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How a Credit Card Can Be Your Friend
We have all heard countless stories of people over their heads
with credit card debt-maxing out every card they own, then only
being able to afford the minimum monthly payment. High interest
payments shackle people to their debt for years, not to mention
the significant income drain the finance charges have on their
families.
It is unfortunate that many Americans must live with this
reality, since with some financial discipline, this delimma is
avoidable. When a spending plan is developed and followed, a
credit card becomes no more dangerous than any other form of
payment.
When credit card bills are paid in full each month, credit
card fees and finance charges do not accumulate. With a little
extra bookkeeping from a spending plan, a credit card is
transformed from being a burden to a very rewarding financial
partner-since it provides the following advantages over other
forms of payment:
· Rewards Programs.
Many credit card companies offer loyalty programs to reward
those customers who use their cards more. Rewards usually come in
the form of points or cash. Depending on the company, the points
can be redeemed for things like restaurant gift certificates,
hotel stays, airfare, vacation packages and more. Cash cards
typically pay a 1% rebate on your purchases, which makes for an
extra $180 a year on monthly spending of $1,500. This level of
spending is easily achieved by putting all your purchases on a
credit card (including utility bill payments). There are even
cards that pay more than 1% for particular types of purchases
like groceries or gas, such as Citi's Dividend Platinum Select
card.
· Perpetual 0% Loan.
When you use a credit card, you are using the bank's money to
pay the store instead of yours-for free. While you're waiting for
your statement to arrive, your money can continue to work for you
in an interest- bearing account, such as ING Direct's Orange
Savings. Unlike a debit card that continually reduces your
account balance, using a credit card preserves your entire bank
account balance for earning interest until your statement's due
date. That's an extra $35.25 a year based on a $1,500 balance at
today's rate of 2.35%*.
· Fraud Protection.
If your credit card number is used fraudulently, by law your
maximum liability is $50. This is not true of a debit card. A
perpetrator can easily use your debit card as "credit"
transaction in retail stores or online. This type of transaction
does not require a PIN number to be entered, and is especially
dangerous since a thief can clean out your entire bank account in
short order.
· Loss Protection.
Unlike cash which is gone for good if lost, a credit card can
be replaced within days of reporting it to the issuing bank. In
the meantime, you're protected against unauthorized use by anyone
who finds the lost card.
· Warranty Coverage.
Many MasterCard credit cards warrant your purchases above and
beyond that offered by the product's manufacturer. Your purchases
made with one of these cards get an extra level of protection for
free. See MasterCard's website (http://www.mastercard.com) for
the full scoop on their coverage terms.
· Purchase Protection.
Another benefit MasterCard offers on most of their cards. With
their Purchase Assurance plan, your purchases are automatically
insured against damage or theft for the first 90 days, also at no
additional cost to you.
With all of these benefits over other forms of payment, credit
cards can easily become your favorite way to pay. Instead of
dreading your credit card bill each month, it can become a
pleasant reminder of your money mastery.
Copyright 2005, Jim Hood
Jim Hood is senior contributing editor at the Discount
Shopping Service Guide. He frequently writes
credit card offer reviews and articles on money-saving
strategies for shopping online.
* Rate quoted from ING Direct on January 4, 2005.
MORE RESOURCES:
Credit - Google News
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