Some financial teachers believe no one should have a credit card. They believe the road to ruin is paved in plastic.
While I’ve met some people who would be better off without credit cards, I believe that by following four simple rules for wise credit card use it’s possible for most people to use credit cards responsibly and profitably.
Here are some of the key benefits of credit cards.
1 – Better security than debit cards. If someone steals your debit card and PIN, fraudulent purchases or cash withdrawals will come straight out of your checking account. While many debit card issuers now have zero-liability policies, banks have up to 10 days to investigate claims of fraudulent use. During that time, the lower balance in your account due to the fraudulent use may leave you bouncing checks.
With credit cards, fraudulent purchases do not come out of your checking account; they show up on your statement, giving you time to notify your issuer that the purchases were not yours.
2 – Purchase protection. When my wife or I make a purchase with either of our cards, if the item is stolen or accidentally damaged within 90-120 days, the card companies will reimburse us for $500-$1,000.
3 – Price Protection. While this isn’t mentioned on the card site, one of our card’s detailed benefits guide lists price protection as one of its benefits. If we purchase something and then find the same item for a lower price within 60 days of purchase, we will be reimbursed for the difference.
4 – Extended warranty. Both of our cards extend the manufacturer’s warranty on many purchases for an additional year.
5 – Car rental insurance. Before renting a car, it’s a good idea to check the terms of the insurance policy on the vehicle you own and also the terms of your credit cards. Our insurance agent told me that for the most part the same coverage that applies to the vehicles we own applies to a vehicle we rent. So, when we rent a car, our vehicle insurance company provides “primary” insurance for the rental car.
Both of our credit cards provide free “secondary” insurance, assuming we use their card to pay for the rental and decline the rental company’s coverage. Secondary insurance covers anything not covered by the insurance policy on the vehicle we own, such as the deductible.
Be aware of any other special provisions. For example, neither of our credit card companies covers pick-up trucks or full-sized vans. One does not cover full-size SUVs. One company provides coverage for rentals lasting up to 15 days, the other for 30 days. If traveling overseas, one of our cards will not cover rentals in three countries; the other offers no coverage in six countries.
Check to see whether your insurance or credit card company covers “loss of use.” That pertains to a daily rental fee the rental car company will charge for every day the car is being repaired. Our insurance company does not cover loss of use. However, both of our credit card companies do.
6 – Discounts. You’re probably accustomed to looking for coupon codes and searching for other discounts on the Internet. Did you know that credit card companies offer their own discounts for various merchants? Here are the programs offered by Visa, MasterCard, Discover, and American Express.
7 – Faith-based rewards. In an unapologetic mention of my primary sponsor, Christian Community Credit Union (CCCU), not only do their credit cards provide points that can be redeemed for travel or merchandise, but every time you use one of their cards, CCCU also makes a donation to various Christian ministries. To date, that amount has totaled over $4 million.
8 – Freebies. Of course, this is the benefit most people are familiar with. While many credit card companies are becoming stingier with their reward programs, we’ve gotten free airline tickets, free hotel stays, a new bike for one of our kids, a new camcorder, and more just by using points.
Bottom line? There are financial advantages available to those who use credit cards responsibly.
Were you aware of all of these benefits? Which ones have you made use of?