Some financial teachers believe no one should have a credit card. They believe the road to ruin is paved in plastic. They seem to think that carrying credit cards is like carrying little sticks of dynamite that could blow at any time. I’m not one of them.
I believe that just because some people get into car accidents doesn’t mean no one should drive. We should simply drive responsibly. If you prefer not to use credit cards, I’m not trying to talk you into them. However, I’m a strong believer 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, 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 you make a purchase with some cards, if the item is stolen or accidentally damaged within 90-120 days, the card companies will reimburse you for $500-$1,000.
3 – Price Protection. With this benefit, which used to be offered on Citibank cards as Price Rewind, if you purchase something and then find the same item for a lower price within 60 days of purchase, you will be reimbursed for the difference. Sadly, Citibank did away with this benefit several years ago, along with a slew of other benefits. However, I’m told that it’s still available on Visa cards offered by UBS and Wells Fargo, MasterCards offered by HSBC and REI, some Capital One cards, and a few others.
4 – Extended warranty. Many cards extend the manufacturer’s warranty on various purchases for an additional year.
5 – Trip cancellation/interruption coverage. While booking a trip to the South Carolina coast recently, a family I know was tempted to pay over $400 for travel insurance. If the rental house reservation had to be cancelled within 30 days of their scheduled arrival, they were told they would forfeit the prepaid cost. And since it would be hurricane season, the travel insurance seemed tempting. However, a quick check of their credit card benefits revealed very generous protection in the event that severe weather prevented “a prudent person from beginning or continuing” their trip. Of course, some credit cards come with many other travel protections, from coverage for lost or delayed baggage to travel accident insurance.
6 – 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.
Many credit cards then provide free “secondary” insurance, assuming you use the 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, some credit card companies do not cover pick-up trucks, full-sized vans, or full-size SUVs. How long the cover will last may vary. If traveling overseas, some cards will not cover rentals in certain countries.
Also, 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. Your insurance company may not cover loss of use but your credit card company might.
7 – 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 and American Express.
8 – 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 nearly $5 million.
9 – 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, two new bikes, a new camcorder, and more just by using points.
Bottom line? There are many 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?
I understand that there are many advantages of using credit card. I am serious thinking about CIBC – Costco Card (Canadian), because of that reasons.
However, I prefer not to use credit card, because of my weakness.
Jo, I think it’s the better part of wisdom to know yourself and make choices accordingly. I completely understand, and highly respect, anyone’s decision not to use credit cards.