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.
Photo by Paalia via Flickr
Often times people overlook the protections they are offered by using credit cards.
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.
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.
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.
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!)
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?