There are times when it is right to use credit cards, but if you use credit cards, it must be done correctly. Credit cards serve several purposes. These include credit cards to rent a car, a credit card to reserve a hotel room, your credit card to dispute a poor product, or using a credit card to break up a large purchase.
Others use credit cards religiously to get frequent flyer miles or rewards points to purchase goods or services.
I am a firm believer in limited or no credit card use. You should only keep 2-3 credit cards at the most, and those should be major credit cards. Also, making the minimum payment could prove to be disastrous. You should have a plan in place to pay off your credit card in a few months if you have to use it for major items.
Some balances paid with the minimum payment due would take as long as 20-50 years to complete. Because of that, when it comes to credit cards, I feel you should only buy what you can pay for in 30 to 90 days, 120 at the most. In other words, don’t run credit card balances long term to help stay out of debt.
Many major credit cards offer a small interest rate when you first sign-on, and then increase the interest payment later. The increased interest rate is sometimes as much as two and a half times the original rate. These are just some of the nuances of credit cards you must learn upfront by reading the fine print.
So, when is it appropriate to use a credit card?
1. A Credit Card With Car Rental
Some travelers don’t know you need a credit card with car rental pickup. Car rental agencies require a credit card on file to rent a car. I witnessed a young couple at a rental agency in line before me on one of my business trips. They won a trip for two to a popular vacation spot, which happened to be my town, including a rental car, from a radio station.
When they displayed their winning information, showing they won the right to the rental car and vacation, the agent said this is fine, we will honor it. The only problem is, you still have to leave a credit card on file. They did not have a credit card. I am not sure what happened, I rented my car and was on my way.
2. Credit Cards To Get Frequent Flyer Miles or Rewards Points
Some people insist on getting frequent flyer miles or reward points with credit cards. This is generally not a good idea since the cards with frequent flyer miles tend to have higher interest rates. For some, using credit cards to get frequent flyer miles or rewards points works because they understand the process.
In the process, if you can work to pay off the balance by the due date, the interest rate is not an issue. You will actually get free rewards or frequent flyer miles in that case.
3. Credit Cards and Product Disputes
In the rare instance, a store or company will not respond to your complaints of a poor or defective product, you can use your credit card company to dispute a poor product. The credit card company will investigate and determine if the company has wronged you in some way. You usually have at least a few days to return a product. If the product is defective it could be longer.
In most cases, they will run interference for you and solve the problem.
4. Hotel Room Reservation and Credit Card
You need a credit card to reserve a hotel room. When you call to reserve a hotel room they will ask you for a credit card to put on file. If you skip out on your room, the hotel can charge your credit card.
In most cases, the hotel uses your credit card to auto-charge your room when your stay is over. There is an exception when it comes to small, inexpensive hotels by the day or week, they sometimes take cash upfront. This is convenient for you and them.
5. Credit Cards and Large Purchases
Occasionally you will need to make a large purchase, but will not have the cash upfront. In this instance, you can charge the payment and pay the balance in 2-4 months. If you are not satisfied with your purchase, the credit cards and large purchases, or any purchases mandate, can be put into effect. Therefore, your credit card can be used to make a large purchase possible.
Try not to go over 4 months. In the case, you feel you need to go over three months you may question if you really need the item or save your money to purchase the item cash.
Credit card interest is expensive and debt snowballs. Use credit cards or other debt only when you have to.
When you run up a balance, pay off your credit card balance with actual cash. Do not take out another loan to pay off a credit card balance, which is a loan itself.
If you can’t make your monthly credit card balance at any time, contact your credit card company immediately, they want to work with you.
If you are addicted to using credit cards or have a tendency to think credit is cash, don’t use credit cards at all, for obvious reasons of course. Create
a budget that works without credit cards.
Use my Minimum Payment Credit Card Calculator to see how much you need to pay in order to nix your bill in record time.
In Summary of It’s Right to Use Credit Cards
Use credit cards, not only to make large necessary purchases but credit cards can be used to acquire frequent flyer miles or rewards points if done right.
You will find that credit cards and product disputes go hand in hand. You now know that hotel reservations and a credit card is necessary in major hotel chains.
And, of course, you must have a credit card with car rental permission. There are small exceptions to these rules, for instance, if you put a very large deposit down you can “sometimes” rent a room in a marginal hotel or rent a used car.