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Sometimes it still amazes the amount of people that still use paper money when making a purchase at a restaurant or your local store. The benefits that you can obtain from swiping a credit card are going to far outweigh the ones that you get from cash. If you’re one of those people who doesn’t want a card because you’re afraid you’ll abuse your credit limit, I highly suggest getting that in control or you’ll be missing out.
1. Cash Back
Credit card companies want you to use their card, and they’re more than happy to pay you for it. That’s because each time you swipe it through a reader, they’re the ones going to be earning cash through a transaction fee. Not only that, but actuaries have gone through great lengths to determine the probability of you forgetting to pay the monthly bill and stacking up on credit card interest. In short, the more you use it, the more money they make.
However, if you’re a disciplined buyer and can control your spending habits, then one of the best perks that you can get with a credit card is their cash back feature. Some cards give you cash back depending on a specific category or a time of year, while others are more constant that give the same amount no matter what you buy.
With the Discover It Card, they’re currently holding a Double Cash Back Promotion which can get you anywhere from 2% – 10% cash back on all purchases. With the Citi Double Cash Card, I’m already guaranteed a minimum of 2% cash back on all purchases, and there have been times where I’ve walked away with an extra $40 per month on this card alone.
Deals like this don’t come around often and credit cards are willing to go through great lengths for a customer, even if it’s just for extra marketing. That’s why we have to take advantage of such benefits while they last.
One thing you should be careful about is in order to justify the cash back, make sure that it’s more than what you’re paying for an annual fee (if your card has one). Estimate how much you would make in cash back over a year, and if it’s higher than the fee go for it.
2. Sign-Up Bonuses
The bonuses that credit cards can give you can be astounding. One time I was lucky enough to snag a deal that netted me an extra $750. Unfortunately, since this deal was so killer, I had to pay the first year’s annual fee of $95, bringing my total down to only $655, but that’s still a great deal.
When credit cards hold promotions like this, usually there’s a requirement involved in order to get your bonus. The one that tends to be most common is that credit cards will give you the bonus once you spend $3,000 within your first 3 months of opening account. Sometimes the amount is higher, sometimes it’s lower. Usually higher amounts mean there’s a bigger sign-up bonus.
We can do this with multiple cards per year. Find 3 – 4 credit cards that have a high sign-up bonus of around $500 each, and you’ve just made yourself an extra $2,000 per year, doing something you would have done anyways!
Again, be sure to read the fine print of the card before you apply. If there’s an annual fee, check if it’s waived the first year. If that’s the case, get the card and meet the minimum spending requirements to get a sign-up bonus. Before one calendar year is up, cancel the card or downgrade it and you’ll never be charged an annual fee. However, make sure you’re aware that this will damage your credit score slightly if you close an existing account.
3. It Will Improve Your Credit Score
Some people are confused about this, as they believe that using a credit card will damage their credit score. This is partially true. Any time you make a hard inquiry (such as applying for a credit card), your credit score will drop a little bit. Usually this is no more than ten points.
On the opposite of the coin, if we keep using our credit cards and make our payments on time, our credit score will increase a lot more than it dropped. In fact, by not doing anything with your credit, your score will constantly remain the same. If you ever want a better chance of taking a loan out on a home, start building credit with a credit card. Once lenders see that you can be trusted with your payments, they’ll be more willing to give you a loan.
It can be detrimental to your credit score if you apply for too many. Creditors may see that by constantly applying for new cards, you’re really desperate to get credit. This signals a red flag and let’s them know that you’re at high risk and more unlikely to pay back any bills. Keeping this in mind, if you do decide to apply for lots of credit cards to get their sign-up bonuses or for whatever other reason, just make sure to spread the applications out over the year.
4. Price Protection
Have you ever bought something at the store only to find out that 40 days later there’s a sale on the exact same item for half off? If you paid with it in cash, you can’t do anything about it and have to accept your fate. With a credit card, you can request to get that difference back.
Price Protection is a feature on most credit cards that allows you to receive compensation for a difference in price if it occurred within a certain timeframe. Discover allows up to 90 days for you to find a difference in price on the same product. This timeframe tends to be the standard.
Submitting a price protection claim can be a little daunting, but that’s what credit cards are for. Just make sure to get any evidence you have to display the difference in price, such as a newspaper or internet ad. Depending on the issuer, a screenshot may be enough. Make sure to check the terms of the card you’re applying for to see what kind of protection you get.
5. Fraud Protection & Prevention
Credit cards have to be one of the safest forms of purchase out there. Okay, so I’ve been a victim of a few cases of credit card fraud, in one particular case someone used my card to pay for a health insurance plan in Mexico, and it was a few hundred dollars. So what did I do to remedy the situation?
I called up the credit card company and told them that I’d like to dispute the charge. They verify some information with you and assure you that you will not be responsible for any of the charges incurred that weren’t yours. If you happen to lose a $100 bill out of your wallet or someone steals your debit card and pin, your money is basically gone.
As long as you’re being honest about your claim, you’re more than likely to get the money. Just check and verify to see if it were actually you that made the charge, as sometimes we can forget that there might be a subscription purchase a year ago that just renewed. Credit card theft is a big issue.
Top top it all off, credit card companies are even getting more diligent about fraud protection. Any suspicious account activity will flag them to give you a call and verify if you actually made a purchase. With new chip technology, it’s even getting harder to steal credit card numbers.
6. Rental Car Insurance
It used to be the case that specific credit cards would give you primary coverage each time you rented a car. This means that as long as you declined the rental car company’s insurance, any damages you incur will be left up to the credit card company to pay provided that there is sufficient evidence to back up your claim.
Times have changed a bit, and credit cards now give you secondary coverage. While not primary, it’s still beneficial and sometimes just as good as the first. What will happen is that your insurance company will cover most of the damages and then your credit card will step in and supplement it. This way you can avoid such a high deductible.
Yet this isn’t always the case. There are a few cards out there that do give you primary credit card insurance. Car Rental Protection from American Express will give you primary coverage for any rented vehicle, and any damage that you incur will only cost you $24.95 – American Express covers the rest.
Be sure to read the terms of your card on this one. It’s often the case that you have to decline all insurance policies that your rental car company offers. Furthermore, there may be specific vehicles (usually luxury vehicles or large trucks) that aren’t covered under their policy, or you may only be covered if you rent longer than a certain amount of time (usually 2 weeks).
7. 0% APR
This last feature isn’t included in all credit cards, but it’s something important that should be brought up. A lot of credit card companies are offering 0% APR from anywhere up to 12 to 15 months. This means instead of taking a loan out from a bank and paying interest immediately, you can get money from your credit card company and not pay any interest on it for a year.
This can be especially useful with credit card consolidation. If you have a high balance that you can’t pay off due to high interest rates, you can request a balance transfer to another card. If you’re currently getting 0% APR, then you’ve just bought yourself some time to get your finances in order.
While this is a good thing, it can also be one of the reasons you go into credit card debt, so be careful. Yet if you really need the money, it can be a great way to get you out of a tight spot. Keep in mind that each month you will still have to pay the minimum balance, otherwise your credit score will drop. Anything over that is yours to keep until the 0% APR term wares off. Just be sure that you’re able to pay back what you spent before that time hits.
There are actually a lot more benefits that credit cards offer, such as free concierge service or getting concert tickets before everyone else. Yet the ones on the list are the most important and tend to stand out among most credit card companies.
Don’t go into debt by being a disciplined buyer and paying off your bills on time. This will allow you to take advantage of all of these incredible offers without going into a state of financial disaster. Do you have a benefit in mind that you don’t see on the list? Let us know by leaving a comment below.
My name is Jason Wuerch and I'm currently located in Madrid, Spain running a personal finance blog called Frugal For Less. My goal is to help everyone and anyone willing to make and save money through easy and simple ways that don't require much effort. Just because you're frugal doesn't mean you have to give up life's luxuries.