Good reasons to use credit cards

For those with the discipline to control their debts, credit cards offer security, rewards and money-saving potential that cash can't match.

Credit cards can be a good idea.

Just because many Americans have overdosed on debt doesn't mean using credit cards is a bad idea. In fact, there are times when a credit card is clearly the best choice. For starters, you usually get far more purchase protection with a credit card than you do with cash or check. That helps when you buy a $1,000 laptop that suddenly has a damaged screen a week after you walk out of the store, particularly if the store manager and the manufacturer insist it's your fault.

Save-the-day features kick in when you travel. Credit cards often include free car-rental insurance and some travel insurance, though offers vary with each issuer. And if a thief picks your pocket, your liability is much lower than with a wad of cash. Add in airline miles, rewards points and cash back, along with the interest-free loan if you pay the balance every month, and you'll find a lot of credit card experts using their cards to charge everything they can.

"I try to buy everything with a credit card," says Scott Bilker, author of "How to Be More Credit Card and Debt Smart." "I hate using cash, because if you lose it, it's gone. With credit cards, the bank's money is gone. "You just have to be careful to use them in your favor. It takes work: research and phone calls."

Protect yourself with a card

But, you might think, how often will I need purchase protection? "Some of the severe cases are when the airlines go bankrupt," says Barbara O'Neill, a professor of financial resource management at Rutgers University and the author of "Saving on a Shoestring: How to Cut Expenses, Reduce Debt and Stash More Cash." "Those who pay with a cash or check are out of luck."The bottom line is you have some very useful legal rights if you shop with a credit card.

"There is a law on the books that says you can dispute if you've purchased something with a credit card," O'Neill says.

It's called the Fair Credit Billing Act, and it covers purchases made by credit card, not debit card, anywhere in the world, as long as the credit card was issued in the United States. "If it's found to be in your favor, you don't have to pay the charge," she says. And until everything is settled, you don't owe a thing. "You can refuse to pay the charge until the dispute is resolved." Find out where to get free reports -- and how to interpret them.

Charging when you're already in debt

All this talk of the good side of credit cards needs a big warning sign. At last count, 61% of Americans carried a credit card balance every month, making the "charge-everything" strategy a little risky. Jing Jian Xiao, professor and director of the Take Charge America Institute for Consumer Financial Education and Research at the University of Arizona, says that "people, in general, even if they're in debt, they keep using credit cards. That's why they're in debt.

"Now, the new trend is that credit cards are for necessities," says Xiao, who studies the behavior of people trying to cut debt. "Before, credit cards were to show status. (Today) More people use credit cards for daily expenses. That means that if they don't have money, they just apply for more and borrow more."

Are credit cards always a bad thing?

"I don't know if it's good or bad, because for some people it can meet their immediate needs, if they manage it well. Some people I know -- grad students -- are smart and always keep it at a zero-percent balance transfer rate," he says.

Make float work for you

For many people, the best benefit of a credit card is what the bank always enjoys: the float. Depending on your credit card, you'll get a grace period of 25 to 35 days before you have to pay. "A credit card is good for float, if you know money is coming," says O'Neill. "If you're getting a tax refund or retroactive pay, it can be a good short-term emergency fund or a short-term loan for yourself." Meanwhile, your money could be earning interest in a money-market account while the credit card company fronts some cash for you.

Gas rebates and cold cash

Apart from a short-term, interest-free loan, you can often get some extra sweetener out of your credit card, ranging from a cash reward to discount coupons at your favorite stores. "My first choice for everything would be credit cards, because you get something back," says Bilker. "If you can use rewards, it's great. But everyone can use cash-back rewards." Bilker also takes advantage of special starter offers, such as those for new holders of cards bearing the name of Wawa convenience stores, a 500-store chain in five Mid-Atlantic states.

"Wawa has this great deal, where for the first 90 days you get 10% off purchases with Wawa and 4% everywhere else," he says. "That 10% includes gas, and I've gotten $400 worth of rewards. That's five weeks of gas for two vans."

Good things come to those who read the fine print and charge. "With my Citibank card, I got 10% cash back on home remodeling," Bilker says. "I charged $10,000 on the card. Bill comes -- it's $9,000."

Bilker is a fan of the charge-it-all strategy, even for a bottle of water. "There's nothing wrong with charging groceries, though everyone gets upset when I say that." Still, it's easy to think you're being a smart consumer because you're getting rewards, but that's true only if you buy just what you need. "Don't buy extra stuff," says Bilker. "They're hoping you say, 'I'll go out and buy a plasma TV because of the rewards.' If you're going to buy a big-screen TV, and you're planning to buy a $2,000 model, and then you end up charging a $4,000 TV, that's the mistake."

By Bankrate.com