Credit cards get a bad rap in frugal circles. The high interest rates and the ability to quickly get deeply into debt make credit cards seem opposed to any sort of money saving lifestyle. This is true if they are used irresponsibly. However, if used responsibly and carefully, credit cards have advantages which can be a great way to save you some money and, maybe, make your life a little easier.
The trick to making credit cards work for you instead of against you is to pay them off every month, in full. If you avoid interest, then everything else that comes with the card is “free.” To do this, you have to be willing to stick to a strict budget and know that you’re not spending too much if you’re not seeing the cash go out of your wallet. Some people can do this well and others can’t. If you think you’ll overspend when using plastic, stick with cash.
You also want to make sure you carefully evaluate any card with an annual fee. Ideally, you don’t want to pay a fee at all, since all rewards and perks on a no-fee card are truly free. If you do have to pay a fee, make certain that you will earn enough in rewards or receive enough perks to earn back that fee, plus more. Otherwise, you’re paying to use a credit card and that’s not a good use of your money. With those two caveats in mind, here are are some ways that credit cards can improve your financial life.
This is the big one. Reward credit cards let you earn cash, gift cards, airline miles, hotel points, statement credits, or some combination of these. Usually you get a percentage of your spending back in the form of rewards. If you don’t carry a balance on your card, this is essentially free money.
If you buy an item with your credit card, some credit cards will extend the manufacturers warranty by up to a year. This can be a great deal if your item breaks down one day after the regular warranty ends. Just make sure to keep copies of your receipts for documentation.
Many credit cards offer special offers from time to time. These may include the chance to earn extra rewards, free shipping or discounts from select merchants, offers on travel, and other deals. If you have a need and can take advantage, these promotions can save you some extra money.
Some credit cards will replace products that are damaged or stolen within a certain time period after purchase. If a product you buy proves defective and the merchant won’t work with you, many credit cards will take your side and refund your money after an investigation. They will also help resolve a dispute if a product you order is never received or is damaged upon receipt and the merchant is unhelpful.
Many cards offer services such as helping you find medical care, legal aid, and help with replacing lost documents. (You’ll have to pay any costs incurred for the documents or services you receive, of course, but the help from the credit card is free.) They may also offer compensation for luggage lost on a trip that was paid for with the credit card.
If you have a higher level card, such as a platinum or Signature card, concierge services can help you book travel, make dining reservations, get tickets to events, or give you gift recommendations. This can be helpful if you travel frequently and find yourself in strange cities where you don’t know where to eat or shop.
Rental Car Coverage
If you pay for the rental with a major credit card, you may not need to purchase the rental agency’s insurance. Many cards offer rental car protection when you pay with the credit card.
Many people aren’t aware of all of the features and perks that their card offers. They may know about the rewards, but very little about the travel protection and warranties offered. Make sure to read all of the papers you receive with your card so you can take maximum advantage of all of the money-saving opportunities extended to you.
(Photo courtesy of Andres Rueda)