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.
- 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.
- Track your use of your card as you make purchases. If you use budget software like Quicken or an online tool like Mint.com, 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.
- Pay the balance in full each month.
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.
Other benefits mentioned by MSN include discounted roadside assistance and insurance for lost or damaged luggage. Here are a couple of other credit card perks.
Discounts. You may be accustomed to looking for coupon codes and searching for other discounts on the web. Did you know that credit card companies offer their own discounts for various merchants? Here are the programs offered by Visa, MasterCard, and American Express.
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 $3 million dollars.
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 recently got a new camcorder with a retail price of over $500 just by using points.
Bottom line? There are financial advantages available to those who use credit cards responsibly. Do you know about the various perks available from your credit card company?
March 10, 2010
Matt Bell is the author of two personal finance books published by NavPress: "Money, Purpose, Joy" (September 2008) and "Money Strategies for Tough Times" (April 2009). He speaks at churches, conferences, universities, and other venues throughout the country. To learn more about his work, visit his web site at www.MattAboutMoney.com.