Credit cards are one of the most popular payment methods in the U.S., and there are some good reasons for that. For starters, credit cards offer a revolving line of credit that allows you to finance purchases. They’re also a secure and convenient method of payment.
Beyond these two essential characteristics, credit cards can also offer a long list of rewards and benefits. Here are eight advantages of credit cards.
Related: Can you pay off a credit card using a personal loan?
1. One-Time Bonuses
The credit card industry is competitive, and one of the credit card benefits that card issuers use to attract new customers is new account bonuses. These one-time bonuses can come in the form of cash back, travel rewards points, or airline miles. However, most of these offers require the cardholder to spend a minimum amount within a certain time frame in order to receive the bonus, which is something to keep in mind when choosing a credit card. For example, an airline credit card might offer new accounts 50,000 miles after charging $3,000 to card within three months of account opening. But when the cardholder can meet the credit card requirements to earn these one-time bonuses, they can be a huge incentive to apply for a new credit card.
2. Cash Back
Many credit cards offer valuable cash back rewards for spending. For instance, there are now several credit cards that feature 2% cash back on all purchases with no limits. Other cash back credit cards feature bonus offers on common purchases such as gas, groceries, and travel that can range from 3% to 6% of the amount spent. However, cards that offer the most generous cash back amounts will usually limit the amount of annual purchases that qualify for additional rewards. Also, keep in mind that credit cards that offer rewards like cash back will often have a higher standard interest rate than cards that don’t offer these rewards (for reference, here’s a primer on how to calculate credit card interest to see if the rewards are worth the tradeoff).
3. Reward Points
Like cash back rewards, there are many credit cards available that offer reward points or miles. For instance, some Chase credit cards offer Ultimate Rewards points that cardholders can redeem for cash back, gift cards, and travel reservations, or transfer to airline and hotel partners. There are also many credit cards that are co-branded with airlines and hotels that offer reward points towards flights and hotel night stays.
4. Safety
One of the key advantages of using a credit card is that it’s one of the safest forms of payment available. This is because the Fair Credit Billing Act of 1974 features robust consumer protections against fraud and billing errors. By law, credit card users are only liable for $50 in the event of fraud, but in practice, major credit card payment networks generally have a zero-dollar liability policy, which means you’re never liable.
5. Interest-Free Grace Period
Nearly every credit card offers an interest-free grace period, which is a major perk of credit cards. This grace period is the time between when your statement closes and when payment is due. The payment due date is typically 21 or 25 days after the statement closing date, though you can find out your exact due date by reading a credit card statement. Because of how credit cards work, if you pay off your entire statement balance by the payment due date, then your interest charges are waived.
6. Insurance
Many credit cards offer valuable travel insurance benefits. The most commonly used benefit is rental car insurance. This enables you to decline the expensive, optional insurance sold by rental car companies. Other kinds of travel insurance offered may include policies that cover baggage loss or damage, trip cancellation, and trip interruption. Credit cards can also offer purchase protection, extended warranty, and return protection insurance.
7. Universal Acceptance
One of the advantages of credit cards is their nearly universal acceptance. Major credit cards like Visa, Mastercard, and American Express, which offer many of the best credit cards currently, are accepted by millions of merchants around the world. On the other hand, cash must always be exchanged to the local currency, and electronic payments are still far from being universally accepted.
8. Credit Building
Among the many credit card advantages that exist, perhaps one of the most notable is the ability to build your credit. Each month, credit card issuers report your balance and payment information to the major consumer credit bureaus. With on-time payments and a low credit utilization rate (an important credit card term to know), you can grow your credit history and raise your credit score. Having a higher credit score will help you qualify for other loans with low interest rates and more favorable terms.
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This article originally appeared on LanternCredit.com and was syndicated by MediaFeed.org.
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit (https://www.consumer.ftc.gov/topics/credit-and-loans)
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What happens to your debt when you die?
Do you know what will happen to your debt when you die? Some debts are forgiven while others may be passed down to heirs. Read on for the answers to some of the most frequently asked questions related to death and debt.
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In order to accurately answer this question, we need to examine the most common types of debt people accumulate. In other words: Not all debt is equal. The type of debt you have and when you accumulated the debt will determine how and if your debt is passed on to others when you die.
The Most Common Types Of Debt
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If you die with credit card debt, there are two things that may happen:
- Your debt may be forgiven and written off by the credit card company
- The debt will be passed on and the responsibility of a survivor
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If you are the sole owner of the debt when you die, (not married or a cosigner) the credit card companies will be involved in the probate process. The money left in your estate, any retirement accounts, or other items worth money will be sold and the outstanding debts will be paid.
If there is not enough money in your estate to pay off the remaining credit card balance, your children or beneficiaries will not be required to pay the remaining balance. The outstanding debt will be “forgiven” by the credit card company.
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If the credit card is a joint account with a living spouse or a cosigner, the other account holder will be responsible for the debt. If you have authorized users on the account but they are not the account owner, the users will not be responsible for the debt.
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This is one of those myths that continues to live on. Credit card debt does not go away after seven years. The confusion with the seven-year time frame comes from the credit report time requirement.
After seven years, old debts begin to fall off of your credit report. Your debt, however, is still very much alive and owed. Lenders can and will continue to pursue the amount owed until it is paid, settled, or charged off. Do not be fooled into thinking your credit card debt will go away after seven years.
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The quick answer? It depends. There are several factors that determine if a deceased spouse’s credit card debt will be passed along to the surviving spouse. If the credit card debt was incurred before marriage and the deceased spouse was the sole owner of the account, in most cases, the debt will not be the responsibility of the surviving spouse.
If the credit card debt was incurred after marriage and the deceased spouse was the sole owner of the account, the state you live in determines the surviving spouse’s responsibility. If you live in one of these community property states and the debt was incurred after marriage, the surviving spouse is responsible for the credit card debt of their spouse regardless of the account ownership:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
If you do not live in one of these states, generally the surviving spouse will not be responsible for the credit card debt if they were not a joint owner of the account. If you are a joint owner on the account, you are now solely responsible for the debt.
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Again, where you live determines what can happen to your medical bills when you die. Generally speaking, children and heirs will not be required to pay back the outstanding medical bills of their parents. With that being said, there are a couple of instances where a child could be responsible for the medical debt of their parents.
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When a child cosigns admission paperwork acknowledging financial responsibility if the adult is unable to pay their bills, this debt may be passed down to the child.
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There are 26 states that have filial responsibility laws that state a child may be responsible for a deceased parent’s medical debt in certain situations. The states that have filial responsibility laws are:
- Alaska
- Kentucky
- New Jersey
- Tennessee
- Arkansas
- Louisiana
- North Carolina
- Utah
- Indiana
- Nevada
- California
- Maryland
- North Dakota
- Vermont
- Connecticut
- Massachusetts
- Ohio
- Virginia
- Iowa
- New Hampshire
- Delaware
- Mississippi
- Oregon
- West Virginia
- Georgia
- Montana
- Pennsylvania
- South Dakota
- Rhode Island
Now, before you become overly concerned about living in one of these states, understand that the enforcement of filial responsibility laws is extremely rare. If you have significant medical debt, consult with an attorney in your state to see exactly what responsibility your adult children may be required to pay back.
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Student loan debt may or may not be passed on to survivors when the borrower dies. What happens to the loan depends on what type of loan was taken out and when it was established.
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If you have federal student loans, they will be forgiven upon death. Federal student loans do not pass on to others as long as a death certificate is presented to the lender. Federal student loans that fall into this category are:
- Direct Subsidized Loans
- Direct Consolidation Loans
- Direct Unsubsidized Loans
- Federal Perkins Loans
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On Nov. 20, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was amended. The added section releases cosigners of a private student loan from financial responsibility if the primary borrower dies. Due to this, all new private student loans with cosigners are not required to repay the loan upon the student’s death.
However, student loans with cosigners taken out before Nov. 20, 2018, may still require the cosigner to be held responsible for the debt.
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Federal Direct PLUS Loans are also forgiven upon the student’s death. In the past, the parent who signed for the PLUS loan was required to bear the burden of the tax responsibility and file the forgiveness as “income” after a child’s death.
Currently, The Tax Cuts and Jobs Act of 2017, is in effect and releases parents from this tax responsibility. This tax stipulation remains in effect until the year 2025.
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There is several different scenarios involving vehicle loan debt upon the borrower’s death. If the auto loan has a cosigner or the vehicle was purchased in a community property state after a couple was married, the cosigner or spouse is responsible to repay the auto loan.
If the loan was obtained before marriage and is only in the deceased spouse’s name, generally the surviving spouse is not held responsible for the debt. The bank will take possession of the vehicle to settle the outstanding debt or the surviving spouse can pay off the vehicle loan.
If the borrower is not married, the survivors can either pay off the vehicle loan and keep the vehicle, sell the vehicle and pay off the loan or return the vehicle to the bank. Heirs do not inherit vehicle loan debt.
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Payday loan debt is very similar to credit card debt when you die. If there was not a cosigner or someone else listed as jointly responsible for the loan, then the company writes off the debt as a loss. Payday loan debt is not transferred to heirs but may be the responsibility of a surviving spouse if the debt was incurred after marriage in a community property state.
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In probate, the home must be paid off with the funds from the estate or the mortgage company must agree to let someone else inherit the loan. If you still owe money on your home, your spouse or heirs usually have three separate options:
Option 1: Sell the home to pay off the outstanding mortgage. The executor of the will can initiate a home sale to fulfill the outstanding debt obligations. If the home is not worth what is owed, additional money from the estate will be used to pay off the mortgage. If additional money is still required, the bank can take possession of the property.
Option 2: If there is enough money in your estate, your heirs can use that money to pay off the mortgage. Or the beneficiaries can use their own money to pay off the loan in full.
Option 3: If there is not enough money in the estate to pay off the loan, an heir may elect to contact the lender in an attempt to take over the loan. The loan would need to be transferred into the new borrower’s name which would require the heir to meet the credit obligations for a loan.
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Lenders can force the sale of a property to fulfill the outstanding equity loan balance if the estate does not have enough capital to pay it off. This is another scenario where the heir may be able to apply with the lender to take over the payments.
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If you have federal tax debt when you die, the IRS gets the first chance at your estate. Legally, the executor of the state is unable to pay any other debt or obligation until the federal tax debt is settled.
If a substantial amount is owed, the IRS will quickly put a lien on any property owned by the deceased in an attempt to satisfy the debt. The federal government will get their money one way or another – but the heirs will not personally be liable for the outstanding tax debt.
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There is not an automatic notification process when a person dies. The next of kin or executor of the state is required to contact the bank and provide a copy of the descendant’s death certificate.
When the death certificate is presented, the financial institution will freeze all of the associated accounts until the probate process is completed. If money is not owed to other lenders, the beneficiaries will be given access to any monies left in the deceased person’s accounts.
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Even though most debts will not be passed on to your heirs when you die, you may not want them to deal with the hassle of paying off all your debt with your estate – only to be left with nothing.
If you have struggled with debt your entire life, a cheap term life insurance policy may be an option to leave a small inheritance to your heirs. Most life insurance policies are dispersed tax-free and are not accessible to creditors.
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Leaving debt behind is a fear many seniors face. On the bright side, your heirs will usually not be personally responsible for paying off your outstanding debts. However, the sooner you can clean up your own financial mess, the better.
Do your best to start paying off your debt so your executor is not faced with a long probate process. If you need help getting started, check out this related post The Debt Payoff Playbook.
This article originally appeared on Arrest Your Debt and was syndicated by MediaFeed.org.
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