Posts Tagged ‘credit cards’

Credit Card Secrets

We think of credit cards as those things which allow us to manage our financial lives without carrying money around. Bills are easy to automate with credit cards and paying the card at the end of the month is a simple, one-time, setup online and it is paid in full on the due date without any further action on your part. Even if you don’t record your spending, a credit card has a nice list of all your spending in one neat, compact location for future review.

Those crisp pieces of plastic come with a dark side also. Without constraint, you can dig a financial hole difficult to crawl out of. Make no mistake; credit cards are debt, even if you pay them in full monthly. Debit cards serve the same purpose and are not debt because it comes out of your bank account; when the money runs out, the purchases are declined.*

Previous posts discussed bonuses, cash-back credit cards, and interest free/fee free loans. I consider those the easy benefit of credit cards. Debit cards offer limited bonuses and cash back, but credit cards take it to a whole new level.

There are a lot more benefits to credit cards most people either don’t know about or never take advantage of. I seek to end that problem now. These benefits are worth anywhere from a few hundred dollars a year to thousands, depending on your level of spending and the items/services purchased with the card.

The Fine Print

I carry several cards at one time. I use a specific card for certain purchases depending on the underlying benefits the card offers on such purchases. You should have received a booklet describing your benefits when you opened the account. If you tossed it because it was all fine print, you can review the benefits online for most cards.

This review is with a credit card I currently use. I will not name the bank/credit card because benefits can change and differ between products. The benefits are similar across credit cards with a few notable exceptions. These exceptions are generally used as an inducement to acquire more card holders for the bank. I will focus on the common benefits. When you are done reading this post I encourage you to print out a copy of all your credit card’s benefits and keep them with you. They are money in the bank.

Auto Insurance

picardwiningMost credit cards include some form of rental auto insurance when you use their card to rent the vehicle. Read the fine print! There are a few exceptions. Really expensive cars, like a Bentley, are excluded. The insurance on the card I am using covers physical damage, theft, loss-of-use charges assessed by the rental company, and towing. If you have auto insurance for a personal vehicle, check if your liability protection covers you while driving a rented auto. It usually does.

The car rental companies push hard to get you to buy their insurance. It’s a good deal for them with a high profit margin, frequently more profitable than renting the car! The insurance at the rental company is very expensive for what you get and because you may already be covered. By checking with your regular auto insurance company and reading the credit card fine print you can save a bundle.

Before I move on I want to point out a few caveats. If you buy insurance at the rental company that insurance pays before credit card coverage. The credit card does not cover injury, items not original to the vehicle, war, impaired driving (drugs or alcohol), off-road use, or loss of personal belongings. Long term rental periods (31 consecutive days or longer) are frequently excluded, also.

Purchase Protection

Here is one benefit you have passed on without knowing it. On the card I am reviewing they cover theft, damage or involuntary and accidental parting. Purchase protection replaces, repairs, or reimburses you at their discretion. The maximum is $500 per claim and $50,000 per account. Think of the value! The kids get a new toy and break it accidentally or it is stolen. You file a claim and should be covered if the terms of the agreement are met. Of course, you had to buy the item using the credit card you file the claim with.

A few things are generally excluded, and include: animals/plants, antiques/collectibles, boats, cars, aircraft, computer software, items purchased for resale, mysterious disappearance, fraud, abuse, war (this shows up a lot, it must be an issue), medical equipment, and perishables. As always, a few minutes of reading the fine print and keeping it handy when needed can be financially rewarding.

Extended Warranty

My card extends the manufacturer’s warranty of three years or less for an additional year without cost. The maximum claim is $10,000 with a lifetime cap per account of $50,000. This includes gift purchased with the card! Once again a few items are excluded: cars, boats, aircraft, items for resale, computer software, medical equipment, or used items. The manufacturer’s warranty applies first.

The extended warranty covers a lot of stuff. Cell phones come to mind. The fear of loss, damage, or defect is a major concern if it is not covered by the manufacturer. Most smart phones have a one-year warranty. They try to sell you expensive insurance with fear factors (broken glass or theft) which your credit card covers under the purchase protection and extended warranty benefits. No need to worry about a financial hit if you pass on the insurance which rarely, if ever, gets used. That is why credit cards offer it as a free benefit. But if you are the lucky winner, the coverage is a real benefit if you know to file a claim.

Trip Cancellation

When you purchase a vacation package or tour they always encourage trip cancellation insurance, except it is unnecessary since your credit card probably covers you for free if purchased with their card. It also covers family members on my card in review. The cancellation coverage is up to $5,000 per trip on my card. The part I like is you are covered if the trip is one or more miles from your residence. Really! Just one mile? A trip to the store doesn’t count?

There are a few restrictions as with any insurance. “Change of plans” is one excluded item, which makes sense. I’ll let you read the additional details in the fine print of your card which is similar to the coverage offered by trip cancellation/interruption coverage offered at the travel agency.

Price Protection

QuestionsBet you missed this one. Many cards, including the one reviewed here, offer price protection. On my card I am covered if I find an advertised price lower within 90 days of original purchase. This includes non-auction online sites like Amazon.

The limits are $500 per item for an annual limit of $2,500 per account. You are even covered for $50 per item/$150 annual for cash-only advertisements, close-outs, liquidation, and going-out-of-business sales! With my card you only need to pay for part of the purchase to be covered. Nice.

There are a few restrictions. Advertised items excluded are: flea markets, fire sales, limited quantity promotions, season sales, and auctions. Seasonal and discontinued items are also excluded, including: holiday decorations, clothes, and costumes.

Lost Luggage

After you get done tearing the airline a new one you might want to check with your credit card. The benefit reimburses you for repair or replacements costs. The nice thing about this coverage is that my card’s benefit is up to $500 for jewelry, watches, cameras, camcorders, and other electronic devices, with a $3,000 limit on all covered items for each trip. Money, securities, tickets, money orders, traveler’s checks, and furs are not covered.

Delayed Luggage

A perfect vacation can be ruined by lost or delayed luggage. My card says if my luggage is delayed more than six hours I will be reimbursed for emergency purchases of essential items. The benefit extends to family members and frequent flyer travel rewards when some portion of the trip is paid with the credit card. My card reimburses up to $100 per day for three days maximum. After six hours, go enjoy your vacation. It’s covered.

Trip Accident Insurance

This animal is really an Accidental Death and Dismemberment policy. My card provides $500,000 of life coverage if I die while traveling with the common carrier and $100,000 if I die within 24 hours of an accident on the carrier.  I’ll save you the morbid details of the benefits if you suffer loss of speech or body parts. My guess is if you ever need this benefit you will not care much about the lost/delayed luggage benefit. (Bet you were waiting to see how long it would take me to be a smartass.)

Travel and Emergency Assistance Services

Traveling is stressful so I avoid it like the plague. When I do travel it is nice to know I have a help line at my fingertips. There is a list of services attached to this benefit, including: emergency message service, medical referral assistance, legal referral assistance (you would think a crazy accountant could use this fairly often), emergency transportation assistance, emergency ticket replacement (a real stress reducer), lost luggage locator service, pre-trip assistance, and prescription and valuable document delivery arrangements.

Roadside Assistance

My auto insurance automatically covers me for this if I have collision on the car, which I don’t. They also charge for the benefit. Not my credit card! They love me. They give me the toll-free number of a motor club I can call 24/7 for help. If you are driving a rental car you need to call the rental company first.

Parting Shot

The cross-section here is only the start. Your credit card may offer more or fewer benefits. Your lifestyle will determine the right credit card for you. These benefits are often unused. That is too bad. Lost or delayed luggage is stressful, but if you knew you were covered it might make the situation a bit more bearable. Price protection and extended warranties are also valuable benefits.

When is the last time you filed a claim with your credit card company? Thought so. Bet a dollar to one you never filed the claim because you were unaware of the benefit. That needs to change. Credit cards offer a wide range of value. The bonuses, cash-back, and travel rewards are only the beginning. Come to think of it, traveling seems more appealing all of a sudden. Think I’ll book a flight for the missus and me.

You can review and compare the litany of credit cards here.

 

* Some banks and credit unions have decided it is okay to let people overdraw their account rather than decline a purchase to maximize overdraft fees. Financial independence requires discipline on your part regardless the method of payment you choose.

 

Note: Check the TWA Recommends page for all the latest best credit card rewards programs.

Tax-Free Cash Rewards From Credit Cards

Whenever I speak to an organization if I mention you can travel for free or get $10,000 or more per year tax-free, I am always asked to come back and speak again on this single topic. It is incredible how many people either don’t know or don’t use on a regular basis what I am about to reveal. I am talking about tax-free money just for the asking and every kind of free travel imaginable.

A lot of people opt for the travel benefits because they enjoy traveling and the benefits are usually worth a bit more if used for travel. For me, cash is king. I like money, especially when I don’t have to report it as income.

Responsible adults should have no problem using credit cards to their advantage. We do NOT recommend carrying a balance on a credit card ever! The above statements about free travel and tax-free cash are available using credit cards and to a lesser extent debit cards. At the bottom of this post I will provide links to a list of credit cards with a variety of cash and travel bonuses.

Where Is the Tax-Free Money Hiding?

Before we begin I need to outline what is and is not taxable. Bank bonuses where you deposit money into a checking and/or savings account for a certain period of time for a bonus, say $250, IS taxable as interest income.

Credit cards are different. There are credit card companies willing to pay you hundreds of dollars to try their credit card. They require a certain level of spending within a certain period of time to earn the bonus. For example: a typical credit card bonus offer might read: spend $1,000 within 90 days of opening the account and get a $200 cash bonus. Spending $1,000 or more in the first 90 days will result in either a $200 check in the mail or a statement credit. In either case the reward is tax-free because the IRS considers it a rebate or return of your own money.

Other cards offer travel points instead of cash and some cards give you a choice. The hard part is keeping up with all the offers. Business owners can get cards that require as much as $4,000 in spending in the first 90 days for bonuses of $500 or higher. You can have more than one credit card from multiple issuers too. Virtually all these cards also issues points in addition to the bonus on spending. About once a month from now on I will write on a different topic covering credit cards and the bonuses available. Today we will focus on the most basic issues with special attention to taxes.

Planning Tip

Major purchases should always involve a new credit card with bonuses. Take a personal example. A few years back I had to install a new septic system on my farm called a mound system. These wonderful investments cost in the ballpark of $15,000. I used a variety of credit card tactics to cover over $5,000 of the cost with bonuses. Some credit card offers actually pay a bonus of $100 for $500 of spending, a 20% reward. You also get 1% or more cash-back on the spending in addition to the bonus. See where I am going. Travel rewards are awesome, but daily expenses really add up to significant tax-free rewards.

A furniture purchase can be coordinated with a new credit card with a bonus for a major price reduction. Mrs. Accountant also gets a card in her name to double the rewards. A future post will show how to keep the same credit card to get 20% or more back on your purchases. There are instances where the reward exceeds the spending! Again, a future post will discuss details.

Businesses have it even better. As an accountant there is no shortage of ways to earn cash-back rewards. A new credit card offer requiring $5,000 of spending within 90 days of opening the account is not an issue. Normal spending may already put me over the top. If not, there are things the business needs I can buy in advance. My accounting office always uses postage. I can top out a card at the post office to reach the required spending to earn the bonus reward. Postage never goes to waste in my office.

Maximizing Benefits

People often underestimate the benefits credit cards offer. Running every possible household expense through the credit card and paying in full each month makes managing your money easier at tax time since you have a neat record all in one place. The extra advantage of rewards means you get paid for the convenience! Having more than one credit card to harvest several cash bonuses can add $10,000 or more to your annual income tax-free. Landlords and business owners have an advantage, but even a single-person household can use credit cards to shore up the budget.

Purchases made with a credit card also have certain protections. Read the fine print included with your card or online. Many credit cards offer extended warranties people forget to use; free auto insurance on a rental cars; replacement or money back if an item is stolen or broken. The list gets really long. Read the list of benefits. Many times the saving, especially if traveling, is worth more than the massive cash and travel bonuses. Know and take advantage of all the stuff you are getting and life is richer.

In a future post I will show how you can charge mortgage payments, rent, and even utility bills to your credit card to reach spending limits. The fees are less than the value of the points earned on the credit card so you get paid to do these things. The more you can charge to your card the easier it is to automate your financial life. All expenses can run through the credit card for maximum benefits and then have the bank pay the credit card in full on the due date automatically from your checking or savings account.

If you would rather travel than have cash, I have a deal for you. There are a lot of credit cards with different travel benefits attached. Points, including bonus points, are generally worth more as travel than a cash reward. Sometimes you need to run the numbers to find the value of the points, other times the bank will make it clear how much travel you will get for each point. An example would read: 50,000 points are worth $650 in travel or $500 in cash. In either case the reward is tax-free.

Choosing the Right Card

There are so many choices it can make it hard to start. If you are just beginning I recommend starting small. There are several cards that offer a $100 cash bonus after $500 of spending within 90 days of opening the account. I think every reader here has $500 of possible credit card spending to reach the bonus payout without spending for the sake of spending. If you have higher normal spending you can review cards with higher bonuses.

Business cards generally have some of the best cash deals. I have never seen a limit on how small a business could be. A hobby where you sell some stuff or a rental property would qualify you for most bonus cards as long as your credit qualifies you.

There are a variety of travel rewards programs. Airlines and hotels frequently co-brand with banks. Your preferred airline, hotel, or rental car company may have a co-branded credit card with excellent bonuses and continuing benefits. Having the right mix of co-branded credit cards can quickly turn into free or very cheap travel for the family.

Credit Scores

All this knowledge can bring plenty of free travel and tax-free cash. What you should not do is go crazy and apply for eight bonus credit cards in an afternoon. Before you reach five your credit score will have dropped enough to get you declined. Spread it out. Be strategic. Some credit cards offer 5% cash-back on purchases at certain stores. Pick a card that maximizes your benefits based on your normal spending patterns.  A modest amount of planning will yield the greatest return on your normal spending. One or two new credit cards should do the trick to get started. A few additions to round out your tax-free cash and travel plans can take place over the next several months.

Fees

Before I give you a few links to start on your way I want to discuss fees. Annual fees are something I try to avoid. Many banks waive the annual fee the first year if they have one. I always ask if they will waive the fee in following years too. I actually keep two credit cards with an annual fee: the IHG® Rewards Club Select Credit Card and the Capital One Spark® for business card. I pay $49 per year and get one free night per year with the IHG® card. It ends up being a fairly cheap hotel room. I also get points on spending to use for free hotel stays. I’ll link below. The current bonus is probably different than mine was. It was still a good deal for me so I pay the annual fee. I also pay an annual fee on a Capital One Spark® card that pays 2% back. My business spending is so high it actually is a better deal to pay the fee and get 2% back rather than no annual fee and only 1 ½% back.

In future posts I will dig deeper into the issues surrounding credit card bonuses and rewards programs when fees are involved. You have enough today to get started earning some tax-free bonus money.

Links

Understand if you use any links on this page and get a credit card I will be compensated. If you do not want me to receive a commission you can go straight to cardratings.com. My commission does not affect your bonus or points earned. If you love me like a brother feel free to start here the next time you wish to order a new credit card. In fact, since we are now brothers, bookmark this page, send it to family and friends, and . . . Okay, I’m getting carried away. What do you expect? I am an accountant. You know how my kind gets when we are around money.

Here are a few starter links. You can use any link to get to pages at cardratings.com and then move around the site to find a credit card that matches your needs.

Here are some cards with high bonuses, but have high spending requirements to reach the bonus reward.

Here are some great starter credit cards with low spending requirements (some as low as $500 in the first 90 days) to get a bonus cash reward.

More starter credit cards I like.

I use Capital One’s Spark® card in my business for most spending.

Finally, here is the IHG card I was talking about for free hotel rooms. Review the details to see if it makes sense to you. Bonuses change and are probably different than mine so check all the details before applying.

There are a lot more choices at the link destinations. You can review programs on travel or cash bonuses. My advice: Don’t get bogged down. Try one or two credit cards today and earn your bonus. You can always come back in a month or two and find another credit card to fill the gaps in the rewards you desire. Start with a plan to get some tax-free money in your pocket.

Update October 25, 2016: Recent changes in bank policies required I break the links in the text above except for this text. You can review current credit card offers most appropriate for your needs with this link.

 

***Note: Check the TWA Recommends page for all the latest best credit card rewards programs.

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