It all started with a t-shirt that read: “I know the credit card is for emergencies, but she was hot!”

Of course, a shirt like that is great for a laugh, but unfortunately, too many young people act that way. That “emergency” ends up being a round of drinks in a bar, concert tickets, or buying Halo 12 for the X-Box the day it comes out. (note: false alarm, there is no Halo 12… yet!).

Because of conversations started by that t-shirt, I have been publicly challenged by Ana, from Debt-Free Revolution:

I am throwing down the gauntlet (publicly) to you, Patrick: Go three months without using your credit cards! Put the $1000 emergency fund in place, freeze your credit cards (better yet cut them up LOL), and go the entire first quarter of fiscal year 2008 without the plastic.

Here is how everything happened, and if you stick around through the storyline, I’ll tell you why credit cards are good! (if used properly, of course!)

The t-shirt inspired Ana to write the post, “Credit Cards for Emergencies? No!” In it, Ana made the blanket statement, “I don’t think ANYONE should have credit cards!” Ana’s blog is about getting out of debt, so from her perspective, I understand where she is coming from. But I think that statement takes it just a little too far. Not everyone is in debt, and many people gain benefits from their credit cards.

I left a comment on her site stating credit cards can be a good way to establish credit history or paying for a large emergency expense. I think cautious use of credit cards is legitimate and almost necessary for people who don’t have cash saved.

Ana’s response: Build a Cash Reserve and Kiss Those Credit Cards Goodbye. She says you don’t need a credit card if you have cash reserves. This lead to me being challenged publicly.

And this is my response:

10 Benefits of using credit cards:

1. Build credit history: Charging small amounts and paying them off is a great way to establish credit history. Without credit history, it can be more difficult to get loans (including good loans such as student loans or a mortgage), secure insurance, or even land a job. If you are able to secure a loan without any credit history, your loan rate may be higher as a result.
2. Emergency source of funds: I mean for a real emergency. Not everyone has $1000 cash to buy emergency airline tickets, make car repairs, deal with a natural disaster, etc. And in my opinion, paying 15% interest is much better than taking out a payday loan in an emergency. Some payday loans have interest rates near 1000% if left for an entire year.
3. Fraud / Theft Protection: If your card is lost or stolen, you are only responsible for the first $50 in unauthorized charges. Fraud protection for debit is similar, but only if you notify your financial institution within 2 days. If you wait longer than 2 days, you can be liable for up to $500 on your debit account. Fraud and theft protection is non-existent for cash.
4. Disputed charges: When you dispute a charge on your credit card, most credit card companies remove the charge until the dispute is resolved. With a debit card, the money will not be returned unless you can prove the dispute in your favor. With cash, the money is usually gone.
5. Rewards: Many credit cards offer rewards including cash back, airline miles, discounts, rebates, gift cards and many others. Most of these rewards are designed to get people hooked into using the cards or spending more than they would otherwise, but used properly, rewards points can earn you a lot of money.
6. Convenience: I don’t like to carry large amounts of cash with me. If you lose it, it’s gone. If it’s stolen, it’s gone. Credit cards are small, convenient, and carry better protection. They are also convenient to use to buy things on-line, or to buy large dollar items. Another, convenience is travel. I will be going on a cruise next week and if I use my credit cards I won’t need to exchange as much currency. Some credit cards don’t even charge a foreign transaction fee.
7. Car rentals: Some car rental agencies will not allow you to rent a car if you do not have a credit card. Some may allow you to rent a car with a debit card, but may lock up a substantial amount of money in your account until you return the car. You won’t be able to use those funds during that time. Many credit cards also provide additional liability insurance when you rent a car. Debit cards? Not so much.
8. Extended warranties: Many credit card companies provide extended warranties on items you purchase with their card. In some cases, the manufacturer’s warranties are doubled. That’s not a bad feature!
9. Short term loan: Credit cards usually have a grace period, after which your payment is due. This can be several weeks, which allows you to earn interest on purchases you have already made. While this may not be a big deal for a hundred dollars, if you charge a thousand dollars every month and add it up over the course of a year, you can actually earn some decent money with this. With cash or debit cards, the money is immediately removed from your account and you do not earn any interest on it.
10. Budgeting tools: Most credit card companies provide detailed transaction logs which are easily downloaded into Quicken or MS Money. This makes budgeting much easier to track and plan. Yes, it can be done with cash, but it is much more labor intensive. And time, as they say, is money.

Honorable Mention (NOT FOR EVERYONE!!!)

• Free money - credit card arbitrage: (Note: this is only for experienced credit card users and not recommended unless you completely understand what you are doing, and are responsible enough to follow through with it). Credit card arbitrage entails taking a cash advance on an introductory 0% interest credit card offer, investing the money in a bank account to earn interest, and paying minimum payments until right before interest kicks in, then paying the card in full. Some people are able to do this to the point of having $100,000 in credit card debt, but the debt is actually cash which is earning them money in the bank. Use this calculator to determine how much you could earn from 0% balance transfers.

Please note:

To get the most out of the benefits listed above, the credit card holder needs to pay the entire balance in full every month. When used properly, credit cards can be a very useful addition to someone’s life. When they are not used properly, credit cards can be BAD! In fact, I am an advocate of not using credit cards if that is not the best financial decision for your situation. Even though they do not have as many benefits as credit cards, I also think using debit cards can be a great way to make financial transactions. Always do your research, and please be financially responsible.

To finish off my public challenge:

Ana, you challenged me not to use my credit card for the first 3 months of the new fiscal year. You also challenged me to save an emergency fund of $1,000 and use cash for my purchases so I could avoid credit card fees.

Well Ana, this article is my response to your challenge. The 10 reasons I listed above are benefits for me because I do not carry a credit card balance (I do not practice the “honorable mention” benefit, but it is worth noting). My wife and I have been blessed to have been able to put together a sufficient emergency fund, and we are able to use our credit cards for our purchases and pay them off in full every month. I won’t stop using my credit cards because for me, it is not a problem. In fact, doing so would cost me money.

In my opinion, everyone can benefit from having a credit card if they use it responsibly. The key here is responsible use. If you know you can’t handle it, or don’t think you can, then don’t do it.

I realize everyone is in a different financial situation, and I support everyone who is doing the best they are able to do. That is why so many of us have these blogs - to help others learn and to hold ourselves responsible in the process.

Ana, I understand your views, and I support you and everyone else in the No Credit Needed Network. Good luck on reaching your goal of being debt-free!

(For those who are not aware, the No Credit Needed Network is a network of bloggers who share a like goal - to get out, and stay out of debt. There are some very inspirational stories within their pages and I recommend that anyone who is struggling with debt to browse through this great site.)

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