Buy Plane Tickets with Credit Card

If there's any lesson to be learned about Aloha Airlines wrapping up business and shuttering operations, it's that you should buy your tickets with a credit card.  Why?

Let's say you paid cash, check, or debit for your ticket.  Your money is gone - out of your bank account forever... at least until you file your claim with bankruptcy court.  So maybe a year later you might get your money back... or maybe just a portion of it depending on how the repayment proceedings go.

Now a credit card... all you have to do is contact your credit card company and voila.  You get a credit on your statement.  The credit card company now has to file in bankruptcy court to get their money back, but YOU don't have to worry about a thing.

When To Use Your Card

The simple and ideal answer would be “all the time.” Using a credit card for nearly all your every day purchases can be a great way to organize your finances and get some free rewards. However, it can become a huge disaster in the wrong hands.

Stop reading this article right now if you know you have poor impulse control. A credit card is not a blank check. You should only spend what you can afford, and always pay off your credit card every month. The government may be able to pass a budget with more spending than income, but if you try to follow their lead, you will find yourself in a world of hurt.

Protection is one of the strongest advantages of a credit card purchase. When you have a dispute with a seller you work with the credit card company. The credit card company will deal with working with the seller, and the company employs people to wrangle with fraudulent or unprofessional sellers. With debit, checks, or cash, the money is gone and unless you can twist the seller’s arm, a lawsuit becomes your only option for getting your money back. Consequently, all online purchases, auctions, marketplace sellers, or small business transactions should be charged.

Decreased liability risks prove to be another advantage of using a credit card. When giving your information over relatively unprotected channels (restaurants where the card is out of your sight, shared network connections, or computer systems you do not own) you should use a credit card. As stated in the previous article (The Dangers of Debit) your liability on a credit card is less risky than on a debit or check card. No one can steal your identity or funds if you use cash, but if you lose your wallet, the cash inside is hardly ever going to make its way back to you. For more security, many credit card companies offer virtual numbers for use online. Check with your credit issuer for such programs.

You can get free stuff when you pick the right cards. Using credit cards to rack up miles or get cash back will reap additional benefits for you.

The convenience of a credit card has become a much larger reason for using them. Nearly everything takes a credit card now. Many people like the convenience of carrying a card around instead of cash, travelers checks, or personal checks. Just like online banking, you will also receive statements summarizing your spending. Some companies can sort your statements by merchant categories to give you an idea of where your money goes, and some companies will send you quarterly and annual summary statements showing you your spending for the quarter or year. This information is extremely valuable to analyze your spending.

Bargaining may require you to trick with a credit card. Merchants pay a certain percentage of their sales to the credit card networks as fees for the service. Sometimes you can use this to your advantage. When paying with a credit card, ask for a discount if you pay cash. This usually works with smaller businesses that want to maximize profits. On average the processing fees cost the merchant around 2%.

The Dangers of Debit

The newfangled check cards are great. You can use them to get cash, as debit cards and get cash back, and at anywhere the credit network is accepted. However, these cards have one inherent danger: THEFT.

Before, debit cards were “protected” by your PIN (at 4 digits, its not GREAT… but it’s something). However, these newfangled check cards only require a PIN for debit transactions. Guess what thieves do then? They simply press the credit button. There goes money from your bank account. OH NO!

You see with a CREDIT CARD you are legally ultimately liable for a maximum $50 when your card is fraudulently used. If the thief spent $1000 before you reported the card stolen you can only be held liable for $50 (assuming your issuer even MAKES you pay the $50). Anything after you report the card stolen is handled by the issuer.

With a DEBIT CARD since the money comes directly out of your bank account, YOU ARE LIABLE FOR EVERYTHING SPENT UP TO WHEN YOU REPORT THE CARD MISSING. In other words – all the money in your checking account plus whatever overdraft fees may result. You can limit your liability to $500 by reporting the theft within 60 days of the mailing of your statement, and you can further limit your liability to $50 if you report the theft within 2 days.

If you are going to lose a card, let it be a credit card. This means…

1. Avoid carrying the check/debit card on your person


2. Always use CREDIT cards online rather than check/debit cards


3. Never let check/debit cards out of your personal sight (think restaurants)


4. Request a check/debit card not be issued


5. If you must get one, avoid activating check/debit cards you do not use

I Have Plenty Of Cards From Banks

Here is where things get a little crazy.

Credit cards versus debit cards. Both of these can issued by banks. Just because something LOOKS like a credit card no longer means it IS a credit card. By definition a credit card works on credit. The issuer pays for the things you charge on your promise to pay them back later. If you card deducts from a deposit amount or bank account, you do NOT have a credit card. This is a debit card.

ATM Cards. Long ago, ATM cards were all the rage. With these cards you could get money out of an ATM and that was it.

Debit Cards. Not long after that people wanted to the convenient ATM cards at other places. You could go to a store and have the money electronically debited from your bank account. At the store you would swipe your debit card at a POINT OF SALE (POS) terminal and enter your PIN to complete the transaction. You can think of this like an electronic check. This was the standard for a long time until…

Check Cards came along and made things more confusing. Your Check Card is an ATM card. It is also a debit card which works like a an electronic check with your PIN. Additionally it works like a credit card (press credit instead of debit). Anywhere the credit network you have is accepted so is your check card. By selecting the credit option you may not be charged the debit fees that used to be associated with debit cards, and you do not have to enter your PIN. Voila! Your purchase is paid for through the credit network, but it is not credit since the money is removed directly from your account. Hence the name check card.

Check cards do not build credit. You can have as many as you want from all the banks in the world, but you will not build credit at all. They are equally convenient, but you will not build credit at all.

In fact, in a future article, we will discuss how check cards are more DANGEROUS than credit cards.

To make things confusing, some banks that issue Check cards also issue Credit cards. Think of the major banks like Citi and Bank of America. Again note, that if your card takes money from an account immediately when you spend, this is not a credit card.