March 4, 2010

Advantages of using a credit card

Be it the unintended consequences of the CARD Act signed into law last year making things worse for consumers not better, the controversial safety and hidden fee issues, or the oft-recited studies showing you spend typically 10-30% more when paying with plastic rather than cash, credit cards are getting a lot of bad press these days.

And all this may be fine and true, but there are some "free" upsides to credit cards. One of my favorites is Purchase Protection:

What it does: If something you bought with your credit card is damaged or stolen within 90 days, you can receive a refund of the purchase price.
The catch: This protection has many exclusions, including items that are lost without any evidence of a wrongful act or are stolen because of a lack of due diligence. Used, antique and collectible items generally are not covered.

Value: Refunds limited to $300 (American Express), $500 (Visa) or $1,000 (MasterCard) per item. American Express has an additional program with refunds of up to $1,000 on certain types of items, including clothing and electronic equipment. Caps on the total refunds received by cardholders also apply (e.g., a total of $25,000 per cardholder with MasterCard or $50,000 annually with American Express).

Now this reason alone might not be enough to get the cash-only crowd interested, but when combined with other perks like free roadside assistance, lost-luggage reimbursement, and extended warranties, there is a case to be made for using credit cards in moderation for specific purchases. But don't even consider this if you struggle to exercise financial self-discipline. The best perks in the world aren't worth it if the trade off is a load of debt.