How a Credit Card Can Be Your Friend

We have all heard countless stories of people over theirheads with credit card debt-maxing out every card they own,then only being able to afford the minimum monthly payment. High interest payments shackle people to their debt foryears, not to mention the significant income drain thefinance charges have on their families.

It is unfortunate that many Americans must live with thisreality, since with some financial discipline, this delimmais avoidable. When a spending plan is developed andfollowed, a credit card becomes no more dangerous than anyother form of payment.

When credit card bills are paid in full each month, creditcard fees and finance charges do not accumulate. With alittle extra bookkeeping from a spending plan, a credit cardis transformed from being a burden to a very rewardingfinancial partner-since it provides the following advantagesover other forms of payment:

· Rewards Programs.

Many credit card companies offerloyalty programs to reward those customers who use theircards more. Rewards usually come in the form of points orcash. Depending on the company, the points can be redeemedfor things like restaurant gift certificates, hotel stays,airfare, vacation packages and more. Cash cards typicallypay a 1% rebate on your purchases, which makes for an extra$180 a year on monthly spending of $1,500. This level ofspending is easily achieved by putting all your purchases ona credit card (including utility bill payments). There areeven cards that pay more than 1% for particular types ofpurchases like groceries or gas, such as Citi's DividendPlatinum Select card.

· Perpetual 0% Loan.

When you use a credit card, you areusing the bank's money to pay the store instead of yours-forfree. While you're waiting for your statement to arrive,your money can continue to work for you in an interest-bearing account, such as ING Direct's Orange Savings.Unlike a debit card that continually reduces your accountbalance, using a credit card preserves your entire bankaccount balance for earning interest until your statement'sdue date. That's an extra $35.25 a year based on a $1,500balance at today's rate of 2.35%*.

· Fraud Protection.

If your credit card number is usedfraudulently, by law your maximum liability is $50. This isnot true of a debit card. A perpetrator can easily useyour debit card as "credit" transaction in retail stores oronline. This type of transaction does not require a PINnumber to be entered, and is especially dangerous since athief can clean out your entire bank account in short order.

· Loss Protection.

Unlike cash which is gone for good iflost, a credit card can be replaced within days of reportingit to the issuing bank. In the meantime, you're protectedagainst unauthorized use by anyone who finds the lost card.

· Warranty Coverage.

Many MasterCard credit cards warrantyour purchases above and beyond that offered by theproduct's manufacturer. Your purchases made with one ofthese cards get an extra level of protection for free. SeeMasterCard's website (http://www.mastercard.com) for thefull scoop on their coverage terms.

· Purchase Protection.

Another benefit MasterCard offers onmost of their cards. With their Purchase Assurance plan,your purchases are automatically insured against damage ortheft for the first 90 days, also at no additional cost toyou.

With all of these benefits over other forms of payment,credit cards can easily become your favorite way to pay.Instead of dreading your credit card bill each month, it canbecome a pleasant reminder of your money mastery.

Copyright 2005, Jim Hood

Jim Hood is senior contributing editor at the DiscountShopping Service Guide. He frequently writes credit card offer reviews and articles on money-saving strategies for shopping online.

* Rate quoted from ING Direct on January 4, 2005.