Let Me Provide A Breakdown
Okay well guys, here's the thing about Credit Cards and Credit (in the US) in general.
Credit Cards are just like Guns, put a gun in the hands of a solider, police officer, hunter, or a responsible home owner, and you get a host of protection related benefits that preserve society/community/human life. However, put a Gun in the hands of Lil Ray Ray in Chicago and you get crime, homicide, etc.
Credit Cards provide a HOST of financial related benefits including:
- Building positive personal credit history. In terms of your credit scoring, it's 35% payment history, 30% amounts owed, 20% new credit/types of credit used and 15% length of credit history. So in order to establish "good credit" you want a balance of revolving lines of credit (credit cars) and installment loans (student loans, mortgage, lease, car loan, etc) and you want to make sure you NEVER MISS A PAYMENT and always PAY AT LEAST THE MINIMUM on time. In terms of your available revolving credit line, give or take you don't draw down more than 30% - 40% but if you are looking to apply for something and you have drawn down let's say 55%, just pay them down to the 30% level.
- Establishing emergency monies for personal needs. Never close a credit card once you open it, find a reason to use the credit card and just pay it off IN FULL before the grace period expires in 23 days, this way you pay no interest. I would rather have the emergency credit line available and not need it, then to need it and can't get it, which if you actually are in a bad situation and NEED IT there's no bank that will approve you for a new line of credit.
- Establishing capital that can be used to start a business. Start-ups usually have to depend upon their own savings, home equity, personal loans or personal credit lines to finance the business for 2-4 years before a bank provides any official business loans.
- Payment Protection. So Credit Cards are the ONLY vehicle that has the Chargeback feature, Debit Cards don't have it, Checks don't and of course Cash doesn't. So let's say you order something from a business and you don't get your order, or it doesn't come the way you ordered it, and the business owner is basically telling you to "eat shyt and die." All you have to do is log into your account and hit "Chargeback/Dispute" and the amount of the transaction is frozen from your balance and you aren't responsible for paying for it until the dispute is done. If the merchant can't "win the dispute" (which most cases they don't), you are not responsible for paying for that portion of the your balance. With Debit Cards and Checks, you have to fill out a dispute form and wait up to 90 days to get information back from your Bank but while you are waiting, the money is GONE from your account and you are hoping your Bank gets it back. This also applies to if your wallet is stolen, if the theft goes and starts buying up crap with the Credit Card, hit that Chargeback button!
- Most Credit Cards come with Rewards, if you play this right you can end up "beating" the credit card company by obtaining an additional cashflow. So let's say you have a Card with 1.5% cashback everywhere (like on my QuikSilver Capital One Card) and you spend $15,000 a year on the card but PAY IT OFF before the 23 day grace period. Well, that's $225 in tax free income a year from that card because the cashback on Credit Cards are not taxed as they are categorized as "Credit Card Rebates". Just make sure to get a card with no monthly statement fees, no application fees, and no annual fees.
- Plus (I could go all day lol), with my cards we get these Balance Transfer Promo specials. Where you can draw money off the card and pay NO INTEREST for 12-15 months, but you usually pay about 2% upfront for the transaction. So let's say I want to do a business deal that will require an investment for $5,000 and I can recoup in 9 months $10,000 making at $5,000 profit. I can would go to my card and take advantage of the special deal here in September, take out $5,000 and pay the 2% fee of $100 on it. It would be due let's say 12 months from now in September 2015 or I would pay the regular APR on the outstanding balance if I don't pay the promo balance off in full. I do my investment for $5,000 and get my $10,000 collected in 9 months around June 2015. I pay off the remaining balance on the $5,000 that I took out and keep the remaining $5,000 profits minus the $100 fee I had to pay, for a total profit of $4,900. With this however, I would be required to make minimum payments on the $5,000 balance each month which might be around $75 - $80 give or take.
Listen, I'm a DAVE RAMSEY fan but when he starts bashing Debt like he does, just because he went bankrupt over poorly using debt, I have to turn him off lol. You want to play the game and use the Credit Reporting, Scoring and Debt Leverage efficiently to get ahead in this country or it will take you LONGER to get where you are looking to go (if you ever get to where you are looking to go).
If you have tons of equity sitting in a bank or you are like Mark Zuckerberg and have a best friend that can pour $300k into your startup, then maybe you don't need Debt. If you don't have those sources, then Debt is going to be your best friend but you have to USE IT EFFICIENTLY.