Ask The Classy Frugalist: Do I Need A Credit Card? (Part 1)

This week I’m starting a new segment called, “Ask The Classy Frugalist.” If you have a question that you’d like for me to answer, please share it with me through my contact form. I’d love to hear it! Any question about finances or frugal living is welcome.

Lately, it seems like the “in vogue” topic to ask me about is credit cards. Funny enough, my husband’s friends have been asking him about this a lot lately, too. Looks like we might have a Mr. Classy Frugalist on our hands! J  People have asked us, “Should I get another credit card, if so which one?” Or, “I have credit card debt, what’s the best way to carry my debt?” Or, my personal favorite, “I found this really cool new credit card, is it worth it?”

In each of these cases, I think our friends were looking for a quick answer. But each of these questions takes time – and some more conversation – to fully address it.   Today, I’m beginning a three-part series on credit cards so we can take a closer look at these questions. There are lots of misconceptions about credit cards and their role in our financial life. I’ll begin today by talking about the purpose of credit cards and why you should or should not get one (or more). Next week, I’ll take a look at how to evaluate which credit card to get. Finally, I’ll end the series with what you should do if you are carrying a balance on a credit card.

Before I discuss why you should or should not get a credit card, I want to share with you a little bit about my background with credit cards. When I started blogging as a graduate student in 2011, I didn’t have any credit cards and I didn’t want one. I had a debit card from my bank that could act as a credit card if I needed it to, but I almost never used that function. Since I was just learning how to budget, I didn’t want the temptation to spend money that I didn’t have.

I bit the bullet and got my first credit card shortly before my husband and I got married in the summer of 2014. I decided to get the Gold Delta SkyMiles® Credit Card from American Express (I recently upgraded to the Platinum Card) for a few different reasons. First, I started traveling a lot for my speaking business and I didn’t appreciate the holds that were being placed on my debit cards by hotels and rental car facilities. Second, I often had to pay for my travel in advance and wait about a month for the reimbursement. During my busy season with more than one speaking gig in the span of a month this hit my budget hard. Lastly, I decided on this particular card because of the perks. I wanted to accrue more miles, get on the plane faster, and have my baggage fees waived. Since I planned to pay off the balance on my card every month, the high interest rate did not bother me. In fact, it was another reminder why I shouldn’t carry a balance on my card.

I got my second credit card in the winter of 2015  the Marriott Rewards® Premier Credit Card. In my experience, this card has even better perks than the Delta cards listed above. Most people I knew from my full-time job traveled with both cards. They make good use of the perks, pay it off every month, and appreciate having another card on hand just in case one is compromised. For my full-time work, I stay almost exclusively in Marriott hotels and fly almost exclusively on Delta. With a job where I travel often, I’m able to use many of the benefits of both of the cards.

With that in mind, let’s take a look at the reasons why you might (or might not) get a credit card:

·      I want to improve my credit score: Ok, let’s get to the heart of this one. Can getting a credit card improve your credit score? In some cases, yes, but only if you use it in the right way. In fact, getting a credit card will actually drop your score before it lifts it. Creditors like a variety of different forms of credit (i.e. – a variety of installment payments like a mortgage or car payment, and revolving payments like a credit cards), but they also appreciate loyalty. That’s why it’s important to keep your longest running accounts open. If you are just starting out and really need the variety, getting a credit card may be to your benefit. But applying for new credit will ding your score and you’ll only reap the benefits if you use the card consistently (at least once every few months) and pay off the balance every month.

·      I want to take advantage of the perks: I understand the perks are alluring. Who doesn’t want a free stay in a hotel or a free flight? You know where my priorities lie! But, are they really worth it? Be honest with yourself – what are your other reasons for getting this card? Can you take on the responsibility of paying off your card every month? Are you a good enough budgeter to know that you’ll have enough money left at the end of the month to pay your bill? Getting a card for its perks isn’t a good enough reason to get a card in my book. But, it may help influence which card you choose.

·      I want to use it for travel – in the U.S. or abroad: As I mentioned earlier, one of the main reasons that I got a credit card was for travel purchases. Holds on debit cards can put a real constraint on your budget while you travel. For those of you in situations like mine where you are waiting for reimbursement, what’s your back up plan? I’ve had many times when my credit card payment is due before my reimbursement check comes in. I had to figure out a way to handle these expenses without breaking the bank. If you are looking to travel abroad, credit cards can be very helpful. Many credit cards, like the ones that I listed above, do not charge additional fees for international transactions which has come in handy when my husband and I have traveled outside of the U.S.

·      I need an influx of disposable income: This one is tricky. I know of many people who have used credit cards as a way to support their lifestyle when they needed an influx of cash – for example when they were starting a business, lost a job, or had a child. In some cases, this temporary indebtedness helped them get through a time when resources were scarce. In other cases, it landed this person in serious debt. Before jumping to a credit card, I would encourage you to ask yourself a few questions. Are there other ways that you could support this life change? Could you cut your budget? Could you find additional income sources? If not, are there other low-interest loans that might be better for your financially?

·      I’m concerned about security with using my debit card: After the reports of sensitive information stolen from companies like Target and even credit reporting agencies like Equifax, my husband and I have decided to take extra precautions and use our credit cards for almost all of our transactions. Some may say we’ve taken it too far – but so far this system has worked out well for us. The great thing about credit cards is that when someone makes a fraudulent purchase on a credit card they’ve stolen the credit card company’s money, not yours. Generally, credit cards have more protection against fraudulent activity. That being said, there are certainly many ways to protect yourself against fraud without using a credit card. Want to learn more? Check out these articles by NerdWallet and the Identity Theft Resource Center.

Before I end this post, I want to highlight two reasons not to get a credit card. First, if you have an inclination to spend more than you make or have a history of credit card debt, a credit card may not be for you. If you’re going to be tempted to spend up to your credit limit, you should stray away from credit cards. It’s important to remember that money on a credit card is NOT free. In fact, it likely comes to you at a steep interest rate. Second, if you struggle to budget from month to month, credit cards might create more issues for you since not all of your purchases will come immediately out of your bank account. One way to get around this might be to include your credit card purchases in your budget. I added my credit cards to my Mint budget so I can track the purchases made on my cards, along with my other expenses.

So, should you get a credit card? It depends. Interested in getting a credit card? Next week we’ll take a look at how to decide which credit card is right for you.

Editorial Disclaimer: Opinions expressed here are mine alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities. I get a commission for some of the links included in this post.