In Praise of the Credit Card
It’s not very often that you read a personal finance blog praising the credit card. For good reason – credit card debt can kill your financial future. Revolving debt (carrying credit card debt month over month so that you pay interest) is for suckas. Don’t do it. I grew up in a family perpetually challenged by debt. If you already have credit card debt or know that you can’t handle it, fix that immediately. This post isn’t about managing debt. For a great one see Step 4 – Manage Your Debt in the MilitaryMillions Steps to Financial Security. Over the past few weeks I’ve done some research into credit cards and the industry in general. I’ve called several banks, read a whole lot about the side benefits of using a credit card. I’ve also discovered some surprising limitations of those benefits.
OK, First a bit about how credit cards work. The card companies (Visa, MasterCard, Amex etc.) charge the vendor a service fee for each transaction. This amounts to 1.5-2% of the total amount. On a sale of $100 the merchant is out a couple of bucks. Multiply this by billions of transactions a year and it’s real money. In 2016 Visa had a net profit of $6.9 Billion. For this $2, the merchant is guaranteed to be paid – generally in 24-72 hours. There’s no worrying about managing deposits, bounced checks, collections, or counting money. Once the sale is done they know the money will soon be in their bank account. Additionally, not taking credit cards puts a merchant at a competitive disadvantage. They want to make it as easy as possible to spend money at their business. So credit cards are a win for most businesses who accept them for payment.
I know somebody just yawned and said “Get to the f’ing point Was”. Here you go: credit cards have some hidden benefits. Well, maybe not hidden, but certainly little known. These include:
- Auto Rental Collision Damage Waiver
- Purchase Protection
- Extended Warranty Protection
- Lost Luggage Coverage
- Interrupted Travel Expense Reimbursement
And, you can’t forget the well advertised “REWARDS!” where they actually pay you to spend money.
In the next post, I’ll explain how these benefits work and how to find out about them.