Interest rates are creeping up on all types of loans, but those introductory low-rate credit offers just keep coming. My mailbox is flooded with offers like these:
0% for six months!
3.99% for the life of the transferred balance!
0% financing for one full year with a major home improvement purchase!
Some consumers successfully use these low-rate offers to consolidate debt, pay college tuition, or even to pay off more expensive home equity lines of credit.
Of course, you have to watch out for the traps, which include fees of as much as 4% on a balance transfer, and rates that skyrocket if you make a payment even one hour late. Also keep in mind that maxing out a credit card can lower your credit score, resulting in higher rates on other credit card balances you carry. So tread carefully, but take a lower rate when you can.
Banks and insurance companies play the float all the time, investing the money you pay for premiums or park in a savings account at 0% interest. If you can put your money to better use elsewhere (a high yield savings account would be one option), you will come out ahead.
You can do that by playing the float yourself, and a credit card is the perfect way to do it. Charge a high-ticket item on your credit card and pay it in full when the bill is due. Time it right and you could get nearly two month's interest free. Find out when your credit card issuer's billing cycle closes (call customer service or check your previous statements) and then make your purchase right after that date. The charge won't appear until next month's bill, and depending upon the length of the grace period, you might luck out with a good healthy float.
This strategy does not typically work if you are carrying a balance on your credit card. Virtually all credit cards use the average daily balance method including new purchases to calculate interest. That means you don't get a free ride on new purchases if you start the billing period with a balance.
Another way to play the float is to take advantage of interest-free financing. Let's say you buy a $3,000 flat screen television with 0% financing. If you park that $3K in your high-yield savings account at 4.5%, you'll have $135 at the end of the year. Watch those monthly payment and final payment due dates carefully, though. If you slip up, you will get hit with a hefty finance charge - probably all the way back to day one.
If you want travel rewards, free movie passes, or even cold hard cash, just pull out the plastic. There are rewards to suit just about every interest. The challenge becomes picking one! If you carry a balance, understand that the interest rate may be higher than what you can get elsewhere. And watch out for strings attached to the rewards, such as minimum purchase requirements, blackout dates for travel, or caps on the amount you can earn.
Once you've found a card you like, you may find yourself using it for all your purchases. That can be rewarding - and addictive -- so make sure you don't overspend just to earn rewards.
Credit card purchases are backed with the protection of federal law. Under the federal Fair Credit Billing Act, you have the right to dispute a charge if you make the purchase using a credit card and the merchandise you order is not delivered, or if it is not delivered as agreed (wrong color, wrong item, for example) or even if it was not delivered as promised (the flowers guaranteed for delivery on Valentine's Day show up two days later).
To dispute a billing error on your credit card, you must follow the rules, though. Picking up the phone to complain is not enough! Here's what to do:
When you do, the credit card issuer must acknowledge your complaint in writing within 30 days after receiving it, unless the problem has already been resolved. And the credit card issuer must resolve the dispute within two billing cycles (but not more than 90 days) after receiving your letter.
Here's the best part: While the item is officially under dispute, you can withhold payment on it. But you must pay any amount not under dispute and/or pay your regular minimum payment. The credit card issuer cannot take any legal or other action to collect the disputed amount and the related charges (including finance charges) during the dispute.
Debit cards do not carry the same protections, though your debit card issuer may offer assistance in a matter you cannot resolve with a merchant. One more warning: billing error protections don't offer help in the case of buyer's remorse.
In addition to billing disputes, you also have the protection of federal law if your credit card is lost or stolen and used by a thief. Your maximum liability for unauthorized charges is $50, and most card companies won't even require you pay that amount. Technically there is no time limit for disputing unauthorized charges, but the sooner you do so, the easier it will be to resolve the matter.
Unauthorized use, by the way, doesn't typically cover an unauthorized purchase by someone you lent the card to. When I was in high school, my mom once lent me her card to buy a dress, and I walked out with a dress, plus shoes, earrings and a purse - and a bill for $350. Unfortunately for Mom, she couldn't dispute the charge. Caveat emptor.
Spike Lee is just one of many people who have followed his dreams and started his own businesses using credit cards. Plastic is usually a lot easier to get than a bank loan, especially for a start-up venture. But that easy credit has its downside. With a large line of credit on your Visa or MasterCard, you may be tempted to spend money on things not essential to your business. (Do you really need four-color letterhead and the latest computer?) If finances charges rack up faster than revenues, you'll soon be in trouble.
The better strategy is to start your business on the cheap, and use credit cards only as needed. When you do use plastic, choose a business credit card reported in the name of your business rather than on your personal credit. You'll protect your credit rating from the additional debt and you will be setting up your venture as a serious entity rather than a side hobby.
Your $10 a day car rental can easily mushroom into $30 a day if you buy the "protection" coverage the rental car company will try to sell you at the counter. The "Collision Damage Waiver" is technically not insurance, but it works like insurance in that it covers you if the vehicle you rent is damaged.
The good news is that between your own car rental coverage and a CDW waiver benefit on your credit card, you may be able to turn down that pricey policy. Check with your own auto insurance company first to see whether your coverage extends to rental cars and what the gaps may be. Then check with your credit cards to find out which ones offer free CDW coverage. Many will, and while that coverage is secondary to any insurance you have, it will likely pick up deductibles that aren't covered by your auto insurance. You must use the card that offers the coverage when you rent the car, so make sure you carry that card with you when you travel.