A lot of people still use cash or a debit card to pay for everything they buy, either because they’re not comfortable using a credit card, they don’t understand how credit cards work or they just don’t want to take the time to change their routine.
But every time you use a credit card to make a purchase, you get something in return — or at least you do if you’re using the right credit card. Many credit cards earn rewards such as cash back or airline miles, while others have features that help you pay down your existing debt or finance a large purchase over time with no interest. And some cards offer travel protections in case you have an issue during a trip, or purchase protection if an item you buy happens to break the next day.
There are tons of benefits to having a credit card, so 2021 should be the year for you to put away that debit card and start using a card that gives you something back in return. Let’s take a look at what you’re missing out on when you’re not using a credit card.
Earning rewards with credit cards
One of the best benefits of using a credit card is that with most cards, you’ll earn rewards on every single purchase you make. The most common types of rewards include cash back or travel points or miles, but there are other options as well.
Merchants generally aren’t allowed to charge you more for using a credit card to pay for your purchase instead of cash or a debit card, and you’ll never pay interest on a credit card as long as you pay your bill in full every month. That means if you’re doing it right, there’s absolutely no reason to leave money on the table with a debit card when a credit card is giving you something back for no cost at all.
Some credit cards even offer what we call “bonus categories.” This means on certain categories of purchases — such as groceries, food deliveries or even just filling up your gas tank — you can earn extra rewards every time you use your card.
Not every credit card has an annual fee, but some popular cards do, so you need to weigh the cost of the card versus the rewards you’re earning or other perks of the card. But there are many highly recommended credit cards with no annual fee that earn rewards at truly no cost.
On top of the rewards you’ll earn on all your purchases, many credit cards offer some pretty enormous sign-up bonuses. This means just by applying for a credit card and using it to spend a certain amount of money in the first few months you have the card (known as a “minimum spending requirement”), you can earn a big chunk of rewards right away to get you started off in the right direction.
Credit card travel benefits
Many travel credit cards offer benefits that can make your trips even more enjoyable once travel resumes after the pandemic wanes. These perks can include anything from elite status at hotels to being able to get into exclusive lounges at airports around the world.
Other credit cards will reimburse you for certain purchases, such as credits when you spend money at specific restaurants or with certain food delivery services, or when you apply for a travel program such as Global Entry or TSA PreCheck.
You’ll even find some credit cards that hand out nightly award certificates for free hotel rooms, or even the opportunity for a friend to fly with you at a significant discount. So just having a certain credit card can provide an experience you might not have had access to otherwise — and even save you money along the way.
Of course, travel credit cards with all these perks typically carry an annual fee — sometimes a big one. But if you can actually use all the benefits, you’ll find that the value you receive from them far outweighs the annual fee you pay for the card.
Using a credit card to pay down debt
If you already have debt from past credit card use or some other loan, and the interest from that debt is making it difficult to get your head above water financially, having a credit card that allows you to consolidate your debt might be the best New Year’s present you could ask for.
Some credit cards, when you first get them, offer what’s known as an introductory interest rate on balance transfers. That means if you transfer your existing debt from another credit card or other type of loan to your new card, you’ll pay no interest on that debt for a preset period of time — usually between six and 20 months.
Depending on how much existing debt you have and your current interest rate, this can mean substantial savings. For instance, if you’re currently paying 15% interest on $4,000 of credit card debt and you transfer that debt to a balance transfer credit card with a 0% interest rate for 18 months, you’ll save a whopping $900 in interest on that $4,000 debt over those 18 months. That’s money you can use to pay down your debt instead of seeing it disappear to pay interest.
In order to transfer an existing balance to a new credit card, you’ll typically have to pay a fee — the current standard is 3%. But you’ll save much more than that by avoiding the sky-high interest you’re currently paying on your debt, so you can pay it off faster.
Financing a large purchase with a credit card
In addition to credit cards that offer an introductory interest rate on balance transfers, some credit cards offer an introductory interest rate on new purchases.
When you first get a credit card with an introductory rate on purchases, you’ll pay no interest on anything you buy with the card for a preset period of time, usually six to 20 months. That means you can afford to make a large one-time purchase — such as an engagement ring — and pay for it over time without accumulating interest.
Now, going into debt is one of the big dangers of using a credit card, so it’s never a good idea to use an introductory offer on purchases in order to buy things you can’t otherwise afford and won’t be able to pay off in a timely manner. Because once the introductory period has ended on your new card, the interest rate on any remaining debt jumps to an extremely high rate that makes it very difficult to pay off.
So, while it can make sense to use an introductory offer on purchases to spread out the cost of a major expense over time, or tide you over for a short period when things are tough, you should have a plan in place ahead of time so you know how you’re going to pay what you owe, and only make purchases that you can ultimately afford in the long run.
Travel insurance protections from credit cards
You might not be traveling now, but if you’re starting to plan a trip for the future, many credit cards offer a whole suite of travel insurance benefits. These protections can cover you if something unfortunate happens before, during or even after your trip.
Some typical travel protection benefits include trip cancellation and interruption insurance, trip delay insurance, lost luggage reimbursement, baggage delay reimbursement, rental car insurance, travel accident insurance and emergency evacuation insurance. Not every credit card has all of these benefits, and the type of protection that’s most useful to you will vary depending on your situation.
For example, if you fall ill prior to a covered trip and can’t travel as a result, the trip cancellation and interruption insurance on a credit card can help you out — even if the airline itself won’t reimburse you for the tickets. Some credit cards will even reimburse you for as much as $10,000 per person for covered prepaid travel expenses.
Hopefully these are benefits you’ll never have to use, and you’ll need to pay for your trip with the right credit card in order to be covered. But credit card travel protections can come in very handy — and save you a ton of money — if and when you ever need them.
Credit card purchase and return protections
Think about this scenario: You just purchased a brand-new $600 camera, then three days later you accidentally drop it on the floor. The store you bought it from isn’t going to replace it since it was your fault, even though it was an accident. But if you purchased that camera on a credit card that offers purchase protection, your card will actually cover the cost to repair or, if necessary, replace the item.
Coverage varies quite a bit among credit cards that offer purchase protection, but you’ll typically find that most cards will cover you up to either 90 or 120 days from the date of purchase, and for between $500 and $1,000 per item.
Aside from purchase protection, you’ll also find that some cards offer return protection. If you need to return an item but the merchant won’t take it back, this benefit will help you out by reimbursing you for the full purchase price excluding any shipping and handling charges.
Although this is a perk that’s been disappearing from many credit cards these days, if you use a card that offers return protection, you’ll protect yourself from any issues with a merchant that has a difficult return policy.
Is a credit card right for you?
It’s vitally important to be responsible when carrying a credit card. You must pay your bill in full and on time every month and make sure you aren’t spending more than you can afford. If you don’t feel you can be disciplined enough to do that consistently, then you might find using cash or a debit card is your best option for now.
But if you’re comfortable with the responsibility that comes with having a credit card, getting one and using it can bring you a wealth of rewards, benefits and protections. And if you’re not sure what card is right for you, CNN Underscored’s Money section is the perfect place to learn more about credit cards in general, the individual benefits of each credit card and the best credit cards on the market today.
So make 2021 the year to enhance your financial knowledge, and decide if a credit card can open up a whole new world for you.
Check out CNN Underscored’s list of the best credit cards of 2021.