Anyone who follows those rules will find that credit cards can work in their favor.  Some of the top benefits include:

Purchase protection. When I make a purchase with either of my cards, if the item is stolen or accidentally damaged within 90 days, the card companies will reimburse me for up to $1,000.

Price Protection. With one of my cards, if I find the same item for a lower price within 60 days of purchase, I will be reimbursed for the difference.

Extended warranty. Both of my cards double the manufacturer’s warranty on many purchases for up to one additional year.

Car rental insurance. Before renting a car, it’s a good idea to check the terms of the insurance policy on the vehicle you own and also the terms of your credit cards. Our agent told me that for the most part the same coverage that applies to the vehicle we own applies to a vehicle we rent. The one exception is that if we’re in an accident with a rental car, the rental car company will charge a daily rental fee for every day the car is being repaired (“loss of use”), which would not be covered.

I then checked with our two credit card companies. Both offer free “secondary” insurance, assuming you use their card to pay for the rental and decline the rental company’s coverage. Secondary insurance covers anything not covered by the insurance policy on the vehicle we own, such as the deductible. However, loss of use turns out to be a gray area.  One card company rep said technically they do cover that, but only if the rental car company provides adequate documentation, which he said it rarely does (how’s that for an honest answer?).

Neither credit card company covers pick-up trucks or full-sized vans. One does not cover full-size SUVs.  One company provides coverage for rentals lasting up to 15 days, the other for 30 days.  If traveling overseas, one of our cards will not cover rentals in three countries; the other offers no coverage in six countries.

Other benefits include discounted roadside assistance and insurance for lost or damaged luggage.  Here are a couple of other credit card perks.

Discounts. You may be accustomed to looking for coupon codes and searching for other discounts on the web.  Did you know that credit card companies offer their own discounts for various merchants?  Here are the programs offered by Visa, MasterCard, and American Express.

Faith-based rewards. In an unapologetic mention of my primary sponsor, Christian Community Credit Union (CCCU), not only do their credit cards provide points that can be redeemed for travel or merchandise, but every time you use one of their cards CCCU also makes a donation to various Christian ministries.  To date, that amount has totaled nearly $3 million dollars.

Freebies. Of course, this is the benefit most people are familiar with.  While many credit card companies are becoming stingier with their reward programs, we’ve gotten a new bike for one of our kids, a new camcorder, and more just by using points.

Bottom line?  There are financial advantages available to those who use credit cards responsibly.

What perks have you gotten from your credit cards?

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While there are definitely some people who would be better off not using credit cards, most people can use plastic without self-destructing.  Here are four key steps.

1 – Use Credit Cards Only for Pre-Planned, Budgeted Items

If you don’t use a budget, don’t use credit cards.  If you do have a plan, though, credit cards can work just fine.

Let’s say you’ve budgeted $75 for clothing each month.  And that clothing budget is part of a bigger plan that divvies up your income across all of the expense categories in a way that enables you to be generous, save and invest a portion, and live with margin.  You can charge $75 worth of clothing each month.

2 – Record Your Credit Card Spending as You Spend

If you don’t track your spending, don’t use credit cards.  If you do track your spending, though, and you record each credit card purchase when you make that purchase, credit cards can work just fine.

If you use an electronic cash flow tracking tool like Quicken or Mint, your credit card spending will be tracked automatically whenever you charge something.  If you use a manual tracking system like an Excel spreadsheet or a paper and pencil system, you’ll have to remember to record your spending.

This track-it-as-you-charge-it step is really important.  It means you’re treating credit card purchases just like cash purchases, and that’s a good thing.  The people who get in trouble with credit cards are the ones who don’t think about what they charged until they get their bill.

3 – Pay Your Credit Card Balance in Full Each Month

If you have a balance on a credit card that you carry from month to month, don’t use credit cards.  If you take the first two steps, though, and you pay your credit card bill in full each month, credit cards can work just fine.

Never carry a balance on a credit card.  Paying interest on credit card charges is one of the absolute worst uses of money.  It’s really easy to dig yourself deep into debt by buying stuff and then paying the minimums.  But it’s really, really tough to get out of that debt (believe me, I know).  So, don’t go there.  Always pay your balance in full.

4 – If You Won’t Take the First Three Steps, Don’t Use Credit Cards

Those who say no one should use a credit card often point to studies showing that people who use credit cards spend more than those who don’t.

For those who don’t have a plan for how much to spend in each expense category, don’t track their credit card spending as they go, and pay less than the full balance each month, it’s really easy to overspend with credit cards. Those are the people who should absolutely not use credit cards.

However, if you take the steps outlined above, credit cards can work just fine.

What do you think?  Would everyone be better off not using credit cards, or is it possible to use credit cards wisely?

To subscribe to this blog, just click here.  Two or three times a week, you’ll receive ideas and encouragement for using money well.

In August, I wrote about the importance of knowing where each other is coming from, financially speaking.  Last month, the focus was on knowing where you’re going.  This month, I’m looking at a financial issue that, like no other, causes financial discomfort among couples and raises the chances for financial fights: debt.

Take Off the Shackles

The Bible says, “The borrower is servant to the lender.”  Living as a servant to a lender isn’t wise for any of us, but it’s especially problematic in marriage.

Researcher Jeffrey Dew at Utah State University has found that not only does consumer debt (credit card debt and other installment loans) fuel a sense of financial unease among couples and increase the likelihood that they will argue about money, but “this financial unease casts a pall over marriages in general, raising the likelihood that couples will argue over issues other than money and decreasing the time they spend with one another.”

Dew’s research shows that newlyweds that take on substantial consumer debt become less happy in their marriages over time. On the other hand, newly married couples that pay off their consumer debt within their first five years of marriage are more satisfied with their marriage. Those findings held up no matter whether couples were rich or poor.

Whose Debt Is It?

How couples approach their debt is important as well.

When Scott and Karen got married, Karen brought $50,000 of non-mortgage debt into the marriage.  Scott jokingly referred to it as a reverse dowry.

One of the things I love about their story is that from the earliest days of their marriage, whenever Karen would talk about “my” debt, Scott would correct her by saying is was “our” debt. Now there’s a guy who is committed to financial oneness.

One other notable part of their story is that their faith-based convictions motivated them to give away 10 percent of their income throughout their journey of getting out of debt. Karen remembered seeing their year-end giving statement, and thinking, ‘Gee, we could have gotten out of debt so much faster if we had put that money toward our debts.” And she remembers hearing other people’s stories of unexpected blessings they felt came about because of their giving. “I started wondering where’s my cool story?” she said.

Six-and-a-half years after getting married, Scott and Karen made their last debt payment. It was a day neither one of them will ever forget. “It was amazing,” Karen says. “We felt like it was a hard road we had traveled, but we did it, and we did it in a God-honoring way. We are 100 percent debt-free.”

Scott will soon be able to retire with a full pension at a much younger age than most people, having put in over twenty years as a Chicago firefighter. They’re thinking about getting an RV and spending a year traveling the country.

Sounds pretty cool to me.

Be Done With Debt ASAP

If you are engaged or newly married, make it one of your highest financial priorities to get out of debt and then live the rest of your lives with no debt other than a reasonable mortgage (One that requires no more than 25% of monthly household gross income to pay for the combination of your mortgage, taxes, and insurance).

Put together a spending plan that enables you to maximize debt repayment.  You may find it helpful to use the recommended spending plans found in the “Money, Purpose, Joy,” workbook, which contains detailed plans for four different size households across nine different annual incomes.

Very often, when couples get married they get excited about all that they’ll be able to afford with two incomes.  However, if you have debt, I strongly encourage you to base your lifestyle mostly on one income, using the other income to get out of debt and build savings.  Doing so will make all the difference in helping you build a solid financial foundation and live with financial freedom.

10. The New Frugality posted at Reasonably Rich: Lauren writes about why being frugal is not the same as being a Scrooge.

9. Five Steps Toward Automating Your Way to Wealth posted at Personal Finance By The Book: Joe explains how to put the power of automated savings to work.

8. 5 Reasons to Keep Emergency Funds in an Online Savings Account posted at Money Help For Christians: Craig offers solid reasons why to look online when deciding where to keep your rainy day fund.

7. Final Piece of Credit CARD Act of 2009 Starts and How it Affects You posted at Free From Broke: Craig provides a helpful summary of some of the new rules credit card issuers have to follow and what they mean for you and me.

6. How a Second Income Stream Can Give You Some Financial Security posted at The Digerati Life: Guest author Kevin of 20sMoney.com writes of the benefits of a second stream of income and offers up some good ideas for getting that second stream flowing.

5. Coupons for Lottery Tickets – Seriously? posted at Provident Planning: Paul uses the Pennsylvania Lottery’s whacky idea of providing “big savings” coupons for discounted purchases of lottery tickets as the basis for an informative post on the slim chances of winning the jackpot.

4. Martin Luther King, Jr Had a Dream – Do You? posted at Enemy of Debt: Brad uses the anniversary of King’s “I Have a Dream” speech to talk about the importance of having a financial dream and what it takes to make challenging, worthy dreams come true.

3. Big Difference Between Average and Median Net Worths posted at Free Money Finance: FMF looks at the true financial state of American households and comes to a frequently stated but important conclusion.

2. What Is #1 Problem Amongst Gen Y? posted at Gen Y Wealth: R.J. offers some great Labor Day advice for people who hate their job that is applicable to the unemployed as well.  There’s some especially good advice about the importance of using your personal network vs. responding to online job postings.

And here’s my pick for this week’s best post.

1. The Power of Progress posted at Canadian Finance Blog: Alan discusses the motivating power of tracking your progress toward the accomplishment of your financial goals.

Thanks to everyone who submitted posts for the Best of Money Carnival. If you’d like to be considered for next week’s carnival at Free Money Finance, simply submit your post to through blog carnival.

Hopefully, this will motive people to break the habit of carrying a balance on their credit cards once and for all.  If you need some help, here are links to a five-part series of articles I wrote detailing a Bible-based, practical approach to getting and staying out of debt (Part One, Part Two, Part Three, Part Four, and Part Five).

Key steps for ditching your debt include: stop going any further into debt (if you have credit card debt, stop using your cards); “fix” your payments (note your minimum required payment this month and, at very least, keep paying that amount every month even though your credit card company will likely ask you for a little less each month); and ideally, pay more than the fixed minimum.  You can use this calculator to determine when you’ll be out of debt under various repayment scenarios.

The article’s author advised against the loan.  Many of the people commenting on the article went further, suggesting that the woman’s best move would be to divorce her husband.

While this couple’s story is dramatic, the underlying issues are all too common.  Many couples live separate financial lives.  This can be seen in the results of national surveys finding that 44 percent of married people say it’s okay to keep financial secrets from their spouse, 22 percent say they don’t tell anyone how much they make including their own spouse, and over 60 percent say they do not know when their own spouse plans to retire.

What we have here is not just a failure to communicate, but also a failure among couples to commit to financial oneness.  Married couples are best served by doing the money thing together.  The best way to ensure financial oneness is to use a household budget.  There are two equally important parts to a budget.  The first part is a plan for how household income will be spent, saved, invested, and donated.  The second part is a process for tracking how all household income is actually spent, saved, invested, and donated.

If the couple highlighted in the WalletPop article had a budget in place, they could have kept their separate credit cards while knowing the truth of what was happening with their finances.

What advice would I give the couple?

• Don’t take out the loan.  That will only deal with the symptoms of the problem instead of getting at the cause.
• Stop using credit cards.  They should both do this since the article indicated that the woman also has a propensity to charge up her card.  As I have written before, I believe credit cards can be used responsibly.  But in this case, because of the couple’s age (he’s 59, she’s 62) and amount of debt, they need to be done with credit cards for life.
• Find a great marriage counselor and begin the process of restoring their marriage.
• Seek budget assistance of a trained counselor from Good $ense or Crown, or contact the National Foundation for Credit Counseling and begin a debt management program.
• Create a budget that provides complete financial transparency and helps eliminate all unnecessary spending.
• Sell any unused assets to free up money for debt repayment.
• Seek ways to maximize income for accelerated debt repayment.

It isn’t over for this couple.  With the right attitudes and the right help, this difficult experience could be the catalyst for a forever-improved marriage.

What other advice would you give this couple?

It is commonly thought that, especially when it comes to a card you’ve had for a long time, you should not close the account.  That’s because credit history counts for about 15 percent of your credit score.  Close the account, the thinking goes, and you’ll erase some valuable history.  But not so fast.  According to a helpful story on Money Magazine’s More Money blog, closing an account will not wipe out the account’s history.  A spokesperson for Fair Isaac Corporation, the organization that determines your credit score, explained that after you close an account the credit agencies continue to maintain positive information about the account for about ten years and negative information for about seven years.

However, there is a way that canceling a card may hurt you.  It has to do with what’s known as credit utilization.  That’s the percentage of available credit you are using at any given time.  A lower credit utilization works to your favor.  By closing an account, you will lower your total available credit, which will likely leave you with a higher credit utilization.  If you only use five percent of your available credit at any given time and closing an account will push that to ten percent, you probably don’t have anything to worry about.  Using 10 percent or less of your available credit is ideal; 30 percent is usually seen as okay.

So, when thinking about closing an account, you don’t need to worry about its impact on your credit history.  But you should give some thought to its impact on your credit utilization.

Here’s what I mean.  Let’s say you have a $2,000 balance on a credit card.  If you stop using your card and make the required minimum monthly payments, those required amounts will decline a little bit each month.  No, that isn’t due to the generosity of the credit card company; it’s due to simple math.  Your minimum payment is based on a percentage of your balance.  If your balance is declining a little bit each month, your minimum required payment will decline a little bit as well – so little, in fact, that you may not even notice.  Paying this declining minimum is what keeps you in debt for approximately… forever!

For example, let’s say the card on which you have that $2,000 balance charges 18 percent interest and requires a minimum monthly payment of 2 percent of your balance ($40 this month).  If you make the declining minimum payment each month it’ll take you over 24 years to pay off that debt and it’ll cost you $4,400 in interest.

But if you can afford to pay $40 this month, you can probably afford to keep paying that amount every month.  By fixing your payment at $40, you will be out of debt in just under 8 years and you’ll pay $1,700 in interest.  Taking that simple step cut your payoff time by 16 years and your interest charges by $2,700 (You can run some declining minimum vs. fixed minimum scenarios here).

Of course, 8 years is still a long time, so it makes sense to add an extra amount to the fixed minimum.  In the example above, if you double your fixed payment to $80 per month, you’ll be out of debt in less than 3 years.  With this calculator, you can enter all of your debts and see how much faster you’ll be out of debt by adding various amounts to your fixed minimums.

The easiest step you can take toward fixing your debt problem is to fix your monthly payments.

Used responsibly, credit cards can work in your favor.  The responsible use of a credit card involves three steps.

1. Only charge pre-planned budgeted amounts.  If you have a budget that allows you to spend $75 on clothing this month, you can charge $75 worth of clothing.
2. Track your use of your card as you make purchases.  If you use budget software like Quicken or an online tool like Mint.com, your credit card transactions will be reflected in your budget within a couple days of each charge.  This is an important step that is often missed by people who either don’t track their spending or do so with a manual system like a paper & pencil budget or an Excel spreadsheet.  If you don’t track your use of your card as you make purchases, the monthly bill often seems surprisingly high.
3. Pay the balance in full each month.

If you follow these three steps you can take advantage of numerous credit card benefits, many of which were highlighted in a recent MSN story.  Among them:

Purchase protection. When I make a purchase with either of my cards, if the item is stolen or accidentally damaged within 90 days the card companies will reimburse me for up to $1,000.

Price Protection. With one of my cards, if I find the same item for a lower price within 60 days of purchase, I will be reimbursed for the difference.

Extended warranty. Both of my cards double the manufacturer’s warranty on many purchases for up to one additional year.

Car rental insurance. Before renting a car, it’s a good idea to check the terms of the insurance policy on the vehicle you own and also the terms of your credit cards. Our agent told me that for the most part the same coverage that applies to the vehicle we own applies to a vehicle we rent. The one exception is that if we’re in an accident with a rental car, the rental car company will charge a daily rental fee for every day the car is being repaired (“loss of use”), which would not be covered.

I then checked with our two credit card companies. Both offer free “secondary” insurance, assuming you use their card to pay for the rental and decline the rental company’s coverage. Secondary insurance covers anything not covered by the insurance policy on the vehicle we own, such as the deductible. However, loss of use turns out to be a gray area.  One card company rep said technically they do cover that, but only if the rental car company provides adequate documentation, which it rarely does (how’s that for an honest answer?).

Neither credit card company covers pick-up trucks or full-sized vans. One does not cover full-size SUVs.  One company provides coverage for rentals lasting up to 15 days, the other for 30 days.  Both companies provide coverage for rentals from most rental agencies, but this was not always the case, so it’s especially important to make sure your card will cover a rental from the agency you are considering.  If traveling overseas, one of our cards will not cover rentals in three countries; the other offers no coverage in six countries.

Other benefits mentioned by MSN include discounted roadside assistance and insurance for lost or damaged luggage.  Here are a couple of other credit card perks.

Discounts. You may be accustomed to looking for coupon codes and searching for other discounts on the web.  Did you know that credit card companies offer their own discounts for various merchants?  Here are the programs offered by Visa, MasterCard, and American Express.

Faith-based rewards. In an unapologetic mention of my primary sponsor, Christian Community Credit Union (CCCU), not only do their credit cards provide points that can be redeemed for travel or merchandise, but every time you use one of their cards CCCU also makes a donation to various Christian ministries.  To date, that amount has totaled nearly $3 million dollars.

Freebies. Of course, this is the benefit most people are familiar with.  While many credit card companies are becoming stingier with their reward programs, we recently got a new camcorder with a retail price of over $500 just by using points.

Bottom line?  There are financial advantages available to those who use credit cards responsibly.  Do you know about the various perks available from your credit card company?