return policy

Credit Cards, Like Alcohol, Have Benefits when Used in Moderation

October 31, 2013 By Jeffrey Strain 1 Comment

I was informed by a friend today that credit cards are the worst thing ever created and that nobody should have them. I hear this tirade more often than not from those who have gotten deeply in debt from misusing credit cards, and who have decided that they’re going to stop using them in order to get their finances in order. I fully support them in taking this step. If you can’t use your credit card in moderation and can’t handle it appropriately when one is in your wallet, you shouldn’t have one. That being said, just because you have an addiction doesn’t mean that everyone else does.

When I hear people say that credit cards are evil, I try to explain that just like most things, they aren’t inherently bad in themselves. it depends largely on how you use them. It’s essential to understand how to use them properly to avoid costly mistakes. This argument rarely dissuades the person who seems to be convinced that all cards are terrible for one and all.

I finally came up with an analogy that seems to get through to these plastic haters to varying degrees. I explain that credit cards are a lot like alcohol. When used responsibly, they can be useful and even good for you. When abused, they can have devastating effects on your life. And while you might need to go cold-turkey and get rid of all your credit cards in order control your personal addiction, making the general assumption that everyone should also do the same is just plain crazy. That would be like an alcoholic going around telling everyone that alcohol is terrible for everyone and it should never be consumed anyone.

Alcohol, when used in moderation, has benefits. Credit cards, when used properly, provide a number of benefits in much the same way. The key aspect for credit cards is that you need to pay off your balance each and every month. If you can do that, you’re going to be financially healthy and gain the benefits that come with having one. If you can’t, check yourself into credit cards anonymous and do what you have to do, but don’t insist that your addiction is one that everyone has. Here are a number of ways that having a credit card can be a benefit without ever having to pay a single cent in interest payments.

There’s one important issue to note which is that all credit cards are different and may or may not offer the advantages I have listed below. It’s definitely worthwhile looking through the information given to you with your card (although it can be a bit daunting) or calling customer service and asking exactly what benefits your card provides. Always confirm that your card offers anything below before assuming it does.

Create a Credit History

While Dave Ramsey doesn’t think that a credit history is important, I most definitely do for a whole bunch of reasons with the primary one being that it’s simply a pain in the butt to do a lot of things when you don’t have one. Credit cards allow you to build a credit history and improve your credit rating without taking on any debt. A good credit score will help you save money in many other financial aspects of your life.

Receive a Product Warranty Extension

Many credit cards offer an extension to the manufacturer’s warranty that comes when you buy a new product. For example, if you buy a new gadget that comes with a one-year manufacturer’s warranty, your credit card may double that warranty so that it’s good for two years instead of one. While most credit cards will offer to extend the manufacturer’s warranty, the length of this extension can vary, so it’s important to check so you know how long your gadgets are really covered for.

Get Extended Return Policies

A service that many people don’t realize they may be entitled to is the extension of the length of time you have to return something to a store. If a store doesn’t have a return policy, this may be your only saving grace. If a store does have one, it’s common for them to limit returns to 30 days, but some cards will extend the amount of time that you can return an item to 60 days (MasterCard)up or 90 days (VISA, American Express). There is usually a limit on the amount that a single item can be returned for ($250 is common) and a $1000 annual limit. This allows you to have more time and flexibility on returns than you would get from paying by other methods.

Receive Price Protection

Another service that many credit cards provide that most people don’t realize come with having one is price protection on the items that they purchase with their card. While some stores will provide price protection on purchases in their store, most people never think that their credit card may also give (or extend) this protection. For example, MasterCard and Visa holders will usually have a 60 day window period after a purchase. If you find the identical item at a lower price at a store, the card will refund the price difference.

Use as an Emergency Fund

Credit cards can also be used as an emergency fund. Since you will be paying off your credit card in full each and every month, that means that you should have the full amount of the credit limit available for you to use each month. While it’s always good to have some cash available that you can quickly access, you can supplement your emergency fund with your credit cards. This can allow you to place some of your emergency fund into higher yielding accounts to earn more interest. For example, if you have $20,000 in your emergency fund and also a $20,000 limit on your credit cards, you may decide to keep $5000 in a savings account and placed the other $15,000 in a higher yielding account that may take a week or two to access. If an emergency happens, you can use the credit cards for payments that need to be made right away and still be able to access the money in the higher-yielding account to pay them off before they become due.

Provides an Interest Free Loan

Most cards have a specific day each month when you need to pay the bill. The result is that you get an interest-free loan from the time that you make your purchase to the time that you have to pay your credit card bill. All this may not seem like a lot of money for each individual purchase that you make, but over your lifetime with every purchase it can add up to a significant amount of money.

Damage & Loss Protection

Many cards come with both damage and loss protection for items that you purchase with the card. That means that if you purchase something which gets lost or damaged within a certain period of time after the purchase, you may be able to recoup your losses through the credit card company. The time periods vary from card to card, so you need to check to find out how long your card covers you. This is a protection that you would not have if you paid for the same item in cash.

Theft Protection

In addition to damage and loss protection, many credit cards come with theft protection. If an item that you purchased with the card ends up being stolen within a certain period of time (usually 6 months to a year), many credit cards come with insurance that will reimburse you for the cost of that item. Again, this is something that you would not be able to get had you paid for the same item with another form of currency.

Travel Insurance

If you have walked through any airport, you have probably seen kiosks selling travel insurance. If you book your vacation with a travel agent, you will probably be asked if you want travel insurance. What many people don’t realize is that some credit cards already come with travel insurance for your vacation if you purchase that vacation with the credit card. This varies from card to card, so you really need to contact your company to see exactly what type of travel insurance they may provide so that you can decide whether it’s enough or some additional insurance may be needed. Either way, you will end up spending less (or nothing at all) for it when you take advantage of this card benefit.

Rental Car Coverage

It’s common for rental cars that are placed on credit card to be covered for collision damage to a certain amount. It’s important to contact your credit card company to see exactly what they do and do not cover when it comes to rental cars, but once you know exactly what they do cover in combination with your own car insurance, you should be able to wave most, if not all, of those extra insurance options that rental car companies try to convince you to buy when renting a car. This can end up being a savings of hundreds of dollars on a single car rental.

Travel & Cash Back Awards

If you pay the vast majority of your expenses each month on your credit card (and then pay off that credit card in full when the bill comes due), you can end up spending quite a bit of money on the credit card each month. In this case, it’s often advantageous to get a card that offers cash back or travel rewards. This means that for every dollar you spend, you’re actually getting paid money back or earning travel rewards. While it’s true that some of these cards come with yearly fees, not all of them do. It’s important to do the calculations if you are paying the yearly fee to make sure that the benefit you are receiving from the card is more than you’re paying. In the end, you are actually being paid for using the credit card in these situations.

Security

One of the benefits that’s often overlooked is the security that comes with using a credit card. Having one allows you not to carry around a lot of cash. If you happen to be robbed, you are only liable for $50 of what might be charged to your credit card, and this amount is often waived if you report your card stolen within a 24 to 48 hour period after it has been taken. It also means that you don’t have to keep a lot of money at home, or carry a large amount with you when you are about to make a big purchase.

Lost Luggage Insurance

Another advantage that credit cards provide when you travel is they often come with luggage insurance. This can be useful since the amount that airlines will pay for luggage that is lost or delayed is often minimal. While nobody hopes to ever have to use this insurance, it can come in handy if you find yourself in a new location without your luggage around. How much luggage insurance is provided can vary from card to card, so it’s important to confirm this before you take off on a trip.

Budget

While many people don’t think about it, a credit card can be an excellent way to track your expenses each month and create a budget. If you make all your purchases on the credit card, your card statement can act as a master receipt and free you from having to collect every receipt for every purchase that you make. Your monthly statement will provide an itemized listing of all the money that you spent during the month. There are a number of credit cards, especially American Express, that will actually categorize the different purchases that you make and send out quarterly and annual summaries of these purchases as part of their statements. This will often create a better understanding of where your money is going than most people would be able to create on their not own.

Convenience and Saving Time

When it comes right down to it, credit cards provide a significant amount of convenience. If there is no additional cost to this convenience, it can be extremely beneficial in that amount of time that it saves when it comes to making everyday purchases. While it’s certainly possible to book a hotel, rent a car, or by an airline ticket without a credit card, it’s much more difficult and time-consuming to do so with another method rather than paying with a credit card. The time that is saved can be significant and simply makes certain things like travel a lot easier than when you don’t have one.

(Photo courtesy of TheTruthAbout)

Take Responsibility for Your Purchasing Decisions

February 26, 2013 By Jennifer Derrick 2 Comments

Last week I had the misfortune of witnessing a messy exchange in the return line at a local department store. The woman ahead of me was trying to return some items that she bought and had apparently decided that she didn’t like or want. The clerk told her that they could not take them back. (I finally surmised from the argument that this was some old stock, so the clerk knew that the purchase hadn’t been made recently. Even if the returner had the receipt, she would have been beyond the allowed return time and the store wouldn’t take the return, regardless.)

The woman didn’t like being told no and she proceeded to blame the store and its employees for selling her things she didn’t need and couldn’t afford.

“I need the money back. I can’t pay my credit card bills and I have to return these,” she said.

When the clerk told her that she couldn’t help her, the woman demanded a manager. The manager told the woman the same thing, that the items could not be returned.

“Well, you should take them back because your employees talked me into them, just so they could earn the commission. I didn’t really want them, and now I’m stuck with this crap that I can’t use. I need the money more.”

The argument went on for a while longer. Finally, the woman stormed out of the store, purchases still in hand, swearing a blue streak out the door. Unfortunately, I’ve seen this sort of thing before. Sometimes it’s over items that the person simply doesn’t want, sometimes it’s over things they couldn’t really afford, and sometimes it’s over things that simply aren’t what the customer expected them to be. I used to work retail and there is nothing worse than a customer who wants to return something but cannot, for whatever reason.

Sometimes I understand the upset. Many financial websites suggest returning things in order to get the money so you can pay off debt or generate some spare cash. It’s not bad advice (and I’ve given it myself), but it should probably come with the caveat that you should only attempt to return things that are realistically eligible for return. Stuff you’ve had for a year, even if it still has the tags on, is probably not eligible for return. It’s one thing to return something that doesn’t work, that you get home and decide you really don’t like, or that you’ve only had for a couple of weeks before buyer’s remorse sets in. Those are legitimate return scenarios. It’s quite another to try to return something that you’ve used, opened, worn, or kept stuffed in a closet for so long that the store no longer carries it and has removed it from their system.

Sometimes you, as the customer, have to simply take responsibility for your buying decisions. We all make mistakes and buy things we later wish we hadn’t. It’s not uncommon to go on a spending binge and then regret it two months later when the water heater fails or the dog has to go to the vet. You wish you had that money. It’s not uncommon to buy something, thinking it’ll be just what you want, only to get it home and realize that it’s not all that you thought it would be and have buyer’s remorse set in. But the failure to control your spending, to do basic research on the product you’re buying, or to make a legitimate return within a reasonable time frame is your problem. It’s not the fault of the store. What does it mean to take responsibility for your buying choices? Here are some thoughts.

Research the Product

Before you buy anything, research it thoroughly. Don’t just grab stuff off the shelf and hope for the best. Read consumer reviews about the product. Go home and read through the detailed product description on the manufacturer’s website. Call the manufacturer and ask questions if you need clarification. Download spec sheets or any other information that might be helpful. If you can try the product for free, do it. Do everything you can to learn whether the product is right for you before you buy it.

Admit Mistakes

Sometimes you just have to admit that you made a mistake and that it’s too late or wrong to return an item. Acknowledge that you goofed, say goodbye to the money, and vow to do better the next time. That’s the grown up thing to do. The immature thing to do is to try to return the item against store policies, to lie about when or where you bought it, or blame the store or the employees for your mistake.

Don’t Blame Others

Don’t blame the store or the salesperson. Neither the store nor the sales person held a gun to your head and made you buy the item. Even high pressure tactics can be resisted. Accusing employees of forcing you to buy something just makes you look silly. You forked over the money; no one took it from you.

Know Your Budget

Know what you can and cannot afford. It’s not up to the store to know that this purchase means you can’t pay your electric bill, or that it will increase your debt load. They are simply there to sell things. It’s up to you to know what you can and cannot afford before you make the purchase. And that includes knowing that you’ll still be able to afford it even if something big breaks down next week. If you buy it but can’t afford it, that isn’t the store’s fault.

Say “No”

Don’t be afraid to say, “No.” When you’re not sure about an item, never be afraid to say no before you’ve bought it. Don’t let a salesperson talk you into anything or pressure you. You aren’t obligated to buy anything so if you aren’t sure, walk away.

Sleep on It

Before you buy anything that you aren’t sure about, put it down, go home and think about it. Chances are it will still be there later, or you’ll be able to get it somewhere else. Very few things are so rare that you must buy them then or lose them forever. After you’ve thought about it and the fever has died down you can go back for it if you still really want it. But at least you’ll know that it’s a worthwhile purchase at that point.

Stash & Think

Use the stash and think method. If you must buy something right now, take it home and put it away without opening it. Think about the purchase for a few days and decide if you really want or need it, or if you can get it cheaper elsewhere. The trick is to make sure you keep your receipts organized and visible so you don’t miss your return window. Also make sure before you leave the store or click the order button that returns are even allowed (sometimes clearance items aren’t returnable). This doesn’t work well for disorganized people or serious procrastinators, though.

When you’ve bought something and it’s too late to return the item, don’t try, particularly if you’re going to take your frustration out on the employees at the store. It isn’t their fault that you bought something you can’t afford, or that isn’t what you thought it would be. Threatening and screaming at the clerks won’t change that fact. Sometimes the right thing to do is to admit that you screwed up and vow not to do it again. It’s called taking responsibility for your actions.

(Photo courtesy of karlaredor)

Shopping Lessons I Hope My Son Learns

October 29, 2009 By David G. Mitchell 11 Comments

The other day, I went out for coffee with my teen-aged son. My son and I went on a Sunday and I was not sure whether the bakery would be open as it was late in the day. My son asked why we were going to that particular bakery; since there is a coffee shop that he knew would be open nearby. I explained that I had seen on a local frugalista website that the coffee was being given away to get people to try to the bakery.

Upon hearing my reasons for choosing that particular bakery, my son gave me a dumbfounded stare and declared that (i) I was really weird for using the word frugalista and (ii) even if the bakery were closed, we could still get coffee at the coffee shop as it was their BOGO hour. I had to agree with my son on the use of the word frugalista but, more importantly, I was really quite pleased that he knew that the coffee shop had a BOGO hour and that we would possibly be arriving during it.

Even though my son may not be researching the best deals that he can find, he does seem to be learning a bit about maximizing the value that he can derive from his earnings now and throughout adulthood. He may not consider himself a frugalista, but he is at least learning that by planning his purchases, he can make his money stretch much farther than it would if he just spent money on full priced items.
There are a lot of ways that I have wasted money over the years, and a lot of lessons that I wish I had learned as a teen. As I look at what my son will be buying in years to come, I hope that he learns the following sooner rather than later:

Bigger does not Mean Better: When I was about fifteen, I bought myself a boom box. I remember going to Service Merchandise and buying the largest “portable” stereo that they had. I knew nothing about the stereo other than its size. I used it for several years but it was far from the best purchase that I could have made. It had more features than I needed and it was far too large for me to comfortably carry it wherever I went. As a result, it generally stayed in my room and I had to rely on my friends to bring a truly portable stereo when we played basketball or football. More importantly, as I learned years later, the speakers on my stereo were inferior to the much better quality speakers that I could have gotten for less money in a better quality stereo that had fewer features.

Appearance is not as Important as Function: I made a similar mistake a couple of years later when I bought a component stereo system. I remember driving to Lechmere (now defunct, but a store that I enjoyed) and purchasing a Fisher component system for $898. The driving force behind my purchasing decision was the color of the system. Again, I should have been paying attention to the speakers more than the color or anything else. The stereo served my needs for many years but, as with the boom box, I paid for features that I did not need and got inferior quality as compared to what I might have purchased.

Start with Low Tech and Work from There: I know that I need billing, time-keeping and other software for my new business, but I have no idea which programs I should be purchasing. If I make a purchase now, before I truly understand the merits of each option and the actual needs that I will have in my office, I will be making a purchasing decision based on guess work. Rather than make an uninformed decision, I am working with the lowest tech options available to me and I will upgrade later when I know what I need. The same philosophy, I have learned, works best for any kind of technology purchase. For example, if you do not know why you would need a particular feature on your cell phone, don’t buy it. If you have lived this long without it, you will probably continue to thrive without it.

Never Make a Major Purchase on the Day that you Decide you Want to Make It: Before spending any amount of money that you consider to be “a lot of money,” sleep on it for a day. Sometimes a deal may seem great on the day you see it but, after a day of reflection, it will not look so great.

Always Know the Return Policy: This is a simple lesson but one that I learned the hard way several times in my youth. Know the return policy before you pay for anything and always make sure you get a receipt. While this should seem like common sense, it is not always the case for young buyers (and some older buyers).

What lessons do you wish you had learned when you were younger? What are the hardest lessons to actually learn? Do we ever stop learning?