If you are old enough to take on student debt to go to college, you’re old enough to get a credit card. And if you’re old enough to get a credit card, you’re old enough to learn about financial literacy. (Really, financial literacy is something that needs to be taught in school from a young age.) Here are 10 reasons why I advise young adults to consider getting a credit card.
1. Building excellent credit
Credit cards are one of the easiest ways to build credit as a young adult. You might think that you’ll never need good credit or that you have no use for it. Even if you were not to take out a loan for a mortgage, a car, schooling, or business, excellent credit score is useful for so many other reasons. You can use it to show that you are a reliable person to pay rent on time to a landlord. It helps you to negotiate better insurance rates, qualify for annual contracts (e.g. cell phones), forgoing security deposits, certain jobs, and more.
2. Improving your budgeting and accounting skills
First off, financial literacy is key here. If you get a credit card with a small spending limit to start with, you can use it to make everyday purchases that you’re already spending money on. The point of the credit card isn’t to spend lavishly on every possible thing you can imagine. It is to be conscientious and know when to use it.
If you’re worried about using your credit card carelessly, I’d advise a few precautions. First, track your spending regularly to see what is coming in and what is going out. In other words, track your cash flow. See if the expenses are within your budget, basically less than your income. But, don’t allow your lack of budgeting, accounting, or earning skills to detract you from improving your financial situation. Credit cards are a tool to help you improve your finances, not to work against you. And if you’re worried about using it the wrong way, then definitely get a handle of your finances and uncover why it is a concern. What problem are you really masking? Is it lack of self control? Is your spending reasonable, but you’re restricting yourself because you aren’t earning enough? Do you need a physical reminder (cash) to see how much you’re spending? Is there another way to be mindful of your spending, such as tracking receipts and writing every expense down at the beginning or end of each day?
A credit card is such a great way to learn how you’re prioritizing your spending. First off, credit cards have your statements readily available (online or on paper). So, you can get a summary of all your transactions. You can even see how your spending is from month to month. Rather than be dismissive or fearful of your spending, you can turn it into curiosity.
3. There are plenty of free credit cards
Some credit cards do come with an annual fee. And of course, there are fees if you’re not paying it in full on time. Otherwise if you are paying it off in full on time and it does not have an annual fee, then the card is basically free. But, it also has other benefits (which I’ll get into in a bit). So basically, it is paying you, if you’re being smart about it.
4. Points and cash back
This is when the fun starts. If you’re using your credit card the smart way, you will only spend less than what you earn, basically living within your means. And if you do this, depending on what card you have, you can earn points or cash back. Points can be used for different things. Travel points are common for flights and lodging. Cash back can be something simple, like 2% on all purchases that pays off your bill or that goes directly back to your checking account. It might not seem like much at first, but there are so many other perks, that it’s really just icing on the cake.
5. Introductory and promotional offers
Most cards come with introductory offers that you can take advantage of. If you’re already planning to spend $1,000 over the next 3 months for example, there may be cards offering something in return for that too. It may be in the form of travel points. Or, some offer 0% APR for the first however many months. That means if you really need it and know you can pay it off within that time, you’re basically getting an interest-free loan.
Not only that, but credit cards have promotional offers every once in a while. I get emails once in a while from my credit card offering me 0% APR for 12 or so months. Or I’ll get a special checking account offer with a cash bonus. If it aligns with my goals, I consider it.
That being said, it’s typically not a good idea to open a bunch of accounts for credit cards. It’s just nice to keep in mind for when you do get your first or second credit card.
6. Extended warranty and insurance coverage
Certain credit cards offer extended warranties or insurances. For example, one of my cards offers an additional year of extended warranty on top of a manufacturer’s warranty of 5 years or less. Some offer for up to a certain amount of dollars, such as $10,000.
I haven’t delved into the insurance coverage side of things offered by some credit cards. However, I hear people often cite about how their cards come with, for example, travel insurance. So, that could come in handy!
7. Foreign transactions
Some cards are handy to use in foreign countries, with little to no fee (might be useful since you typically lose some money when switching from currency to currency). And of course, this extends to the online world. It’s also sometimes safer to use a credit card vs. a debit card online, which brings me to point number 8.
8. Fraud protection
If someone were to use your card and there is an unauthorized transaction, you can more easily dispute the claim vs. a debit card. Once the money is out of your checking account for a debit card, the money is typically gone until you can catch the person. But for credit cards, you can easily freeze your account and dispute transactions. This is also handy for situations when a company charges you more than one or is renewing your subscription without your consent, and you are unable to get the money back directly from the company.
9. Special offers
Some cards offer special discounts to stores or special promotions (e.g. limited VIP tickets, travel packages, etc.). There are some perks for credit cards with annual fees, though I personally haven’t looked too much into that since I don’t spend to that extent (not yet at least). Though, I do remember a card I use offering special tickets to an event, for cardholders.
10. Perfect for (most) spontaneous travel
You don’t have to worry about stopping by an ATM every time. Most places accept cards. The most widely accepted (within the US at least) is Visa and Mastercard. I still like to keep a bit of cash handy just in case, but there are so many places that prefer credit card just to keep it simple.
Nowadays, you can even add your card to your smartphone wallet. You can link it to your PayPal, CashApp, Apple Pay, Google Pay, and more. It’s pretty convenient.
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I am still sometimes baffled when people are living on their own and don’t have access to at least one credit card. It makes sense that some may feel intimidated by it or did not receive much knowledge about it growing up. I encourage you, if you’d like to improve your overall financial situation, to look more into credit cards and how it could help you.
Personally for myself, I’ve never gotten myself into credit card debt, as in not paying the balance in full each month. Though, I do hear many stories of people using credit cards the wrong way and ending up in a lot of debt. Otherwise, a credit card is a great tool for those who are financially literate and responsible. Take your time to do your research and find a good card if you are looking into your first one.
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