Your credit card can protect you from the recession!
Credit cards can certainly drag us into financial trouble, but they can also be the lifeline we're looking for. Here's why.
With UK personal debt levels off the Richter scale, you might think that spending on a credit card now would be a very silly thing to do.
The misuse of credit cards has certainly contributed to the current economic mess. Millions of us have used our flexible friends to buy all sorts of things we can't afford, and don't really need.
However, ditching your plastic entirely could be a dangerous mistake to make. This is because paying by credit card gives you valuable extra protection if anything goes wrong.
Here, I'm going to explain how this protection works - and why it's become even more important that you have it.
Section 75 - what you need to know
The protection I'm talking about is offered by Section 75 of the Consumer Credit Act (1974). The legislation states that in the case of a credit card transaction, the card provider is 'jointly and severally liable' with the supplier for any breach of contract.
In plain English, this means that you are entitled to chase the supplier, your credit card company or both for reimbursement if your goods are faulty, damaged, of unsatisfactory quality, or never arrive at all.
When you are - and aren't - protected
For Section 75 protection to apply, the cash price of any single item bought needs to be more than £100 and less than £30,000.
So for example, a set of four chairs priced at £200 would be covered (even if the chairs - sold individually - cost less than £100 each) because the set is covered by a single contract.
However, if three friends each pay £60 for concert tickets they are not likely to be covered, because although the combined price of the tickets is over £100, each £60 purchase falls under a separate contract.
The good news is that Section 75 applies even if only part of the price was paid using a credit card. So for example, a £150 flight ticket would be covered if you put just £5 on the card and paid the rest in cash.
Even better, while the cash price of a single item can't exceed £30,000, there is no limit to the amount of damages you can claim (consequential losses).
You're also protected even if you have exceeded your credit limit - and overseas transactions are covered, too.
And finally, don't forget debit cards are NOT covered by this nifty legislation.
Recession-proof your purchases!
During the recession, paying by credit card has become even more important because so many firms are going bust.
Trying to get your money back from a failed company can be a nightmarish process, taking months or even years. In the worst cases, creditors never see that money again.
However, with Section 75 protection, you can go straight to your credit card company and sort it out with them instead.
Who should I go to first?
If a company has gone bust, it may be simpler and quicker to claim against your card company first. The same often applies to overseas transactions (when the supplier comes under a different country's legal system, and when it may be particularly difficult to communicate with).
If, on the other hand, the trader is based in the UK and still operating, it's usually a good idea to approach them first, copying your card company in on all communications. Your card provider is then likely to be more proactive and helpful if it does have to get involved.
When Section 75 goes wrong
Sadly, Section 75 isn't without its grey areas, and in certain circumstances, reimbursement can be made very difficult.
To find out more about this (and about action to take if your claim is rejected) read Don't be fobbed off by your credit card company.
Extra benefits... and a warning
If you're paying on a credit card anyway, it's worth considering one that offers you extra spending benefits.
For example, the American Express Platinum Cashback Card will give you 5% cashback on all purchases made in the first three months (up to £100) and up to 1.25% cashback after that (depending on how much you spend).
Just make absolutely sure you clear your balance completely every month. If you don't, your interest charges could end up outweighing the value of the cashback!
Compare credit cards with lovemoney.com.