Does it make sense to have a credit card?
It's a controversial topic. Many Americans would say that having a credit card is actually a good idea due to the rewards, travel points and cashback you can get using credit cards.
However, a lot of Australian personal finance gurus would say that it's best not to ever bother getting a credit card. The downsides if you don't pay a credit card on time every time are very negative with a high interest rate and credit cards can encourage you to overspend with money that you don't have.
Banks like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) love it when people don't fully pay off their credit cards.
But there are a few points that Australian credit card lovers can say are good:
Emergency fund backup
I'd recommend that every Australian adult should have at least $1,000 set aside as an emergency fund. You never know when an emergency is going to happen, that's why it's an emergency!
But, if you lost your debit card (and you don't have the ability to use your phone to pay for things) or your transaction accounted was hacked/locked then your only form of payment could be lost temporarily.
It could be an idea to have an unused credit card as a backup way of paying for things.
Better protection
Credit cards are supposedly better at providing protections for purchasing and cyber fraud, although it would depend on the cards you're comparing. And don't take my word for it, but if it's generally true that you do get better protection then that peace of mind could be very useful.
Rewards, benefits and insurance
One of the biggest selling points about credit cards is that you can accumulate points, get benefits and potentially benefit from insurance.
Of course, the benefits that you're receiving are paid for by the people who are behind on their credit card payments. But, if the small benefit of the rewards is worth using a credit card for, then rewards are a useful bonus if you're going to spend money on those transactions anyway.
Foolish takeaway
Credit cards are one of the most hated aspects of personal finances, but they do undoubtedly offer a handful of benefits that debit cards simply don't.
If you do use a credit card then you must pay it off every month. Don't buy stuff that you can't afford. If you can't trust yourself not to overspend then it might be best to stick to debit cards.
