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Pattie Lovett-Reid: When to use a credit card over cash

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ANALYSIS: I may have a reputation of hating debt — but it is warranted. I don’t like it, but that doesn’t mean I don’t like credit cards. I do think they have a place in your wallet. Here are examples of when I choose to pay with a credit card over a debit card:

1. Credit cards are the safest option for online shopping: Credit card issuers have your back and are always on the lookout for fraudulent charges. If you detect any fraudulent activity you can dispute the charge and it can be reversed. You are not liable for unauthorized charges, unlike debit transactions which are the same as cash.

2. When making big purchases or buying electronics. If you decide to make a large purchase or buy an electronic, many credit cards have a warranty protection plan – some even go beyond what’s offered by the manufacturer. Of course, the devil is always in the details, and you want to be sure of your total coverage and the costs. If you have a large purchase you might as well benefit if you can.

3. Using a credit card for travel is a double edged-sword. I wouldn’t use a credit card if I couldn’t afford the trip. Who wants to pay the bills long after the trip is only a distant memory? That being said, anti-fraud protection can be a huge benefit if you find yourself in a tourist trap. Plus, there may be some perks that come along with using your credit card like discounts on rental cars, frequent flyer miles, or cash back on purchases. And, in some cases, the only way to book a hotel or airfare is with a credit card.

I do use a credit card for some purchases, but there are times when I refuse, and here are just a few of examples:

1. When buying a new car and have the option to extend the warranty. You’ll likely pay less if you roll the cost of the extended warranty into the car loan.

2. If you can’t pay your card off in full and receive notice that rates are going higher. Note to self – stop spending.

3.  When using one card to pay off another card. You might be in over your head and need help.

4. When you can't pay off the basics. I wouldn’t use a credit card that I can’t pay off such as groceries. If you are using credit when you used to pay for things like this with cash – that is typically a red flag.

5.  Flea markets. Enough said – just use cash.

Credit cards can be very useful tools, but try not to make it all about collecting the rewards. Have a plan to pay it off and think about the difference between what you want and what you need. You might want to institute the 24-hour rule. Credit has made consumption very easy. So if you are thinking about splurging, walk away and have a cooling off period.

As the Chief Financial Commentator for CTV News, Pattie Lovett-Reid gives viewers an informed opinion of the Canadian financial climate. Follow her on Twitter @PattieCTV
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