3 Awesome Benefits Offered By Your Credit Cards

In the past few weeks, I’ve been reading some articles, along with their comments, about people cutting up their credit cards. There are multiple rationales behind this decision. One such rationale is that the credit card companies act immorally by preying on the “weak” who fall into the trap of credit. Another rationale is that it encourages bad decision making because of the disconnect between plastic and cash. I’ll address those issues throughout the article.

credit-card-handling

Photo by Paalia via Flickr

Often times people overlook the protections they are offered by using credit cards.

1. Warranty Extension

One of the most dreaded lines at Best Buy, for me at least, is “Would you like a service plan with that?” Or maybe my most dreaded line is the third time they’ve asked it even after I mentioned the fact that my credit card automatically extends my warranty.

Not all credit cards offer this protection, though. You can usually read through your card member agreement (that long document they send every so often when they make changes) and it will make some mention of a warranty program. Any questions should be directed towards the credit card company (Visa, MasterCard, American Express, Discover Card, etc.), not the issuing bank.

Do not assume that you are not eligible just because the card member agreement makes no mention of the warranty. Call the company to be sure.

Warranty Info & Phone numbers to check eligibility:

  • VISA (USA) – Doubles the time of the manufacturers warranty up to 1 year as long as the original warranty is 3 years or less – (800) 882-8057
  • MasterCard (USA) – Doubles the time of the manufacturers warranty as long as the original warranty is 1 year or less – (800) 622-7747
  • Discover (USA) – Doubles the time of the manufacturers warranty as long as the original warranty is 1 year or less (Unverified) – (800) 347-2683
  • American Express (USA) – Doubles the time of the manufacturers warranty up to 1 year as long as the original warranty is 5 years or less – (800) 225-3750

Once you find out whether you have warranty coverage, there are a few pointers I have for you: You must charge the amount in full to the credit card, keep documentation for proof of purchase (invoice, cc receipt, warranty printout), keep a copy of the current card member agreement, keep the card active even if you don’t use it.

This is all a moot point if you are the kind of person who will wind up in a shopping rehab when you get a hold of a credit card. However, if used correctly, a credit card can actually save you a boatload on an extended warranty and protect your purchase for longer.

2. Rewards/Cash Back Program

Most people spend a lot of money on certain items like gas and groceries. The rewards argument is very strong in these cases. If you spend $400 every month on groceries and get 2% cash back, why not take the $8 that’s on the table every month? I spend $100 on gas every month and get 3% back. That $3 is better in my pocket than in the credit card companies coffers. Some credit cards offer back as much as 5%!

The first thing to understand is how credit card companies make money. They obviously make money on interest charges and fees from people who carry balances. But if you pay your card off every month, are they profitable? You betcha! That’s what merchant fees are for! So the existence of reward programs is not solely contingent on other people getting hurt, per se. And even if it were, the immorality of the situation is questionable. I guess that all falls back to personal responsibility.

One important thing you need to consider is what’s most important to you. Do you want frequent flyer miles? Movie tickets? Trinkets like coolers and tie racks? Or, my favorite, cash? I always opt for cash. I mean, I can always buy a tie rack if I really want one. Otherwise, the cash will do just fine! If you know you will use the frequent flyer miles or another option, though, and monetarily it makes more sense…by all means, go with the points!

Smart Money did a good analysis that broke down different card’s rewards programs showing how much you are actually paying per point when all is said and done.

3. Chargeback

A lot of people aren’t familiar with this term. It is the ultimate consumer protection. A chargeback is when a consumer requests that their card/issuing bank forcefully reverses a prior outbound transfer. The Consumerist writes about these often, here is their archive for just the term chargeback.

When would you ever need to do this? Say you buy an iPod from Best Buy. When you get home you find out that the box has a wad of paper mache in it. You realize Best Buy was scammed by a previous person so you go back with your receipt to return the item. However, Best Buy says they can’t accept the return since they don’t know if you’re actually the scammer. Wait, what do you do? Wait and hope they change their mind? Sure, for a few minutes. But if they don’t come around — issue a chargeback. Your credit card will reverse the payment as the dispute process works out.

What would have happened if you paid with cash or debit? Your personal money would have been tied up as the dispute process waged on. And what if it was something more serious than an iPod and you needed to go purchase one as you waited for your money to clear, thus tying up twice as much money. Oh, and during the dispute process…you wouldn’t have had a multi-billion dollar company on your side.

Winner? Credit cards. The mere mention of a chargeback may have the opposing party singing a different tune in a matter of seconds. (Don’t abuse this!)

Are Credit Cards Worth It?

Hopefully these benefits of using a credit card will prove to be beneficial to you. Just make sure you aren’t paying too much for credit because of your habits.

Does anyone have any more solid benefits or downfalls?

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About the Author

By , on Oct 14, 2009
MLR
MLR is the owner of My Life ROI. He writes a lot of posts surrounding ways to instill money skills in children, loves his dog no matter how much PF sense it does or does not make, and cringes at the thought of students choosing careers based on the size of student loans. Please check out his website and subscribe to his feed.

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Leave Your Comment (12 Comments)

  1. D.D, says:

    I agree that credit cards have features about them that when used properly can afford a person considerable protection.

    It would be easy to criticize credit card companies because of their aggressive marketing policies and resulting debt problems, but the truth of the matter is that the credit card companies did not put a gun to the consumers’ head and told them to buy something.

    Credit card companies are very manipulative of the populace on working to get them hooked on debt; but at the same time people have taken the attitude that it is the credit card companies fault that they are in debt.

    No one gets out of debt until they take personal responsibility for getting their. Once a person is fully responsible for their actions, then they should leverage the benefits and advantages that credit cards offer as described in this great article.

  2. Matt Jabs says:

    Ahhh… the always spicy debate on whether or not credit cards should be used – and how they should be used.

    I would like to briefly address the rewards portion with one point I did not see brought up: merchant fees.

    Merchant fees or “interchange fees” are the amounts that credit card companies charge the merchant for the benefit of accepting cards at their places of business. Those fees are higher in the U.S. than in any other country in the world and currently take $2 of every $100 spent by consumers… whether they use cash, debit, or credit. Why? Because the merchants pass the fees on to us to cover the cost.

    Credit card companies disallow merchants to inform their customers of these charges at the point of sale. The also disallow them to require a minimum amount per purchase for use of credit, although some merchants do it anyway because they cannot afford the fees & do not want to continually raise the prices on their customers.

    So who is really winning with rewards? If the credit card companies did not prosper from promoting their use, then they would not promote them.

    I am not saying that rewards will not put a little extra money in your wallet… but rather shedding a little light from a different perspective.

  3. Susan D. says:

    We are currently building a house. We use a Lowe’s Visa for most of our charging. We get a ‘check’ every month towards any purchase at Lowe’s which in turn goes toward our purchase balance, which in turn grants us even more cash back at Lowe’s. We have saved at least $20 to $30 each month. When you have this account they also sent you oodles of coupons for cash off set amount purchases, usually around 10% off. When we are finished building, we’ll switch to another cash back card like a AAA Master Card. Credit cards rock when you know how to ‘play the game’!

  4. That was a fascinating and useful article! Thanks!

  5. Matt Kelly says:

    Studies show that consumers spend 20% – 30% more when they pay by credit card than when paying with cash.

    So if Financial Samurai is getting $300 – $500 cash back from 1% of purchases that would equal roughly $40,000 a year in credit card spending. Even on the low end that may mean he is spending $8,000 per year more than if he paid with cash.

    To me that is a expensive way to get extended warranty and charge back privileges.

    Nicely written post.

    Thanks,

    Matt

  6. MLR says:

    @FS —

    1% and you earn $300-500? Nice, you DO put everything on that card! 🙂

    @ Jon —

    In regards to the warranty, from my research it is much more common for credit cards to have warranties. Some debit cards may offer this protection too, though. Thanks for pointing that out.

    However, the chargeback protection is completely different as I mentioned in the article. All credit cards are offered this protection as part of the Fair Credit Billing Act. However, most debit cards have been extended this privilege via Visa and Mastercard as long as you, as you mentioned, choose the “credit” option. There is a key difference between the two chargebacks: With a credit card, you do not have to make the payment while the affidavit is being sent out and the issue is being resolved. With a debit card, the money is taken out of your checking account and you have to wait to get YOUR money back.

    That may not be a big deal on a $20 item, but it can cause issues when you are waiting for your debit card to issue you $1,000 back for your laptop you purchased from Best Buy that was actually a box of paper mache. With a credit card, you wouldn’t have to worry about a thing… you never outlayed the $1,000 to begin with.

  7. Jon says:

    Actually if you use your debit card as credit you get the same warranty and chargeback protection. Also, my Cash Rewards Debit Card from USAA pays me between $8 and $20 a month, just for me saying Credit when asked Debit or Credit. So I have to say no thanks to credit cards since not a one can compete… 🙂

  8. The ironic thing is, b/c I’m risk averse of losing my cash, i love using my credit card. The insurance protection is great, and having everything I spent on one statement for the month makes things easier to tabulate and keep track of.

    My year long home rebate program for my card went through this past august. Although it’s only 1% for all purchases, it ads up to about $300-500/yr that goes towards paying down principle.

  9. MLR says:

    @ Mike —

    Good call, I never rent a car so I forgot about that protection!

    @ Joe —

    EXACTLY. That’s another reason I charge everything. Swipe the card, mint will auto-download all my transactions AND categorize them for me, and voila — instant transaction history with tools to help me budget for the future.

  10. JoeTaxpayer says:

    If you charge everything, it becomes a simple task to download the data and organize your expenses. Over a few months time, this can be a valuable tool to help you to budget, as some things may pop out, maybe clothes purchases, maybe restaurant meals. Whatever it may be, a painless process to analyze it.

  11. Mike Piper says:

    One additional source of protection I get from my credit card: It covers insurance when I rent a car, which my wife and I do fairly regularly to visit family. (After 6 years in Chicago, we finally sold our car given how little we used it.)

  12. Andrew says:

    Good article.. there are some other reasons a credit card is useful… Paying at the pump. Most debit card or pre-paid card users have $80+ holds put on their cards for days (affecting their available balance – not good if you are running a tight budget).
    Another reason is traveling – traveling is harder with cash… also more dangerous. If you have a debit card that is ok but some rental card companies do not take debit cards also they will pre-auth your entire rental cost so there is the available balance issue. Credit card companies do the same but technically you are not spending that money so the pre-auth does not affect you in the same way. Hotels -ditto.
    Another benefit our company offers is Purchase Security (Visa) – basically it allows up to $500 protection against loss or damage in the first 90 days – there are T&C’s but it works. The rationality for it seems to be to promote signature purchases versus PIN based purchases at the point of sale. The issuer of the cards makes more money on the signature purchase then the PIN based one.

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