as it may be or it frees up your money for other things during the month) on the money sitting in your bank account until the bill comes due and at that point simply pay it.

Statistics indicate about 80 percent of Americans do carry at least one credit card. 4 There are many good reasons to keep an open line of credit, as long as it is used wisely and the account is maintained with a level of discipline. Falling into the debt trap negates any benefits credit cards have to offer, but by practicing smart spending while using plastic, there are some benefits which can be enjoyed.