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When does it make sense to have a credit card?

Credit cards are one of the most divisive topics in personal finance, does it ever make sense to have one?

Many leading personal finance experts argue that it’s best not to have a credit card at all. It’s better to pay with a debit card so that you avoid any temptation to overspend or get into a bad cycle of not being able to pay off your high-interest debt.

Personally, I would agree with that line of thinking. I’d rather save up for items and earn interest along the way. Compound interest is great if it’s on your side, not on the side of Commonwealth Bank of Australia (ASX: CBA) or Westpac Banking Corp (ASX: WBC).

But, there are a few reasons you could argue it’s good to have a credit card:

Earn points

You don’t earn any sort of points for your typical debit card spending but you can get Qantas Airways Limited (ASX: QAN), Virgin Australia Holdings Ltd (ASX: VAH) or other forms of points which can be accumulated and eventually ‘cashed’ out.

But, the value of these points has supposedly deteriorated over recent years, so this may not be such a good benefit these days.

Other rewards/benefits

Some credit cards, particularly the fancier ones, usually give bonuses of some sorts. Whether that’s insurance of some sort, access to early tickets, discounts on things and so on.

A lot of the benefits still require you to spend your money, so it’s up to you to decide if the extras are actually worth it, particularly if you have to pay a monthly or annual fee.

Better purchase and cyber protection

I’m certainly not an expert in consumer or cyber laws, but I believe that if you buy something with a credit card, or if you are victim of cyber theft, you may have better protections compared to a debit card.

Emergency fund backup

Having a credit card can be a useful backup as an emergency fund, or perhaps even replacing it entirely. Although I certainly feel having some cash on the side is useful.

Foolish takeaway

Credit cards are vilified, but they can certainly offer some benefits that you can’t get from a debit card. I’m happy to stick to a debit card. The most important thing when using a credit card is to pay it off in full every single month without fail – never buy something you can’t pay off straight away, or within the next month!

I’d much rather own these quality ASX shares than have a credit card in my wallet, that’s for sure.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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