Some say that no one should have a credit card.  They argue that charging purchases puts people on the path to financial ruin.  To be sure, there are people who would be better off without credit cards.  However, just because some people get into car accidents doesn't mean no one should own a car.

Used responsibly, credit cards can work in your favor.  The responsible use of a credit card involves three steps.

  1. Only charge pre-planned budgeted amounts.  If you have a budget that allows you to spend $75 on clothing this month, you can charge $75 worth of clothing.
  2. Track your use of your card as you make purchases.  If you use budget software like Quicken or an online tool like, your credit card transactions will be reflected in your budget within a couple days of each charge.  This is an important step that is often missed by people who either don't track their spending or do so with a manual system like a paper & pencil budget or an Excel spreadsheet.  If you don't track your use of your card as you make purchases, the monthly bill often seems surprisingly high.
  3. Pay the balance in full each month.

If you follow these three steps you can take advantage of numerous credit card benefits, many of which were highlighted in a recent MSN story.  Among them:

Purchase protection. When I make a purchase with either of my cards, if the item is stolen or accidentally damaged within 90 days the card companies will reimburse me for up to $1,000.

Price Protection. With one of my cards, if I find the same item for a lower price within 60 days of purchase, I will be reimbursed for the difference.

Extended warranty. Both of my cards double the manufacturer's warranty on many purchases for up to one additional year.

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 agent told me that for the most part the same coverage that applies to the vehicle we own applies to a vehicle we rent. The one exception is that if we're in an accident with a rental car, the rental car company will charge a daily rental fee for every day the car is being repaired ("loss of use"), which would not be covered.

I then checked with our two credit card companies. Both offer free "secondary" insurance, assuming you 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. However, loss of use turns out to be a gray area.  One card company rep said technically they do cover that, but only if the rental car company provides adequate documentation, which it rarely does (how's that for an honest answer?).

Neither credit card company 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.  Both companies provide coverage for rentals from most rental agencies, but this was not always the case, so it's especially important to make sure your card will cover a rental from the agency you are considering.  If traveling overseas, one of our cards will not cover rentals in three countries; the other offers no coverage in six countries.