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.
