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We all run into unplanned and unbudgeted expenses. Some of them can be very expensive and require immediate payment. For example, if your furnace dies you could be facing a bill for $3000 or more and might be required to pay it right on the spot. Ditto if your water heater went out or the wind blew off part of your roof. If you're like most Americans, you wouldn't have enough money just sitting around to pay for an emergency like this. But you might be able to cover it with a credit card. And if you were able pay for that unplanned expense before your credit card’s due date, you wouldn't even incur an interest charge. This actually makes credit cards better than a loan as interest begins accruing on loans the minute you use the money. If necessary, you could also take a cash advance on a credit card to pay for the emergency although that should be a last resort because the interest charged for cash advances is usually in the area of 19% or even higher.
Credit cards provide an indisputable history
Let's say you pay $119 cash for one of those one-cup coffee brewers. If it breaks within the first month and you weren't smart enough to keep a receipt, you're out of luck. But if you put the purchase on a credit card you'll have a history that no merchant can deny. Do you buy a lot of stuff online like through sites like amazon.com? Again, when you put those purchases on a credit card, you have an indisputable record of when you bought the item and how much you paid for it. So, if you need to return or exchange it there'll be no arguments.
Putting your purchases on a credit card also means you’ll have a statement each month itemizing them which you could then compare with what you had budgeted.
The one very bad thing
Of course, the worst thing about credit cards is that they make it just so easy for people to buy things – whether they can afford them or not. But the other bad thing about credit cards is those minimum monthly payments. If you’re in a financial bind, it can be very tempting to make just the minimum payment but this is actually the road to debt hell. The reason for this is a little thing called compounding interest. Let's say your monthly credit card bill is $400 and you make a minimum payment of $40. In this case $360 would be rolled over into your next monthly bill and you will pay interest on it. Do this often enough and you could end up spending three years paying off that $400 debt.