I know it is one of the basic tenets of Foolishness to be wary of credit cards. But that doesn't mean the cards themselves are evil. They are a tool, and, like any tool, they can be used for good or evil. It's part of the Fool's mission to make sure you know how to use credit cards to benefit you rather than the lenders. So I'm being perfectly Foolish here!
Credit cards actually have advantages, and I don't mean the ability to buy that gorgeous leather jacket right now even though your wallet is empty. That's a trap, but we're not going to get into that right now. Instead, let's look at what's good about credit cards.
Some of them give you rewards for charging your purchases. Like to travel? Just about every major airline has a credit card or three affiliated with it. The usual deal they offer is "one mile for every dollar in purchases," with periodic special offers of double or even triple miles on specific purchases. Depending on how often you use a credit card, this can be an advantageous deal. If you don't travel, there are other kinds of rewards you can get for using a credit card. Big music fan? BMG Music Service has a card that lets you earn points toward CDs, concert tickets, and more, even if you're not a member of the service. There are cards that offer rebates toward the purchase of a car or toward gasoline for the car you already have.
There are even cards that will give you back actual money. Yes, a percentage of everything you spend with your credit card can come back to you at the end of the year. While it's best to get a great return on your investments, it's a nice bonus to get a modest return on your spending, don't you think?
If you pay off your outstanding balance every month (as every Fool should), you can use a credit card with a long grace period to get a free float from the lender. The grace period is the time between the close of your billing period and the date your payment is due, often around 20 to 30 days. It lets you to take out a short-term loan without having to pay finance charges. Think about that -- the use of your money costs the credit card issuer more than it costs you.
Another good thing about credit cards is that you're protected when you use them. Many cards will double the U.S. manufacturer's warranty period on purchases. And thanks to the Fair Credit Billing Act, all cards will help you if you if you have a dispute about a purchase. Say you order a video online. You really want, and think you're getting, the original 1960 "Psycho." But the 1998 "Psycho" turns up on your doorstep. If you ordered from some fly-by-night seller who won't give you a refund or exchange the video, you can tell your credit card company that the charge is in dispute. The company has to acknowledge your dispute in writing and conduct a reasonable investigation of the problem, and you don't have to pay that portion of your credit card bill as long as the charge is in dispute.
There's also protection against credit card fraud and theft. Consumers cannot be held responsible for more than $50 if they are the victims of fraud and report the theft promptly. It's a hassle to lose a wallet, but it's a little less of one when you don't have to worry about paying for someone else's plane ticket to Puerto Rico.
And credit cards have gone online in a big way. Most major cards have a website where you can access your account and make online payments. I like being able to check my billing status and posted transactions on the Web. Having accurate and up-to-date information on credit cards helps me make sure I'm not spending too much and helps me plan upcoming payments.
So that's why I'm bullish on credit cards, despite my own battle with Debt Vader. Now, how do you make sure you haven't been seduced into using plastic for the Dark Side? The simplest way is not to carry a balance. Don't spend money you don't have. Use credit cards to spend the money you do have Foolishly. That means making sure you're taking advantage of the best possible deal, and not paying extra for the privilege of spending your own money.
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