Nov 1, 2007

Why I use a credit card: Rewards, fraud protection, and no monitoring of account balance

It goes without saying that credit cards aren't for everyone - in fact, I think they should only be used by people who pay their balance off each month. If you fit that category, though, you should pay for as many things as you can with your card. Here's why:

I've written before about earning rewards with a credit card, and I still have that miles card that we use most of the time. The annual fee of $25 is more than made up for by the free tickets that we get. But a miles card isn't right for most people. Free Money Finance is planning on getting 2.6% cash back on his credit card purchases and explains how you can too.

Fraud Protection
In addition to rewards, there are a couple of other reasons why using a credit card can be helpful. This story at The Consumerist is a good example of the consumer protection offered by credit cards. Basically, the Consumerist reader bought a hard drive at Best Buy but discovered when he got home that the box contained tiles wrapped in newspaper. He went back to the store but the manager refused to accept the return, so the reader contacted American Express and disputed the charge, and Amex obtained the refund for him. I've personally never had to do this but it's nice to know that the option is there.

No monitoring of bank account balances
Glblguy's debit card was stolen and used to make almost $1,000 worth of purchases. Glglguy, being a good money-manager, caught on to the situation rather quickly and handled it as well as possible. But the part about checking his balance reminded me of why I never use my debit card: I don't like having to constantly monitor my bank account. Yet without that monitoring, a charge could easily slip through and cause an overdraft. I suppose I could keep a big cushion in my checking account, but that would reduce the interest I'm earning in savings. I have to admit that the stress of possibly overdrawing my checking account would probably cause me to spend less - but I think that stress would be too detrimental to my health.


Anonymous said...

I love rewards cards! I have gotten free airline tickets and even money from my credit cards.

Using CC is beneficial as long as you pay if off every month.

Anonymous said...

How much did you have to charge to your card in order to get "free" airline tickets or 'cash back?" Statistics prove that people spend 14% MORE when they use a charge card vs. cash or debit cards. If you are using a card that doesn't need to be swiped, you will be spending 5% additionally more.
I find it amazing that Free Money Finance spent so much of his time analyzing out the best charge cards. For example: Amer Ex Blue Cash gives you back 1% for the first $6500 you spend. That equals a measly $65. If you had put the same amount in a savings account that paid 5% interest, you would have earned $325+. (guess who is taking your money and earning interest and then giving you a measly 1% of it back?) Free Money can spend all the time he wants to try to figure out the system and beat the credit card companies. Let me assure you that these companies have an extensive array of top quality employees and analyists that know exactly how to dupe Free Money and his peers.

Here is one of your quotes:
"But the part about checking his balance reminded me of why I never use my debit card: I don't like having to constantly monitor my bank account". You think that because you use a credit card you don't have to daily watch your accounts should identity theft occur? Sweetie, your checking and saving accounts can be stolen and you should be watching them daily ANYWAY.
If you buy something and it is defective and you can't get satisfaction with the company that sold it to you, you have the same protection with your debit card as a credit card. Call your bank! Better yet, call the BBB and get faster results!

If you use a credit card and pay it off at the end of the month, then you should be using a check/debit card from Visa or Mastercard. Only difference is it has to be backed by YOUR money in the bank.

When you use credit you overspend and the companies know it. Hey, I'd give you a free airline ticket too just to get you to spend a lot of money. Can you be so easily bought for an airline ticket. Go buy your own airline ticket. They are sooooo cheap today.

Go to a supermarket with $100 cash and try to stay within the budget. Then go to the same supermarket with a charge card and watch how much more you SPEND. Subliminally your brain is telling you about your rewards, bonus points, cash back, airline tickets and what you will be doing is SPEND, SPEND, SPEND.

Sorry dudes, there is nothing good about a charge card. NOTHING.

Anonymous said...

You're absolutely right that credit cards are a good option for people who pay off their purchases at the end of each month (ie. don't carry a balance). The point I am making of course is that everyone should live within their means -- and reap the benefits you state. Honestly, while I don't carry a balance, I find our (my husband and I each have only one) credit cards somewhat annoying. I've found that I cannot instantly pay off our balances and payment itself on one should be integrated with our banking accounts (given that the card is from the same institution) -- but I need to go a separate location yadda yadda yadda (this is a pet peeve because I work for another financial inst. in tech).

Oh and I found your blog via -- and really enjoyed reading many of your posts!

Anonymous said...

Boomie --

Your comparison is ridiculous. You can't compare $6,500 spent (in any way -- either in cash or on charge) to $6,500 in a savings account. That's crazy!

Besides, you're twisting facts too to serve your purpose. Yes, the Amex pays low before $6,500, but it pays GREAT after that and you can earn close to 3% if you spend/charge correctly.

Here's my point:

You're going to spend anyway (in cash or a debit card in your example), why not get paid for it? Yeah, 2.6% won't make you rich, but it earned me almost $500 last year. Not bad.

ChiefFamilyOfficer said...

@andamom - Thanks for your very kind words!

@Boomie - I agree with FMF (not surprisingly). Your comparison presupposes you don't spend the money at all, whereas I presuppose that you would have spent the money anyway, it's all budgeted for. As for checking my accounts, I do check them frequently but I would constantly have to transfer money into my checking account to cover purchases if I used a debit card. Alternatively, in order to not keep doing calculations to make sure I had enough in there to cover debit card purchases, I would have to keep a substantial balance in my checking account, thereby losing out on the interest from my savings account. Either way, it's a lose-lose.

I do agree that I might save a little money if I went to an all-cash system, but I'm simply not interested in doing that (and perhaps I'll write a post about why that is soon).

****Veteran Military Wife at Life Lessons of a Military Wife**** said...

Very well said! I've found that the American Blue Cash card is the absolute best bet for folks who pay off their CC bill every month. You get up to 5% cash back AND there is no cap on the cash rewards you get back. Every single VISA/MC card I investigated had a cap of $300.

As far as the overspending someone mentioned charges download to MS that is how I keep within my spending limits! I also like to compete against myself, how much lower I can get my monthly AMEX bill every month.

If you want to keep from buying, then how about not going into the store to begin with? I've found I spend less money..just by not going...a novel idea!

Free From Broke said...

Credit cards are great if, and only if, you are a responsible shopper and you pay your balance in full at the end of the month. Sure CC's are a debt trap to many but for those who are responsible why not get something back?

Also, it's not always the best option to only shop with cash. When I shop at a wholesale store like BJ's I can easily spend over $100 for necessities. I don't want to worry about carrying enough cash to cover that expense.

Anonymous said...

Last year my wife and I received $944 cash back for our credit card purchases, and did not pay a single cent in interest charges. Let me repeat that $944 tax free.

That's a good enough reason for us to use a credit card over any other form of payment.

We use primarily AmEx blue, and use Citibank's Dividend card as a back-up for places that don't take AmEx.

ChiefFamilyOfficer said...

@VMW - The MS Money download is a great idea. And you're right about not going shopping at all!

@FFB - I agree, I don't like carrying too much cash but I routinely have a hefty bill at stores like that.

@Shadox - Wow, and I thought FMF was doing well getting $600. $944 tax free is awesome!

Anonymous said...

Hey there. This post is really interesting. I learned that one of the coolest way of spending of money is using credit card and credit card rewards. And one of the credit cards I have is Citi Diamond Preferred Rewards Card. It's really really cool.