I know we are counseled not to have credit-card debt, but in this day most people find themselves needing a credit card at one time or another whether or not they use it to accumulate debt. I was in the banking industry for years and saw many situations where people really needed a credit card and didn’t have one. I am going to give you a few scenarios where you would really be best off using a credit card. Please understand that I am NOT encouraging you to get into debt, but to pay off the card immediately. You know if you are a person who will not be able to avoid the temptation. For those people, it really is better not to have a card at all.
Times you would need a credit card:
1. For a real emergency—I am not talking about an emergency where Macy’s is having a gigantic sale and you don’t have a dime in your checking account. I am talking about if you are one of the millions of Americans who doesn’t have a savings account (we’ll talk about that some other time) and your car just broke down. These mini-emergencies are often best covered by a credit card because: a) it costs less and is much faster than most loans and does not have a penalty if you pay off immediately and b) it costs much less than the popular payday loan option. If this should happen to you, try not to take out a cash advance, they are more expensive than if you can simply charge the expense.
2. If you are a victim of checking account fraud. It generally takes the bank a week or more to sort through everything and figure out how much money they need to refund to you and then do it. In the mean-time your checking account may be completely frozen and you have no access to the money that was once there. If you have a credit card, you can just go on with your life and repay the card balance as soon as the bank gets you back your funds.
3. If you are going on vacation. Yes, I know your debit card has a visa logo on it, but that doesn’t mean that you should use it to book your hotel, rental car, or flight! All of these vacation expenses are much better put on a credit card. Why? Because hotels often “hold” more money than you are planning to spend there, leaving you high and dry if you needed the extra to spend on vacation. Example: you want to stay at ABC Hotel and it costs $250 for the nights you plan to stay. They request a $450 hold on your account just in case you abscond with a robe or vandalize the property. When you check-out, your charge is actually only $250, but the remaining $200 can sometimes be on hold for up to a week later! If the card was linked to your checking account, this could ruin the rest of your trip, but as long as you have a good limit on your credit card, you will not even notice the process. Rental cars sometimes do the same thing, but another reason to use credit cards with rental cars is because most Visa and MasterCard (credit card only) provide collision insurance on rental cars for no extra cost.
4. If you are purchasing something from someone who you are not sure about (example: online purchase). Let’s say you decide to purchase a fantastic item online from a store you are not familiar with and a week later, you have this $1,400 charge in Hong-Kong. If you used your debit card to make the transaction, you will have to wait for the fraud department to refund your money (that could take a couple weeks). If you used your credit card, just call customer service and dispute the charge. You will not be responsible for the charge or the interest for the entire time that the charge is disputed. After their fraud department solves it, the charge will simply disappear.
5. This is for VERY disciplined people ONLY! Okay, if you are an extremely responsible person and you are 100% sure that you can pay off your balance every single month, go ahead and charge your gas, groceries, prescriptions, and all other monthly point-of-sale expenses on a rewards credit card. There are a couple credit cards out there that will give you 5% cash or rewards back on your purchases at gas stations, grocery stores, and pharmacies and 1% on everything else. I like to use my points to get Home Depot gift cards and have gotten a total of over $300 in the last couple years. Some people prefer frequent flyer miles, others prefer cash-back. The only thing you have to be really careful about is that you don’t spend more than you otherwise would just because you get more back and watch out for annual fees—some cards have them and others don’t.
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