You might have heard that credit cards are essential to successfully managing your finances. At the same time, many experts say that you should stick to your debit card as much as possible. The main reason for this is that people often use credit irresponsibility and end up in debt.  However, there are several advantages to having a credit card, if you use your credit wisely.  A credit card can serve as a useful tool that allows you to leverage a range of benefits and incentives and help finance certain purchases that might otherwise be out of reach.  Whether any of this is relevant to you depends on your individual needs and circumstances.  It’s important to consider the pros and cons of credit cards before applying. Here’s what you need to know to decide for yourself if you really need a credit card!

Common Credit Card Myths

First, we should rule out some common misconceptions about credit cards. This will ensure that you understand what you can and cannot do with one.

• You Need a Credit Card to Rent a Car

If you need to rent a car, your debit card will suffice in most cases. The rental company will just hold a specific amount against your account. Where this differs from credit cards is that you need to have that amount of money on your card, so make sure to check that you have the required funds available.

• You Need a Credit Card to Build Credit

Put simply, credit cards are not required to build a credit history. There are other ways to boost your credit score, which is typically necessary to be able to apply for a credit card in the first place. If you want to learn how to build credit without a credit card, you can check out the linked guide on the Tally blog. Their recommendations on how to build credit without a credit card include taking out certain loans, paying your rent on time and taking out a credit-builder loan. Tally also offers a competitive low-interest line of credit through their simple mobile app, which can help you improve your credit score and get out of debt up to twice as fast.

• You Need a Credit Card for Emergencies

A mistake that people often make is assuming that a credit card is a viable fallback for emergencies. The problem here is that if a financial emergency were to occur and you use your credit card to cover it, you can end up in debt for a long time. It’s far better to set up an emergency fund, ideally with enough money to cover three to six months of expenses.

• You Need a Credit Card to Save and Earn Rewards

Many retailers offer special bonuses and discounts for taking out store credit. However, they don’t do this merely to give you discounts. They know that few customers actually pay off their outstanding credit, and the interest they earn on it will exceed what they lose on the discounts they offer you.

At the end of the day, you only stand to win with these offers if you’re sure that you’ll pay off your balance in full every month. It’s also useful to weigh the monthly or yearly fees against the rewards you earn. If you regularly shop at a particular store, be sure to see if they have a debit card with rewards points instead.

Reasons to Have a Credit Card

Now let’s discuss where credit cards come out on top, and how you can use them to your advantage.

This begins the moment you apply for a credit card. Most banks offer an initial bonus for applicants with good credit. For example, you might receive $200 bonus cash for spending $500 (sometimes more is required) within the first couple of months the account is open.

Alternatively, the bank may offer gradual rewards points or miles that can be redeemed over time as you use your card. These points can be exchanged for gift cards, travel bonuses, merchandise, or statement credits. It’s very rare for banks to offer similar incentives for debit cards. Here are a few other benefits.

• Additional Time

When you pay for something with a debit card, the money is immediately taken from your account. But with credit card purchases, your funds remain in the checking account until you pay your bill. This can be useful for two reasons.

The time value of your money, however small, leads to savings. By delaying the payment until a later date, the cost of your purchase becomes slightly lower than it would otherwise be. Since the cash stays in your account for longer, you also earn money during the grace period assuming it’s an interest-bearing checking account.

There’s also the added comfort and convenience of not having to stress about your balance.

• Safety

When Not to Use Credit Cards

There are certain situations where a credit card might not be suitable or necessary. If you struggle to pay off your balance on time, it may be better to stick to a debit card for now. This is also true if you tend to spend more than you have. Finally, a debit card is preferable if you can only get a credit card with low credit limits.

For the financially disciplined consumer who can rely on a steady income, credit cards are valuable assets with enough benefits to justify their cost. If you’re in the position to apply for a credit card and can identify sufficient reason to have one, then it’s worth looking into.