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I'm sorry if this question seems a duplicate of another (likely this), but my situation is actually a little different.

My situation is that, I have a debit card from a bank I find convenient but seeing the popularity of credit cards these days, I'm wondering if I should really get a credit card.

  • Debit card has a chip and a magnetic strip. Can be used in both types of POS machines.
  • Bank gives me a 5% interest rate per year, regardless of the number of purchases and withdrawals I make.
  • Online banking facilities, instant online statements, and SMS alerts are offered for an annual fee, which is the same if I got a credit card.
  • I can withdraw money overseas for a small fee, and foreign POS transactions are free.

The credit cards, however, come with some offers and interest-free payment schemes. - There is an annual fee, and the interest rate (after the grace period) is extremely high. - Stamp duty, money withdrawal fees, etc are applied too.

Is there any reason to go for a credit card anyway? I'm sure I can pay off the debt before the due date, but annual cost is just an added expense. Is it really worth it to get a credit card? Are there any benefits I'm missing?

Community
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AKS
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Debit cards can be riskier than credit cards. That's why I personally avoid debit cards unless I have a very good reason to go that direction (e.g. HSA accounts).

To explain the risk, consider what happens if someone steals the card or number and starts using it:

Credit card: You get a big bill, which you dispute and eventually get dismissed.

Debit card: Your bank account balance drops, you don't have access to cash, and your checks start bouncing and you rack up bounced check charges with your bank and stores where you write checks. Eventually, you convince the bank it was fraud and they refund the money to your account.

The big difference is that while it is going on you are out the money with a debit card, and with a credit card the BANK is out the money. The above scenario happened to my brother and it wasn't pretty. He was having to borrow money to pay his rent and groceries while the bank sorted it out.

JohnFx
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I gather from your mention of "stamp duty" that you're in Britain? I'm only familiar with US cards, but for them I can't see that there is any reason (other than a lack of self-discipline) not to use a credit card wherever possible, especially these days.

1) There are plenty of cards with no annual fee.

2) You get anywhere from 1-5% discount/cash back on purchases.

3) Many will give you sign-up bonuses, and a year or more of zero interest. (So you put that money in your investment account, and odds are you make a profit on it.)

4) Even after the introductory 0% interest period, you get on average about a month of 0% interest between purchase and due date, during which period the money can be earning interest for you.

I've made a good many thousands of dollars over the years doing this. Again, the only drawback I can see is that you may not have the self-discipline to pay off the accounts before they start charging interest.

jamesqf
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What makes a credit card risky is that it requires discipline. It is very easy to buy things that you cannot afford with a credit card. Credit cards usually require a minimum payment every month if you owe them money, but if you pay only the minimum amount, your debt will grow quickly. And since the interest rates are usually very high, you can easily get into a state where you are overwhelmed by your debt. The correct way to use a credit card is to pay the complete bill every month. If you can't afford to pay the complete bill because you spent too much, cut up your credit card.

On the positive side, there are many situations where paying by credit card will give you protection if you don't get the goods that you paid for, because the credit card company is fully responsible for those goods, just like the seller. So if you pay for a $5,000 holiday with a credit card and the company you paid to goes bankrupt, the credit card company will refund your money.

Do not ever look at cash back on purchases. You only get cash back if you spend money. Getting $50 cash back is of no use if you had to get $2,500 deeper in debt to get that cash back. (Some people might contradict this. But if you ask for advice on money.stackexchange then this is the correct advice for you that you should follow).

gnasher729
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There are quite a few advantages to credit cards in the uk. But don't borrow on them past the grace period. Set up a direct debit to pay amount in full.

  • Grace period: you don't pay interest for a month. That helps cashflow and earns you a tiny bit of interest
  • Cash Back: some cards give you cash back on purchases
  • Builds your credit rating: helpful if you need a loan or mortgage on the future.
  • Consumer credit act protection: you get extra protection against faulty goods and services if bought on credit card, even if only a part of the payment is on the card. For example if your ebay parcel doesn't arrive you can't be charged, if your new bathroom is poorly fitted etc etc...
  • Emergency funds: if desperate you have immediate access to extra funds
Corvus
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