Credit Card Benefits: When Does Using a Credit Card Make Financial Sense?

Are there benefits to using a credit card? Judging from the advertisements plastered across train stations and websites by Swiss credit card issuers, one could be forgiven for thinking that a credit card is a must-have. In actual fact, credit card use is disadvantageous to consumers. Merchants have to pay merchant fees to banks, credit card issuers and payment networks for each payment settled by credit card. These credit card merchant fees are worked into prices and passed on to consumers.

However, although using credit cards is negative for consumers as a whole, there are times when the benefits of using them outweigh or even far outweigh the cost. Here, we list situations in which using a credit card to pay is almost always beneficial.

1. Paying for travel bookings

Many credit cards include travel insurances as a complimentary credit card benefit. Insurance coverages commonly included as credit card benefits include: travel accident insurance (life insurance for flights or cruises); luggage loss or theft insurance; trip cancellation insurance; trip interruption insurance; trip delay coverage (food and lodging cost reimbursement); luggage delay coverage (clothing and essentials cost reimbursement); travel medical emergency insurance; travel legal insurance. Some credit cards also provide complimentary airport lounge access and concierge services.

You can filter and sort credit cards based on their travel benefits using the interactive moneyland.ch credit card comparison. Travel insurance benefits typically extend to all travelers in a travel booking. With the exception of the Visa Libertycard and Visa Libertycard Plus, all Swiss credit cards which include travel insurance require that you use the credit card to pay for your travel in order to benefit from free insurance. Using a card with solid travel insurance coverage can save you a lot of money by eliminating the need for separate travel insurance policies.

2. Renting a car

Major Swiss rental car service providers generally accept cash or debit cards for deposits and payments. But many rental car companies offer sizeable discounts when you pay for car rentals with certain credit cards. Read the guide to credit card rental car savings to find out which discounts you are eligible for. Some credit cards also include rental car collision damage waivers as a complimentary credit card benefit.

Using a credit card with a solid collision damage waiver to pay for car rentals eliminates the need to buy collision damage waivers from rental car companies. That can save you a lot of money. You can sort credit cards based on either car rental discounts or rental car insurance benefits using the credit card comparison.

3. Buying electronics

Some credit cards come with a benefit which extends the original manufacturer’s warranty of new electronic devices when you use them to pay for the purchases. For example, if you use a Viseca credit card (including credit cards provided by Raiffeisen and cantonal banks) to pay for electronics in Switzerland and neighboring countries, you benefit from a warranty extension of 12 months (Viseca silver credit card) or 24 months (Viseca gold credit card) for electronic goods with a value of 100 Swiss francs or more.

4. When the value of rewards outweighs fees

Many Swiss credit cards reward you with either cash back, airline miles or some kind of points when you use them to pay for purchases. In most cases, the rate at which you earn cash back or reward points is relatively low. The value of points or airline miles when you redeem them is also relatively low. Many Swiss credit cards have high annual fees in relation to the rewards they deliver.

But there are some credit cards which have low costs and high rewards. The Cashback American Express credit card from Swisscard, for example, has no annual fee and lets you earn 1% cash back on purchases. The Migros Cumulus Mastercard and the Coop Supercard credit card are two more credit cards which have no annual fee and decent rewards (albeit as points which can only be redeemed at Migros or Coop respectively). As long as you only use these cards to pay for purchases from Swiss merchants, you actually make a profit (not accounting for passed on merchant fees). You can filter and sort credit cards based on their rewards and compare total costs or profits (accounting for rewards) using the interactive credit card comparison.

5. When you need short-term credit

If you frequently make use of short-term loans which you pay off at the end of the month, using a credit card provides a fast, convenient and free alternative to both personal loans and the expensive installment payment schemes offered by retailers. As long as you repay credit card loans at the end of the month, you do not pay interest.

You can use the Migros Cumulus Mastercard to get fee-free cash advances at Migros stores. Sonect, a prepaid app, can be loaded using Swiss Visa and Mastercard credit cards (except Cornèrcard) with no cash advance fee. You can use Sonect to withdraw cash at many retail outlets for 99 centimes per withdrawal (up to 200 francs). Do not use credit cards to get cash at ATMs, banks and other locations at which cash advance fees apply.

Be aware that the high interest rates charged by Swiss credit cards (12% p.a. at most issuers) make them a poor choice for long term loans. You can find more information in the guide to carrying credit card balances.

6. When carrying cash is not safe

If you travel to a country where high theft rates make carrying cash unsafe, using a credit or debit card can provide greater security. The reason for this is that if your credit card is stolen, you can dispute fraudulent charges. You can also have your account frozen if your card is lost or stolen. However, a debit card is a much safer option because it cannot easily be used to make card-not-present transactions (online transactions, for example), a PIN is required for purchases and the contactless payment function can be disabled. Pay careful attention to foreign transaction fees and currency exchange rates.

7. For online shopping outside of Switzerland

Many Swiss online merchants provide the option of billing you via bank transfer, mail or online banking. But when you shop at online stores outside of Switzerland, your payment options become a lot more restricted. Some foreign merchants only accept payment by credit cards from major networks like Visa and Mastercard. Using a credit card also offers some protection because you do not actually pay until you receive your credit card bill at the end of each monthly billing cycle. In the meantime, you have the right to dispute a purchase. Your credit card issuer can then negotiate with the merchant and, if the dispute is resolved in your favor, order a chargeback.

The downside of using credit cards when buying from foreign merchants is that you pay foreign transaction fees and the currency exchange rates are typically unfavorable. Even if your credit card has very high cash back rewards, the foreign transaction costs far outweigh the rewards you earn. It is worth noting that there are prepaid cards available to Swiss consumers (namely Revolut and Transferwise) which have very low foreign transaction fees and favorable exchange rates. Using these prepaid cards for international online shopping can save you a lot of money.

8. When a credit card provides extraordinary shopping benefits

Best price guarantees, purchase protection and guaranteed returns are other useful online shopping perks which may come with your credit card and provide added security. A best price guarantee lets you claim the difference between the price you pay for a purchase and a lower price advertised within a certain time frame – which can save you a lot of money.

Purchase protection is another complimentary credit card benefit included on some credit cards. This lets you claim reimbursement if purchases are accidentally damaged or stolen within a certain time frame. A guaranteed return benefit lets you return purchases to the credit card company if the merchant from which you made the purchase does not accept a return. You can filter and sort credit cards based on the special shopping benefits they provide using the interactive credit card comparison.

Verdict

Credit cards provide a useful service for settling certain types of transactions. As with other services, there are fees and charges attached. If you use the right credit cards for the right kinds of purchases, they can deliver very good value for money.

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