In Praise of the Credit Card Continued
In my previous post In Praise of the Credit Card we discussed how credit cards work and listed some of the benefits that cards provide. In this post we’ll explore how these benefits work and how to find out about them.
The biggest benefit of credit cards is convenience. This is obvious, but the impacts on behavior are more subtle. Studies show that when people use credit cards they spend more money. The convenience works both ways – it makes spending money easy. On the other hand, it makes spending money easy. If you buy something, anything, that you wouldn’t normally buy with cash then you’re falling for the credit card trick. For some folks avoiding the trap of easy credit is impossible. There’s absolutely no shame in that. If you can’t handle it, watch a Dave Ramsey video and cut up those cards. This video is particularly good. Another option is a debit card. Use that for the convenience and you get the assurance that you won’t spend money that you don’t have.
One note about debit cards – none of the benefits below apply. This is not particularly well known because it took me a call to USAA (the rep didn’t know), a call to Visa (they said only the bank could tell me), and another call to USAA with more specific questions. Three calls to figure out that debit cards don’t have additional benefits.
So, we’re finally there. What are these mysterious benefits? Some of them like the car rental insurance are well known, but others have surprising features. If you’re paying for the benefits outright, they probably aren’t worth whatever they would cost (extended warranties are generally money losers for the buyer), but these come with the card. Use them – free money!
Auto Rental Collision Damage Waiver – rent a car with your covered card and you will save about $20 a day in insurance coverage. The card company will insure you for any losses should you get in a wreck. If you don’t have a card, check your personal car policy. It may cover you while driving a rental. If you don’t have other coverage, spend the $20 a day. Driving a strange car in a strange town is asking to have an accident. Covering a collision out of pocket will set your financial plans back significantly. An interesting caveat: my card does not cover rented pickups or cargo vans.
Purchase Protection – buy something with a card and if it breaks or is stolen within the first 120 days you’re covered up to $500. There are all kinds of exclusions. I’ve never used this coverage, but I’m now on the lookout for an opportunity. When I get the chance I’ll write about it on the blog. If you buy a drone, you are crazy if you don’t use a credit card (pay a buddy with a card if you have to). $500 may not cover the whole thing, but it is $500 less of a sting. There is an exclusion for motor vehicles and I thought that this would exclude drones. A call to the card benefits line confirmed that drones are considered electronics rather than vehicles (disclaimer here – that’s what they told me today…that may change or you may get someone else who has a different opinion so don’t go crashing your drone into a tree so you can get a new one). Oh, and buying drones is not a financial best practice. If you want to be a millionaire, buy a kite. They are cheaper and definitely covered.
Extended Warranty Protection – extends the warranty of items by one year. This one requires lots of record keeping, but if you use Amazon you can retrieve your receipts and the manufacturer’s warranty info is probably on the web somewhere. This is another one that I want to try. Coverage on my card is $10,000.
Various travel insurance – If your luggage is delayed more than six hours or lost, you can get reimbursement. Again, lots of fine print, but worth investigating if you are in that position. Another benefit that I’d never heard of is travel accident insurance. This provides death benefits to survivors of a traveler who is killed on a common carrier (plane, bus, ferry etc.) and a lesser benefit the entire time traveling.
Someone to call – get into trouble while traveling or just driving your car. Call the card company and they will assist in getting access to various services including dispatching tow trucks, helping you find medical services, or getting emergency cash. If I was on a Caribbean island after a hurricane I’d be dialing up these folks.
All of these are examples from my Amazon Signature Visa issued by Chase. I have another card that has slightly different (lodging reimbursement for cancelled flights for example) but generally similar benefits. While writing this article I did a good bit of research to find out what kind of coverage is out there and what specifics applied to my cards. To find out exactly what benefits you have, I recommend that you call the number on the back of your card and ask for a paper copy of the guide to benefits for your exact card. I found that when looking online there are too many options, combinations, bank dependencies etc. for the details to be clear. This is a case where the details in the fine print matter. The benefits are full of exceptions. You’ll want that paper copy handy for future reference.