Have you ever thought “who needs credit anyway?” If you are like most people in debt the thought has perhaps crossed your mind. To make matters worse many so called financial guru’s are saying shred your credit cards. The logic is simple, no cards no temptation. Take away the temptation to rack up charge accounts and your life will be better. Not quite so fast. The mere convenience is a key factor as is safety. You are ill advised to pay for certain purchases with a debit card or cash. And you would be giving up numerous advantages that credit cards offer over cash purchases or even debit cards.
You see banks are in business to lend money and make fees and credit cards are a great way for the banks to do both. When the recession hit many banks and card issuers cut back on credit card limits and even cancelled numerous cards. The liquidity was solved and now banks are once again fighting for your business by offering some pretty good benefits to card holders.
I am not saying use your credit cards indiscriminately, quite the contrary; if you know anything about my efforts to advocate debt free living you would know the opposite is the case. The purpose of this article is to teach you how to use the credit card companies and not let them abuse you.
Decisions about how to use credit and any other financial decisions should be made with a clear head after some research. Once you realize the advantages of credit cards you no doubt will be back on board with your Visa, Master Card and AMEX.
So many people have been told that credit cards are evil. There is “the dark side” and then there is the “force”. Yes you can become a credit Jedi and use your credit as a positive force.
Here are a few examples of the positives credit card use can provide you. I would like to point out that each credit card has different advantages and not all cards have the advantages listed below. The best perks and benefits are offered to those with the best credit and highest credit limits. The market is fluid and card issuers are aggressive in their attempts to woo card holders so some of the benefits may vary from card to card. Some of the benefits or features may change by the time you read this article.
It is important to define your objective and know what each card has to offer you both with your existing card provider and any you may wish to apply for in the future.
The major advantages cards offer fall into two categories; 1) Safety/Security, and 2) Benefits
Safety and Security
In general credit cards offer a great advantage over debit cards both to carry and to make purchases with .
What if your card is lost or stolen? With a debit card it is linked to your checking account and thieves can easily use your card and do some serious damage in just the couple of hours it takes to realize it is gone and support it missing. Now your checking account is depleted and your money is gone. The issuing banks usually absorb the loss except for the first $100 as long as you notify them within a prescribed time frame. You still can be without the use of that money until it gets resolved which can take some time.
When you shop online you always want to use a credit card. Hackers are compromising so many online sites and you could have the same thing happen as above if your card is hijacked.
If you and the vendor do not see eye to eye on the terms of the purchase you will get much faster credit for disputed items purchased with your credit card because the companies will go to bat for you and can force the hand of the vendor more easily.
Online purchases and deliveries don’t always go as planned and so much can go wrong. Guarantees and warrantees are easier to enforce with purchases made online via credit cards.
Speaking of warrantees many credit cards offer extended warrantees for items purchased with their card. Visa, MasterCard, Discover and American Express — provide up to a year of extended warranty protection for some cardholders. There is usually a limit on the dollar amount that varies from card to card but seldom exceeds $10,000.
Several card issuers will repair or replace items you charge to your card that are damaged or stolen within 90 days of purchase. Once again this is something not all cards offer so see if your card has this protection before you use it. Some cards such as Chase Sapphirewill offer extended return policies even if the stores where the items purchased refuse your returns.
Card Holder Benefits
Cash Back-Are you kidding me? This is almost too good to be true. Some offers go as high as 2%. This is a total no-brainer. If you don’t want or need the travel benefits get the cash back and save 1-2% on all of your purchases.
The travel benefits alone would be incentive to use credit cards instead of debit cards.
Travel Club-Many premium cards have great travel club benefits that can range from travel planning and discounts to admission to airport lounges that are not available to the public. If you fly much you know what I am talking about and these are great little escapes from the crowded lounges at most airports.
Citi, MasterCard and American Express, will reimburse cardholders for luggage that is lost, stolen or damaged during flights purchased with their cards. Some cards offer you reimbursement for articles stolen from hotel rooms. and others offer benefits to travelers that become ill away from home.
If you really want big advantages when traveling get an airline branded credit card. Airline-branded credit cards typically offer a free checked bag for flights purchased with the card. For example, if you use a Citi Platinum Select/Advantage World MasterCard (a branded card for American Airlines) to purchase tickets, the baggage fee is waived on the first checked bag for you and up to four traveling companions.
Rental cars offer yet another advantage to credit card purchasers. Most major credit cards offer secondary rental car insurance, picking up costs that aren’t covered by your personal auto insurance policy if your rental is wrecked or stolen. I don’t advocate purchasing the secondary insurance to cover your deductible but if it is offered for free why not? Find out the cards that have that benefit, verify it with the provider and always use that card for your car rentals. The coverage can range from $12 to 40 a day depending on your rental vehicle. It is a perk of great value to frequent renters. In general, you must use the credit card to book the rental, and you must decline the collision damage waiver when you rent the car. The coverage is extremely limited on rentals in foreign countries so check with the provider before you make such an assumption.
While you are traveling abroad always use your credit card to avoid the costly foreign currency exchange rates at airports and other tourist traps. You’ll get a better exchange rate, and you can avoid fees entirely by using a card that doesn’t ding you with foreign transaction fees. Check the card you use and make certain you know their fees they charge for foreign purchases. It can be from zero to about 3%.
Additional benefits offered by some cards include price matching f you use a credit card to buy an item that later goes on sale, your credit card might pay you back the difference.
One benefit I can’t even believe is cell phone replacement for phones damaged or stolen. If you pay your bills with a Wells Fargo American Express, MasterCard or Visa card, you’re eligible for up to $600 in coverage, minus a $25 deductible. Lost phones usually aren’t covered.
Some cards offer free admission to various events. Bank of America and Merrill Lynch cardholders receive free admission to more than 150 museums, science centers, botanical gardens and other venues in 92 cities on the first weekend of the month. Additionally some cards offer preferred seating or pre-event purchase advantages to cardholders.
So now you are excited and regret shredding your credit card. You want all the perks and benefits. A couple of caveats. As always I advocate paying all credit card balances each month and not carrying an balances that will cost you in interest expense. I don’t know of one card that has all of the advantages described above. I advise great diligence in both choosing and using a credit cards. I would suggest that each family have no more than three cards. Once card with great travel benefits, one with cash back and one that offers advantages that meet your particular lifestyle.
If you are currently carrying a balance on any of your cards your number one objective should be to eliminate the balance and the accompanying interest payment. Towards this objective transfer all of your balances to a low rate or zero rate card and check out my Quick Start Smash Factor Debt Elimination Workshop. The workshop will help you smash your debt faster than you ever thought possible.
A word to the credit challenged. Unfortunately most of the great perks cards offer are available only to those with good credit. Please read my prior blog post http://www.stanleykstilwell.com/category/credit/ .
If you need a credit card and have been turned down, some banks are offering low limit secured cards for credit challenged borrowers. This means that you can get a credit card but must maintain a balance in your checking account greater than your charges at all times. The rates are high but if you pay off your card each month it doesn’t matter though does it? This is the only option for many individuals rebuilding their credit and is a necessary evil if credit restoration is your objective.
I think you can clearly see the advantages of credit card use over the debit card or paying cash. Some would say this is hearsay. To those I say you need to be in control and as long as you don’t overspend and you keep a zero balance, paying with a credit card is too good of an opportunity to pass up.