How a Credit Card Can Be Your Friend

Copyright 2005, Jim Hood

We have all heard countless stories of people over their
heads with credit card debt-maxing out every card they own,
then only being able to afford the minimum monthly payment.
High interest payments shackle people to their debt for
years, not to mention the significant income drain the
finance charges have on their families.

It is unfortunate that many Americans must live with this
reality, since with some financial discipline, this delimma
is avoidable. When a spending plan is developed and
followed, a credit card becomes no more dangerous than any
other form of payment.

When credit card bills are paid in full each month, credit
card fees and finance charges do not accumulate. With a
little extra bookkeeping from a spending plan, a credit card
is transformed from being a burden to a very rewarding
financial partner-since it provides the following advantages
over other forms of payment:

Rewards Programs. Many credit card companies offer
loyalty programs to reward those customers who use their
cards more. Rewards usually come in the form of points or
cash. Depending on the company, the points can be redeemed
for things like restaurant gift certificates, hotel stays,
airfare, vacation packages and more. Cash cards typically
pay a 1% rebate on your purchases, which makes for an extra
$180 a year on monthly spending of $1,500. This level of
spending is easily achieved by putting all your purchases on
a credit card (including utility bill payments). There are
even cards that pay more than 1% for particular types of
purchases like groceries or gas, such as Citi's Dividend
Platinum Select card.

Perpetual 0% Loan. When you use a credit card, you are
using the bank's money to pay the store instead of yours-for
free. While you're waiting for your statement to arrive,
your money can continue to work for you in an interest-
bearing account, such as ING Direct's Orange Savings.
Unlike a debit card that continually reduces your account
balance, using a credit card preserves your entire bank
account balance for earning interest until your statement's
due date. That's an extra $35.25 a year based on a $1,500
balance at today's rate of 2.35%*.

Fraud Protection. If your credit card number is used
fraudulently, by law your maximum liability is $50. This is
not true of a debit card. A perpetrator can easily use
your debit card as "credit" transaction in retail stores or
online. This type of transaction does not require a PIN
number to be entered, and is especially dangerous since a
thief can clean out your entire bank account in short order.

Loss Protection. Unlike cash which is gone for good if
lost, a credit card can be replaced within days of reporting
it to the issuing bank. In the meantime, you're protected
against unauthorized use by anyone who finds the lost card.

Warranty Coverage. Many MasterCard credit cards warrant
your purchases above and beyond that offered by the
product's manufacturer. Your purchases made with one of
these cards get an extra level of protection for free. See
MasterCard's website (http://www.mastercard.com) for the
full scoop on their coverage terms.

Purchase Protection. Another benefit MasterCard offers on
most of their cards. With their Purchase Assurance plan,
your purchases are automatically insured against damage or
theft for the first 90 days, also at no additional cost to
you.

With all of these benefits over other forms of payment,
credit cards can easily become your favorite way to pay.
Instead of dreading your credit card bill each month, it can
become a pleasant reminder of your money mastery.