When You Should Use a Credit Card

According to Money magazine, there are some instances when using a credit card is a good idea.  A credit card can actually provide benefits using cash or debit can’t.

Warning:  The danger of using  a credit card is in the ease of its use.  It doesn’t take much effort to purchase on credit with the plan to pay it off in a few months.  But, often life happens and you can’t pay off what you thought you would be able to easily afford within a few paychecks. Continue to use a check card unless you have the ability and discipline to pay off a credit card every month!

So, with that being said, let’s take a look at some of the situations when you should consider using a credit card.

Major Purchases

Credit Card OnlineIf you’re not happy with your purchase, or the goods or services aren’t delivered to you as promised, credit card companies will often provide help.  According to Money, the charges will be suspended and the interest won’t accrue on the purchase.  With a debit card, the money is out of your account and you have to work with the merchant directly to dispute the charges.

Another reason to use a credit card for big purchases is the warranty protection.  Check with your credit card company about warranties because they may differ based on the type of card you have.

What are some examples of big purchases in which you may want to use a credit card?  Vacation packages and TVs or other electronics all fall into this category.

Buying Gas, Checking in at a Hotel or Renting a Car

I didn’t realize this, but when you use a debit card for these types of transactions, the merchant-to avoid being caught short-figures out the maximum you could spend, then puts a hold on your bank account for that amount. For example, when you buy gas, you prepay the amount.  The gas station doesn’t know how many gallons you’ll use so they will block $75, for example, no matter what type of car you drive.  Because of this hold, you can’t access the excess of what is frozen until the purchase is finalized.  The hold can take  up to 48 hours.

Keep in mind, you may have even more blocked when using a debit card for hotels or car-rentals.  You could have hundreds or thousands frozen for days, which could trigger overdrafts or bounces on other payments.

As an aside, when I opted out of overdraft with Bank of America, they told me such purchases could cause me to over draw my account.  Again, because the merchant puts on-hold more than the actual transaction.  Unfortunately, the bank doesn’t know the actual amount until the merchant finalizes the transaction.

Rewards

If you’re looking for rewards, credit cards still offer better programs.

Money says Citibank’s debit cards, for example, offer one point for every $2 spent, and you need 8000 points to get $50, so you’re earning a mere .31% on every dollar.  In comparison, many credit cards offer at least 1% cash back.

A word of caution:  I don’t think it’s a good idea to use a credit card with the sole focus of getting rewards.  This is a dangerous game to play because you could end up using the credit card without wrecklessly without a plan to repay.  However, I say go for it if you’re the type of person that can track every transaction and insure you have the funds to be paid off every month.

Protection Against Theft

According to the article, if your credit card is stolen, your legal liability is only $50.  By law, you can end up with more responsibility with debit cards.  Money does note that Visa and MasterCard extend their protection to debit cards which display their logos and I think most debit cards probably have one of these two logos today.

However, keep in mind that when you use a debit card the money is gone from your account.  If you’re the type of person (and I hope you are) who tracks their spending diligently this may be okay.  But if not, you could go several days (perhaps weeks?) until you notice the incorrect charges which could result in over draft fees.

I think you have to be careful on this one because it could make you want to use a credit card for every transaction.  However, as you and I both know, there are certain transactions we can be quite comfortable with putting on our debit card.  Such a purchase might be food at the local grocery store.  However, if you’re shopping online, you may want to use a credit card to provide you the extra comfort of protection.

Final thoughts

Overall, I thought this was some pretty good advice from Money magazine.  I’ve heard of all of these examples, but haven’t seen them consolidated into one list or article.  But keep in mind, although I own a credit card, I track spending with  it diligently and pay it off every month.  Make sure you’re doing the same!

So what do you think about these reasons to use a credit card?

About Jason Price

Jason Price is a family man saved by grace, passionate about faithful financial stewardship (1 Cor 4:2 NIV), soccer and the Pacific sun.

  • http://gettherushcard.com Nicholle Majerowski

    Killer site! Good read, I’ll stop by again.