One of the bits of conventional wisdom that seems to pervade the personal finance world is that credit cards are somehow evil. However, like many other money-related products, credit cards are, themselves, mostly neutral. Those who know how to use credit cards to their advantage usually come out ahead. So, while credit card use can be devastating for those without a concrete plan for credit use, for those who make savvy use of their credit cards, they are actually valuable money tools.
Why Credit Cards Are A Great Financial Tool For The Responsible User
Here are 5 solid benefits of credit cards:
1. Rewards
One of the most obvious advantages to using a credit card is the opportunity to earn rewards. When you make purchases with your credit card, you can earn reward points. Depending on your program, these rewards can be used for travel or merchandise. You can even get cash back from rewards programs.
Properly used, a credit card rewards program can mean free stuff, from airline tickets to shopping sprees. Or it can mean actual cash in your pocket. Free money, free gas, free hotel stays: All of this is possible with the right credit card rewards program. But there is a caveat. In order for all of this to truly be free, you have to avoid paying interest. If you carry a balance, the interest you pay quickly destroys the value of the rewards. As long as you pay off your balance each month, without accruing interest, then your credit card can offer you financial benefits.
Image from CNN Money
2. Insurance
Another benefit to having the right credit card is that you get some types of insurance for free. Many credit cards offer rental car insurance as a perk. As long as you pay for the rental car with the credit card, you get the insurance for free. No need to pay for it at the rental car place. Also, if you have rental car insurance as a perk with your credit card, you won’t need the coverage on your regular car insurance, which could save you money. Check your credit card terms to see whether or not you have other types of insurance perks, including some types of travel insurance and even cell phone replacement insurance.
3. Purchase Protection
Credit cards often come with purchase protection. If you buy something, and pay with your credit card, you have recourse if the merchandise is faulty, or if it is not as represented. Normally, you can call the credit card issuer and have the charge reversed. With a debit card, on the other hand, the money is already taken out of your bank account, and it can be hard to get it back. With a credit card, you can often get the purchase protection, which means you can settle things with the merchant before you pay for the purchase. Many credit cards also provide some kind of warranty protection on certain products purchased with the credit card. So you get guaranteed returns, even if the merchant won’t take the product back.
4. Price Protection
Along with purchase protection, you can also get price protection in some cases. Many credit cards will refund you the difference in price if something you bought drops in price within 60 days. You will probably have to keep the original receipt and be able to produce the print ad showing the lower price, though. Many card issuers won’t accept online prices, or seasonal and clearance sales. Check with your credit card issuer to find out about exclusions to such policies.
5. Charity Donation
If you want to help others, it is possible to do so with your credit card and not just to make cash donations. Many credit card reward programs will allow you to donate your perks to charity. You can choose to donate your cash back, or you can choose to donate your airline miles or merchandise points. These donations can help charities operate more efficiently. Indeed, if charities receive enough reward points donations from enough people, they can redeem them for items or cash that can help further the charity’s goals. If you want to help your favorite charity without spending extra, you can check to see if your credit card will allow you to donate your rewards.
Bottom line: As long as you have an actual plan, and as long as you understand the fine print, it is possible for you to take advantage of credit card perks without spending extra money. Pay off your credit card balance each month, and ask about the perks offered by your card, and you may find that your card, instead of being evil, offers surprising financial advantages!
This guest post is from Ramsay, a personal finance blogger who helps people improve their finances and get moneyedup!
Created November 19, 2010. Updated September 3, 2012. Copyright © 2012 The Digerati Life. All Rights Reserved.
{ 12 comments… read them below or add one }
It is easy to forget the above positive points about credit cards. Like all tools if you use them wisely they can benefit your finances. If you don’t know how to use them properly you can get yourself into all sorts of problems. Thanks for reminding us.
Having a credit card is never a bad thing. You just need to know how to control your spending, know what you can actually afford through budgeting. If you can do that, any kind of credit is good.
All of these are all right and as long as you also know your expenses and you guided it wisely Iām sure all these good benefits will happen.
Thanks for the great post. The reality is that credit cards themselves aren’t evil at all. Rather, its more about how you use them. Anything can be abused and credit cards are no exception. A hammer can be used to build something great or tear something down. Credit card usage is the same. Don’t charge it if you don’t have it in the bank!
I do love the convenience of credit cards and while I probably spend a bit more than I would if I were paying cash, I never charge more than I can afford to pay and never carry a balance. Plus I do take advantage of the cash back rewards–I cashed in my Discover Cash Back into a nice gift card for my brother’s wedding present.
You are certainly correct – credit cards are a tool.
My Dad, who lived through the depression, was a saver and a cash up front kind of a guy. So I was amazed when he started using credit cards in the 1970’s.
From his point of view, the cards offered free money. He explained to me, if you pay off your balance and if you have the right kind of card with no annual fee and no charges of other sorts, then you are using other people’s money for multiple days during the month. He said, ‘It’s like a loan – with no collateral and no interest.’ He advised me to use the money and leave mine in the bank (or invested) earning interest, but to ALWAYS, ALWAYS pay off the balance each period.
Thank you for these hints. Never thought that there existed such a thing as price protection. Certainly another benefit of credit cards. Some internet-purchases cannot be made without one. But spending real cash is nice, too.
Hehe, I like the image you found on CNN money š There have been times when purchase protection was a great benefit of using a credit card for me, and for that alone I am thankful.
Credit Cards are useful; nowadays every big online store out there start to make their own purchasing system. For example, amazon does not accept paypal, but a credit card is accepted everywhere all over the globe, so it is still the perfect tool for doing payments.
Credit cards are not themselves “evil.” An inanimate object cannot be evil. However, because of the swipe fees and costs associated with the so-called “rewards” programs, the ubiquity of credit cards makes almost everything we buy more expensive. The only entities that actually “come out ahead” are Visa, MasterCard and the card issuers themselves.
Even just for the purchase protection that credit cards offer over many other purchase methods, I think they’re worth it. Also, when people are in a bind and they really need money, and they don’t have any other means of fast, disposable credit, then credit cards can be an amazing tool to turn to. š
I pay for all my utilities, gas and groceries with my credit card. I get 2 miles for each dollar spent . By the end of the year I have about six free roundrip tickets.