Credit cards can be an advantage or a nightmare

June 04, 2004|by LYNN F. LITTLE

People who shop with a credit card usually spend more than people who pay cash. While that can be a disadvantage to shopping with a card, there are times when using a credit card can be advantageous for consumers.

Using a credit card to pay for car repairs is a good example. By the time the bill arrives, a driver should know whether or not a repair has been completed.

Travel is another. A credit card usually is necessary to reserve an airline ticket, hotel room or rental car. If accommodations fail to live up to advertised claims, credit card companies can be helpful in resolving a dispute.

Using a credit card when shopping by telephone, mail or on the Internet can speed delivery and simplify a return or exchange. The same generally is true when shopping closer to home.

Using a credit card to bridge expenses also can be advantageous to consumers. For example, a family needs a new refrigerator. They've read up on features and money-saving options and checked prices at several retailers. They've also put some money in savings for the big-ticket item. They do not quite have enough saved to buy one when a store that has a good reputation for sales and service advertises a sale on the refrigerator. The family weighs whether the break on the sale price is greater than the interest they would give up if they used their savings to pay cash for part of the refrigerator and the interest they would pay on the balance of their credit card while making monthly payments.

If a credit card holder is disciplined, using a credit card to occasionally bridge expenses can result in a savings.

Discipline is an important part of this equation. Some people are able to charge routine expenses, groceries or gasoline, for example, and minimize the need to carry cash or write checks.

Charging and paying off the balance at the end of the month can have rewards, like building up sky miles.

If a card holder charges more than he or she can realistically pay, interest can erode any potential savings.

Interest drives up prices. Some who overspend may end up paying several times the initial purchase price in interest costs.

Lynn F. Little is a family and consumer sciences educator with Maryland Cooperative Extension in Washington County.

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