Using a Credit Card Wisely

Using a credit card wisely means planning when and where you’ll use it.

More than anything, avoid using your card for impulse purchases. These images fill credit card ads on TV and elsewhere; but a spontaneous Christmas gift shopping spree is the worst use of a credit.

Another good thing to avoid is…anything your card issuer tries to sell you. Credit card companies work hard to offer all kinds of products and services to extract money from their customers.

Take credit card theft insurance, for example. You don’t need this. If your card is stolen, you’re only liable for a maximum of $50 worth of purchases.

Credit card disability insurance is another loser product. If you can actually get your credit card company to activate the insurance in the event you become disabled (and it’s not easy, typically), your debt still keeps piling up. Plus, your credit card becomes disabled right along with you; you can’t make any additional charges on it.

Pre-paid gift credit cards can be another money-loser. In this case, the fees you pay make them worth less than what you paid for them. And they often expire quickly, which means the recipients may not even have a chance to use them.

You’re usually better off giving cash, a check or gift card from a retailer, since those cards typically do not have expiration dates or hidden fees.

Generally, it’s not a good idea to use a credit card for buying gifts of any sort. Buy gifts with cash (or cash equivalents, like checks or debit cards). This may sound slightly Scrooge-like; but borrowing money to buy things you’re giving away doesn’t make much financial sense.

And, speaking of hidden fees, you should think twice before using your credit card abroad. It saves you having to exchange currency; but some Visa and MasterCard issuers have started charging a 2 percent fee on credit card purchases outside the United States—on top of the 1 percent charged as a currency exchange fee.

Those fees can add up, especially on a longer vacation. So, make sure that you carry cash equivalents like debit cards or traveller’s checks if you’re planning to go abroad.

Next: Debit Cards