Plastic Power: Smart Strategies for Making the Most of Your Credit Cards

At GetOutOfDebt.org, we help thousands of people with too much debt. So you probably figure we’d think credit cards are terrible, right? Wrong!

Credit cards can be a great tool and can even save you money if you’re smart about how you use them. That doesn’t mean charging up a storm on things you can’t afford, or even using your cards to maintain your lifestyle. But if you know the benefits of credit cards and how to take advantage of them, you can come out ahead. Here are the advantages of saying, “Charge It!”

Other People’s Money

When you use your credit card, you’re using the lender’s money. The question is, how much are you paying for it? If your card has a grace period and you pay the balance in full, then you’re paying nothing to use someone else’s money for anywhere from a few days to as much as two months, depending on the length of the grace period and when you make your purchase.

Smart Strategy: Time a big purchase a day or two after the closing date of your card’s billing cycle to get the maximum float.

What happens if you have to borrow money? A low-rate credit card can actually be a great deal. There are plenty of expensive traps on many cards, so be careful. Look for a steady, low-rate card and make sure you pay the bills on time so you don’t end up with a late fee or a higher rate.

Smart Strategy: Shop for a low-rate card at cardtrak.com or bankrate.com, or ask your card issuer to lower your current rate.

Protection for Purchases

Use your credit card for purchases and you’ll have additional protection you just don’t get when you pay by cash or check. You can dispute a charge if merchandise you order is not delivered as agreed (in the wrong quantity, the wrong color or on the wrong date, for example). You have up to 60 days from the date the card issuer mailed the statement showing the disputed charge to complain.

You can call the card issuer to dispute a charge, but I don’t recommend it. You only protect your rights under the Fair Credit Billing Act if you put your complaint in writing to the card issuer at the address listed on the statement for billing errors. I recommend you send your letter by certified mail, return receipt requested. Keep in mind that the law doesn’t cover changing your mind — for that you’ll have to deal with the merchant directly.

You may also be able to dispute a charge when there is a problem with the quality of the goods or services you bought. This is a little trickier, so follow the rules carefully. Here are the basic requirements:

• The charge must be for $50 or more.
• You must have bought the merchandise in your home state or within 100 miles of your billing address.
• You must have made a good-faith effort to resolve the problem with the merchant.

In this case, you can’t dispute the charge and withhold payment if you’ve already paid off the charge, so act quickly if you think there is a problem. Again, I recommend you write a letter to the card issuer disputing the charge and send it by certified mail, return receipt requested.

Whether or not you can successfully dispute a charge because of a problem with the quality of the merchandise you bought depends on what rights your state laws give you against the seller of the goods. If, under your state law, you can withhold payment to a seller of defective merchandise, you may be able to withhold payment to your credit card issuer.

Smart Strategy: Use your credit card for big-ticket items, online or mail order purchases, or for any other charge where there could be a potential problem with the merchandise or service. Then, check your credit card statement carefully and dispute any errors in writing immediately.

Protection for Losses

Lose your wallet or purse filled with cash and you may be out of luck. Lose your credit cards, though, and it may be a little hassle getting them replaced, but that’s about it.

Under the federal Truth in Lending Act, the most you can be held responsible for is $50 in unauthorized charges. And that’s only if your card was actually stolen and used. If someone just steals your card number without taking the card itself, your liability is zero. This is more protection than your debit card provides you.

Smart Strategy: Keep in a safe place a list of your credit card numbers and the phone numbers to call if they are lost or stolen (not in your purse or wallet). Call immediately if you think you’ve lost them.

Travel Advantages

Whether you’re packing for a trip across the state or overseas, don’t forget to pack the plastic. Major credit cards are convenient, widely accepted and offer you additional protections mentioned earlier — both for purchases and in case you and your wallet part ways.

When you venture overseas, you’ll find that in many places, American Express, MasterCard and Visa cards will be accepted by many merchants — in some places, they’ll prefer plastic over traveler’s checks.

Besides the convenience, another advantage to using credit cards overseas is the fact that you’ll usually get a better exchange rate than you can on your own through local merchants. Credit card purchases are exchanged at wholesale currency rates, which are usually very attractive. One caveat: Some card issuers tack on a one to three percent “conversion fee” on foreign credit card purchases, but not all do, so ask in advance.

Smart Strategy: Take your major credit cards with you overseas, but be sure to check your credit card receipts carefully to make sure the amount is correct (foreign currency may sometimes throw you off) and keep a record of your card numbers in case there is a problem.

Car Rental Savings

If you don’t have a major credit card or only a debit card, it can be a hassle to rent a car. Some car rental agencies will not allow you to reserve a car with a debit card. (To learn more about the differences between credit and debit cards, see the article entitled “Credit Card or Debit Card: The Great Debate.”) But if you do have one, you may be able to save a bundle if your card offers free Collision Damage Waiver (CDW) coverage. This allows you to decline the rental agency’s expensive coverage. Many premium cards (like gold or platinum) and some standard cards offer this benefit. Just beware: in some countries you may have to buy coverage anyway — check with the rental agency when you book your car rental.

Smart Strategy: Use a card that offers free CDW when you rent a car and save the money on the rental agency’s coverage. Always check before traveling overseas to find out if you’ll be able to take advantage of the CDW.