CREDIT WHERE CREDIT IS DUE
Amassing credit card debt under exorbitant interest rates can spell financial doom. But there are times it makes sense to use that little piece of plastic. For some consumers, maximizing rewards is reason enough; others like paying a single bill at the end of the month. For those who are not convinced, here are a baker's dozen situations when paying with a credit card pays off.
SAFETY AND RELIABILITY
Start with the basics: It's dangerous to carry around a lot of cash, either because it makes you a target for robbery or theft, or because you might just drop it accidentally or leave it somewhere forgetfully. It can get dirty or torn up in any number of ways. "Every year the Treasury Department handles approximately 30,000 claims and redeems mutilated currency valued at over $30 million," according to the department's Bureau of Engraving and Printing.
New electronics and appliances are generally covered by a manufacturer's warranty, but vendors try to convince consumers to opt for an extended plan. Buying with a credit card, though, already adds a year of coverage at no cost. Details vary, so check CreditCards.com for a handy comparison chart.
Some credit cards offer purchase protection that reimburses the cost of an item stolen within 90 days of purchase. Some also protect purchases in case of accidental damage.
FUTURE PRICE DROPS
Worried about buying something moments before the price drops? Use a credit card. Programs such as Citi Price Rewind and price protection policies from MasterCard and Discover refund the difference if an identical item has lower advertised price within 60 to 90 days of purchase. Depending on the program, buyers might need to register a purchase or initiate the refund.
EXPENSIVE BUSINESS GOODS
Protection policies don't always apply to business purchases, unless a business credit card is used. These cards often include higher limits for purchase protection claims and offer automatic rebates for purchases at select retailers.
Coverage benefits vary by credit card, but drivers who pay for the entire rental amount with plastic can usually opt out of the agency's rental collision damage waiver insurance. The card's protection will not cover liability — damage to other people, property, or vehicles — and is considered secondary coverage. This means a driver's auto insurance policy must be used before the credit card's CDW insurance kicks in.
Paying for a plane ticket with a credit card often covers bags and their contents that are lost, stolen, or damaged. If luggage is delayed, the card issuer may even pay for necessities, such as clothing and toiletries, while awaiting their arrival. Travel-rewards cards also sometimes include accident insurance, trip cancellation, and trip interruption coverage, as well as free checked bags or priority boarding with associated airlines.
Cards that offer bonus points for travel might include taxis among the eligible purchases. Public transportation (bus or train) sometimes earns rewards as well.
Many cards offer bonus points for purchases made at the supermarket. The Blue Cash Preferred Card from American Express, for example, offers 6 percent back (on up to $6,000 in purchases each year) when spending on these necessities.
FILLING THE TANK
Everyone likes to complain about the price of gasoline, but bonus points that accrue for filling up are one way to soften the sting.
There's still some risk involved with giving credit card information for online purchases, but many card issuers offer liability protection (so consumers will not be responsible for unauthorized transactions) as long as the account is in good standing, the unauthorized use is reported immediately, and the card's information was not knowingly put at risk.
Setting up automatic payments from a credit card helps ensure there's never a late fee for a bill. (Just be sure you understand the cancellation policy so the company doesn't go on charging your card.) Capital One's Second Look program automatically looks for unusual, duplicate, and auto-renewal charges and alerts cardholders if something looks amiss.
There's little recourse when cash gets stolen, and a credit card offers better fraud protection and less liability than a debit card, which is linked directly to a bank account. Still, sticking with a debit card or using cash may be wiser for consumers who have trouble managing cash flow or paying a credit card balance in full every month.
Travel can be such a hassle, especially the drawn-out security lines before getting to the gate (and especially if you tend to run late on the way to the airport). The TSA PreCheck program lets travelers into a speedy lane where they keep shoes, belts, and jackets on, and their laptops in bags — and there are 19 credit cards and loyalty programs that cover the $85 application fee or at least allow credit toward it.
TRACKING SPENDING HABITS
Lay out cash every time you buy groceries, eat out, or swing by a Target, Walmart, or Dollar Store and you'll be obliged to keep receipts, balance a checkbook or bank book, and likely transfer it into a spreadsheet or do some heavy-duty searches when it comes to be tax time. Credit card statements are easy to look through and available online, and spending-tracking apps make it even easier by consolidating the information in one place. (Credit Karma will even suggest better credit cards for how you tend to spend.)