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When Does It Make Sense To Use A Credit Card?

By Mark Riddix

In a perfect world you would never have to use a credit card for any purchases. Everything that you want could be paid for quickly and easily with cash from your bank account. Although that is the ideal situation, sometimes it simply is not possible. There are some situations in which using a credit card actually makes sense. At Money Crashers we do not support amassing large amounts of debt using a credit card, but there are some occasions where using a credit card is just easier as long as you remain disclipined and you’re not using it as a tool for “free money” when you don’t actually have the funds to support such purchases.

Here are 3 times when using a credit card may actually be necessary:

Renting A Car

You can use your debit card at some car rental companies, but it can be a real hassle to rent a car without a credit card. There are some rental car companies that will not rent to you under any conditions without a credit card. Those that will rent you a car without a credit card will place large holds on your bank account which can run up to $500 and take as long as 14 days to drop off your account. Can you imagine not being able to access $500 in your account for 2 weeks? Don’t be surprised if the rental company runs a credit check on you as well. Without a credit card for protection, they have to be sure that you are a good risk. Local customers may also find it nearly impossible to rent without a credit card. A rental company may require you to bring in a plane ticket or utility bill to verify that you are an out-of-town guest. In this case it makes sense to let them place the hold on your credit card and pay cash for the rental after drop off.

Booking A Hotel Room

If you thought that the holds that car rental companies place on your account were something, wait until you try booking a hotel room. Hotel chains will put a hold on your account for the entire stay including the room rental rate, taxes, phone calls, and incidental expenses. This hold can easily be $1,000 or more depending on your stay. Even if you plan to pay cash later, the hold is still placed on your account. For example, let’s say you wanted to book a hotel room for 5 days using your debit card and the total cost for the room was $750 for the week. The hotel would place a hold on your account for $750 plus taxes, and incidentals. At the end of your stay you pay $750 in cash for your rental. The $750 hold would not come off immediately. You would actually need $1,500 in free cash to pay the bill and have credit for the hold. Hotel holds can tie up the available cash in your checking account for weeks. These holds could be avoided with a credit card.

Emergency Situations

You should always have an emergency savings account with sufficient capital reserves to meet a financial crisis, but sometimes problems do arise that don’t allow you to access your emergency fund immediately. Sometimes having a credit card with a large limit helps you cover expenses that need to be paid for right away before you can access your emergency fund in a savings account. One thing that Erik from Money Crashers does is he carries an ING Direct checking account debit card with him at all times. He can instantly transfer money from the emergency savings account to the checking account using their mobile application. This is one way to avoid using a credit card in emergency situations that require immediate payment, but not all banks offer this convenience.

If you were never reckless with credit cards and keeping one in your wallet or purse doesn’t tempt you to go on a shopping spree, then keeping one around for these types of situations is not a bad idea. What I do is I keep the money aside for these purchases in a separate account so it doesn’t get spent before I pay off the credit card bill. That way, the money is floated for a short period of time, little to no interest accrues, and I have a peace of mind about it.

Do you know of any cases in which using a credit card makes sense and might actually save you from a big headache?

(Photo Credit: Andres Rueda)

Editorial Note: The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author's alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

Mark Riddix
Mark Riddix is the founder and president of an independent investment advisory firm that provides personalized investing and asset management consulting. Mark has written financial columns for Baltimore and Washington, D.C. area newspapers and is the author of the book, Your Financial Playbook.

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  • http://www.debt-tips.com/blog Kris

    I also like to use a credit card when making a big purchase, so I don’t have to use my debit card, and so I have some protection in case the purchase goes bad. Of course, it’s a good idea to make sure you have the money to make a big purchase in the first place. And it’s also a good idea to use your card every once in a while (as opposed to keeping it just for emergencies) so it doesn’t get cancelled for lack of use.

  • Kredit Kard Queen

    Another good reason to have a credit card is to establish credit. Most people will want to take out a car loan or a mortgage some day, but one generally needs a credit history first. If you think you lack the discipline for a credit card, get one with no fee (and the lowest possible interest rate, just in case), charge one small thing every month or two, and pay it off in full. Leave it at home most of the time and you won’t be tempted to misuse it.

  • http://my-affair.blogspot.com/ Sweetie

    I have a credit card just for online purchases. Like Kris said, in case something goes wrong which I have seen happen, it doesn’t affect my bank account so I can still pay rent. I keep an Excel file that shows me my bank account balance minus (online card) credit debt so if I don’t have the money to cover the purchase I don’t buy it. :-)

  • http://www.cheap-credit-cards.org/ Ismael

    Unless your credit card debit is at a lower percentage than your savings account, you should put your money to paying down the credit cards.

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