Photo (cc) by The Consumerist
Like many consumer advocates, I’m certainly no fan of credit cards. It’s hard to like plastic when I’ve done so many stories about people who end up in a financial death spiral due to revolving debt. And I can’t begin to count the stories I’ve done over the last 20 years about banks abusing their card customers with usurious rates, unfair fees and all manner of sneaky tactics specifically designed to transfer wealth from Main Street to Wall Street.
With all the negative press and recent legislation exposing the seamy underbelly of the credit card industry, it’s easy to believe that credit cards are the downfall of western civilization. But maybe this pendulum has swung too far. While it’s true that gorging on credit can lead to an untimely debt, it’s also true that credit cards are an important part of a healthy financial diet.
Here are eight reasons why it can be wise to stash the cash and pull out the plastic.
1. Credit cards give you an out.
If you buy something that turns out to less than you bargained for, using a credit card can be your last line of defense. Because by disputing a charge, you’re enlisting the considerable clout of your card company to help settle merchant disputes in your favor.
The ability to dispute a charge isn’t the best consumer protection – your car company isn’t going to side with you unless the defect is glaring – but it’s a lot better protection than you’d have if you paid with cash, which is none.
2. Some credit cards offer an extended warranty.
When you go to a big-box electronics store, the salesperson falls all over themselves extolling the virtues of their high-priced extended warranty. Yet most major credit card issuers provide free extended warranty benefits on some of their cards. It costs you nothing, and commonly tacks on an additional year of protection when you use that card to purchase qualifying stuff. What’s not to like?
3. Use a credit card and you don’t have to pay for a month.
Swipe a debt card, and before you can load your purchases in the car, the money’s gone from your account. But use a credit card, and it could be weeks before you part with your money. Allowing your savings to hang out and earn interest for an extra month is no big deal in these days of near-zero returns, but when interest rates start rising again, this simplest of credit card features is nothing to sneeze at.
4. A lost credit card won’t ruin you.
By Federal law, providing you notify the bank within 30 days, your maximum liability for a lost or stolen credit card is $50 – and most major issuers reduce that to zero. Debit cards, on the other hand, have a much larger potential liability.
- Up to $50 if you notify the bank within two business days after you realize your debit card is missing.
- Up to $500 if you fail to notify the bank after two business days, but before 60 days after your bank statement is mailed to you.
- Unlimited 60 days after your bank statement is mailed to you listing the unauthorized withdrawals.
Visa and MasterCard currently cap the liability on debit cards at $50, but that’s voluntary – there’s no federal law that protects you as there is with credit cards. So if you’re planning to be either careless or mugged, a credit card is safer than a debit card or cash.
5. Credit cards are the only way to shop online.
Because credit cards offer both protection against fraud and a line of defense should a good purchase go bad, they’re the only way you should ever shop online. In fact, if it weren’t for credit cards, online shopping probably wouldn’t even exist.
6. Credit cards can help you budget by allowing you to analyze your expenses.
Some credit cards offer itemized statements – monthly, annually or both – with expenses broken down and grouped into pre-determined categories, like gas, groceries, eating out, etc. This can be an effective way to track your expenses.
While not a perfect budgeting worksheet, it’s better than nothing, especially since nothing is what it costs.
7. Credit cards help you build a healthy credit history and credit score
Having a good credit history and credit score aren’t essential for survival, but they are useful. Some employers look at your credit report before offering you employment. Some auto insurance companies offer their best rates for those with the best credit histories. And if you ever do need or want to borrow money, a solid history and score will allow you to do so with a minimum or both hassle and expense.
Single best way to create a new credit history or polish up a bad one? Effectively using credit cards.
8. Credit cards allow you to instantly meet an emergency.
Since a credit card is essentially a pre-approved loan, it’s instant money should the need arise. Obviously, easy access to money is a double-edged sword. But it’s not hard to imagine a situation where being able to lay your hands on some money could be critical – even life-saving. Sure, the rates you pay are stupidly high. But in a true emergency when your back is against the wall and you can’t turn to friends, don’t have family and a few grand could get you home, keep you out of jail, or in the case of the uninsured, even save your life? Nothing wrong with some plastic peace of mind in your wallet.
Bottom line? With all the negative press surrounding credit cards these days, it’s easy to throw out the baby with the bathwater. Properly used, credit cards are one of the greatest wonders of the modern financial world. And proper use, while it may not be easy to execute, is simple to define: just pay them off every month.