Ruth Mantell writes for The Wall Street Journal an interesting tidbit about credit cards – that by using plastic you’re providing yourself with important consumer protections that one otherwise would not enjoy. She goes on to identify five areas in which she thinks credit card spending is ok – making large purchases/buying over the Internet, buying while traveling, buying to get through an emergency situation, when budgeting, and to build up rewards points. Is this good advice?

1. Large purchases/the Internet

While it’s true that you have more leverage to return a product by using the weight of the credit card company instead of working with the merchant directly, the key question is whether or not a particular good is both expensive and does not fall under a return policy already. If it fits the criteria, it does not make financial sense to swipe the plastic for it since there is the very real temptation to not pay off the bill at the end of the billing cycle. For Internet purchases, Mantell says that credit cards help you avoid being excluded from online deals. But check cards provide similar access, and without the risk of getting deeper into debt.

2. Traveling

It is accurate to state that credit cards can be safer than carrying cash when traveling, as well as helpful when getting a hotel room or car. But minimizing their use is still possible. For example, you can reserve rooms and cars with plastic, but still opt to pay another way (such as with cash) when the bill comes. For daily purchases when traveling, be aware that credit card lenders are increasingly pricing the benefit of safety into their product – the latest notice received from my credit card lender stated that the surcharge on purchases overseas, in dollars or not, is going up to 4% of the total purchase price!

3. Buying necessities

4. Budgeting

5. Rewards points

These remaining areas discussed by Mantell all represent weak arguments for relying on credit cards. For emergency expenses, an emergency fund should be set up and used rather than reaching for the plastic. Likewise, considering something an “investment” is not sufficient to buy it on credit. Need a textbook for a class? Buy a used version of it, share a friend’s book, or use the copy sitting in the library and photocopy pages from it. In other words, think creatively about how to meet your needs because labeling non-survival items as “investments” can presage a slippery slide into more debt. As for budgeting, arguing that credit cards help with this is deceptive, and the temptation to overspend kills any of the benefits from the convenience. Instead, try and spend on a check card that allows a similar monthly view of everything bought, use a tracking tool like DebtGoal.com, and save receipts for cross-reference later on. On the final point about rewards programs, never spend on credit cards with the goal of accumulating rewards points – this is precisely what credit card lenders are hoping you do so they extract profits from your account.

Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

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This entry was posted on Monday, April 20th, 2009 at 8:53 am and is filed under Credit Card, Credit cards, Debt Management, Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.