The Credit Card Debt Holy Wars

One of the most frequent negative comments I get on The Simple Dollar relates to credit card usage. I often advocate using credit cards for their purchasing convenience and rewards points, then paying off the whole balance each month. In effect, this means that I use a credit card as an extension of my checking account, albeit one that earns rewards for me. Over the course of the last six months using this strategy, I’ve earned about $500 in car rebates using my Citi Driver’s Edge card – and I’m carrying no balance at all. That $500 will go toward the purchase of a new car in the future.

So what’s wrong with that? There’s a rather vocal group of people out there who basically state that credit cards are completely unnecessary, some even going so far as to decry them as evil. Take this recent comment from Kerry on my article about a financial recovery toolkit:

You mentioned that you put your credit cards in your top dresser drawer and then over time were able to put them back in your wallet. Why not destroy them completely and close the accounts?

If you cannot pay cash for something, then you do not need it.

Along these same lines, individuals like Dave Ramsey and blogs like No Credit Needed follow that same philosophy: no credit cards, period.

And then there’s the other group… Part of the reason that the anti-credit card group is so fervently opposed to credit cards is because it is incredibly easy to lose track of the connection between plastic and real money, and when that connection is lost, it’s incredibly easy to get into a dangerous debt situation.

It’s for this reason that so many people are in deep credit card debt. The average American has $9,300 in credit card debt and the median American has $2,200. What these numbers mean together is that half of all Americans have more than $2,200 on their credit cards – and some of those have a lot more than $2,200. According to the article, 8.3% of households owe $9,000 or more on their cards, but many of those households owe way more than $9,000.

There’s clearly a problem out there with credit cards. A large subset of people out there treat them as if they’re free money, charging up balances that are going to be difficult to pay off. I routinely hear from readers with $30,0000 to $40,000 in credit card debt – and I myself had well into the five figures in credit card debt once upon a time.

So what’s the real answer? I look at credit cards as being like a very dangerous power tool. If you’re careful and take the proper precautions, they can save you time and shower some rewards on you as well. On the other hand, if you use credit cards with reckless abandon, you run the serious risk of some intense financial damage to yourself.

Here’s my advice. If you’re in a bad financial situation, get rid of your credit cards. Lock them up somewhere where you can’t get at them and don’t use them for a long while. However, if your finances are under control and you’re in good shape, the convenience, consumer protection, and bonus rewards offered by credit cards make them a worthwhile tool.

I strongly invite differing perspectives in the comments here, as I know quite well there are people who have come to different conclusions on the subject.

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  1. Tana says:

    I’m turned off by the no-credit card/no-mortgage camp. In our modern society, you need to have established credit or you will find yourself in a lot of trouble. Saying no-credit cards may be a simple solution, but you’re likely to run into problems at some point. If nothing else, other people will be building wealth by borrowing responsibly (such as to buy land or a home) and you’ll be sitting in some trashy rental because you don’t have enough cash to pay for a new house without borrowing. Banks don’t loan money on personal reputation anymore; using a credit card and paying it off, paying your mortgage and a car loan on time – that builds your “reputation.” Insurance companies use your credit report. If you don’t have credit, you get to pay the high rate. It just doesn’t make sense.

  2. While in theory I agree with you, it’s been my experience that credit card companies are getting more and more ruthless about trying to separate you from your money. They move due dates around, which really messed me up, even though I was trying to be responsible. I’ve also heard of rate-jacking happening with more and more frequently.

    So I’d liken credit cards to a malfunctioning power tool. It may work for you, but it might wig out on you when you least expect it, through no fault of your own and cause you great harm.

    Because of that, I’ve jumped on the anti-credit card bandwagon.

  3. Jeremy Hall says:

    I strongly agree with you on this point, and your comparison to a power tool is great. Credit cards are tools, but if you don’t know how to use one, or if you are danger with one in your hands, then don’t use the tool. If you are able to keep that reality in your head that money spent is spent, no matter what form you spend it in, then a credit card can be a great tool. I prefer to carry a minimum of cash on me because I enjoy the rewards and the tracking I get through my credit cards. I have one for my business expenses and one for personal. I enter my receipts in Quickbooks for the business and my wife does in Quicken for our personal expenses. We take stock of our expenses *at least* once a month, and more often when we can. I don’t find this a difficult process once you get in the routine and stick with it.

    Each person is different, and you need to know your capabilities and limitations. But, to say that credit cards are evil no matter what the circumstance is limiting. That may be bad for some, or even many people, but for a percentage of us out here they are a wonderful financial tool.

  4. boardmadd says:

    I fall somewhere between the two camps on this one. On one hand, I view the *need* for credit cards as somewhat overrated, and much prefer using a debit card when I can. Using a debit card reminds me that I can only use the cash I have, and no more.

    Having said that, we still have a standard credit card through our credit union and we use it to handle occassional purchases where using cash is just not practical or convenient.

    One point I agree with Dave Ramsey on is that you *will* spend more money on average if you use a credit card than you will if you are carrying cash, at least that has been my experience. There is a definite disconnect when I pull out a credit card vs. pulling out a couple of twenties to pay for something. The “ouch” moment is much more immediate when I use cash, so I’ve trained myself to use cash for most things. For making purchases online, however, cash is not as viable an option, so having a credit or debit card for these purchases is much easier to deal with.

  5. Madd Hatter says:

    Let me put my positions quite concisely. $9300 is the average cc debt? That’s about what I’ve made off the credit card companies over the past year. Thanks to those who don’t have the discipline, attention to detail, and diligence to manage cc debt for making that possible.

    Honestly, I find this argument and the anti crusaders ridiculous. CC’s are a tool, and just like cars, guns, hammers, and hundreds of other things, they can do good things, they can do bad things, depending on who’s using them.

  6. JBS says:

    I, too, am all for using credit cards responsibly. We use our Amex Blue Cash for all purchases that we can and usually get $800 or so cash back once a year. We transfer our pay to a high yield savings account between receipt of it and payments being due and it usually accrues $10 of interest in that time as well. If I used a debit card, I would be losing out on nearly $1000 a year so I won’t be switching any time soon!

  7. boardmadd says:

    Wanted to add to this the point that we have not carried a credit card balance of any kind for over 13 years and are religious about paying the cards off through automatic bill pay and transfers (I can’t be 100% sure, but I don’t think we have paid an interest or finance charge of any kind in that entire time, but that’s because we are hyper on top of it).

  8. Jaime says:

    I agree that credit cards are necessary. In the world today you need credit to get a home and buy a car. I keep my cards at home under lock and key and until I get to the point that they are zero balance I am not allowing myself to use them. But once they are zero balance, I will keep 2 cards and use them and pay them off each month.

  9. Jon Gaskell says:

    Trent, with consumers racking up more than $2.2 trillion in credit card purchases and cash advances, and lenders collecting a record $18.1 billion in penalty fees – in 2007 alone, one thing is for certain: Americans simply cannot afford to keep buying on credit. Our new company, SmartyPig.com, is a new online savings solution that provides credit-cautious consumers a smart, secure and simple way to save for specific goals and rewards them like never before for doing so. We’re working hard to reverse the mindset of “buy now, pay later” and our efforts are so far very well received. I really encourage your readers to check us out.

    See, unlike other savings accounts, SmartyPig has three unique twists that actually help consumers reach their savings goals faster:

    1) SmartyPig is the only online savings tool that leverages Web 2.0 technologies allowing account holders to make their savings accounts public so family and friends can securely contribute to their savings goals.

    2) SmartyPig currently offers a 4.3% (Annual Percentage Yield) interest rate and will always maintain a competitive interest rate for account holders. Accounts opened using SmartyPig are held by a publicly traded bank, West Bank, and are FDIC insured.

    3) SmartyPig gives consumers even more for their money by offering additional cash boosts (up to five percent) from best-in-class retail partners like Royal Caribbean, Pottery Barn, Best Buy, Cabela’s and Home Depot, when a customer reaches his or her savings goal.

    It’s like a 21st Century version of your old piggy bank. You save up, then you buy – and owe nothing at the end.

  10. Jen says:

    Right after college I found myself in a position where I basically had to use a card or two to build a credit history. Since I’d never had any debt I had no history, and it can be awfully tough to rent an apartment without one (sadly).

  11. partgypsy says:

    I think credit cards are like alcohol; some people can use them in moderation, there are others it ends up harming them.

    Something else to think about is that Dave Ramsey said that people spend about 12% more if they use a credit card vs cash. So, even if you pay off the balance each month and have a card with rewards points, is it worth it if you are spending more?

    I agree the cards are especially aggresive at trying to get money out of customers. I switched to paperless billing, but the entire time I was on that they NEVER sent me a email statement, which they were supposed to do. So, I was sending in payments 2x a month to cover myself. The last straw was a few months ago even though I paid in full, the second of the 2 payments was 3 days after the “due date”, so they charged me late fees for the entire amount! I requested being switched back to paper statements, and great, I can actually have information what my bill is and when it is due.
    Next statement I look at the bill, and again they had charged me a late fee! I called them up and they removed it “a mistake”, but stuff like that, where they make it difficult to pay your credit card on time makes me not trust my own credit card.

  12. savvy says:

    I use credit cards as an extension of my checking account as well. I don’t put anything on the card that I don’t already have the cash for in my account. Therefore, the bill is paid in full in month. We travel a lot and the FF miles we get from using our cards helps us save money on travel.

    As far as the people who cite the card company ‘tricks’, I just don’t get it. I have no idea what my interest rate is and don’t care what it is or if they change it because I don’t carry a balance. In regard to changing the due dates, etc., if you look at your bill every month that shouldn’t be an issue.

  13. ljk says:

    I don’t think that credit cards are evil, and I don’t have a problem with having them around. I think for those just coming out of lots of credit card debt, using them could be too tempting to lapse into old habits.

    Like many other things in life, credit cards need to be used responsibly. For myself, if I were to start using mine for daily purchases, then I would have to treat it as using my bank card and record each purchase in my budget right away.

  14. Shaun says:

    Many people thinks the credit card companies are “evil” and trying to separate people from money. I do not understand where this is coming from. They are a business. If your rate was hiked up, it only matters if you have a balance on the card. They weigh many factors when deciding about who/what to raise rates, and it is for continuing the profitability of the company

    Contrary to what you think, the credit cards companies do NOT need us to keep a balance to make money. They make 2-3% percent of every purchase from the store accepting the card. I imagine that if they were guaranteed that every card holder were to pay every bill in full every month, they’d take it. They would spend no money on collections, have to spend no money complicated modeling about rate hikes. It would make them a very simple business

    Credit cards are not evil. They are like a nail gun. If given to the wrong people (those too young/inexperienced, those with no control), they are dangerous. If used by a qualified individual, they provide benefits. People can also get by without them.

  15. breena says:

    Your views precisely reflect my thoughts on this issue. In response to comment 1, regarding due dates moving around…the solution is quite simple. Pay right when you get the bill.

    Ever since I realized that your credit report shows your highest balance EVEN IF it was paid in full I keep up with my bill weekly. Every Friday I add up the charges I made that week and pay it off right then and there, and that avoids any problems with due dates, interest rates, and it doesn’t allow the balance to get to a large amount.

    I consider myself responsible with money, so for me the rewards far outweigh the “evil” of credit cards.

  16. Rick Mays says:

    I appreciate your balanced perspective on this issue and especially like your analogy of credit cards being like dangerous power tools–use with caution and keep your mind and eyes on what you are doing.

  17. Jason says:

    We have to take plane flights to go to my parent’s house, and do most of out Christmas shopping through amazon.com. It is orders of magnitude easier to do these things with a credit card than without — and I don’t know if it’s possible without.

    I also used the credit card as a tool to “float” my Master’s degree. My employer would reimburse me for the class only after the end of the semester, the college wanted payment at the beginning. Tuition was about $5000/yr, and it was a rewards card (amazon.com), so we got a lot of amazon gift certificates that were used to pay for Christmas gifts.

    I also take occasional business trips, a credit card is invaluable for this since I don’t want to float my employer a $2K loan to pay for flight, car, food, etc. If I didn’t have a credit card, I’d have to take that out of savings.

    We pay it off monthly and keep a zero balance most of the time, though.

  18. Ryan S says:

    One convincing argument against the use of credit cards is that if you use cash, you will likely spend less than if you could swipe a card.

    What if, say you spent 6% less than if you used a card? That would mean that the rewards of using the Drivers’ edge would be negated.

    Side question: how often is too often when applying for new credit cards?

  19. Brian says:

    I’ve probably been in both of the camps at one point or another. I use to think that the other was ridiculous depending on which camp I was in at the time, as well. I’ve seemed to settle in a middle ground of this:

    There are three primary benefits to credit cards if used responsibly (read – paying no interest): Protection, Convenience, and Rewards.

    I use credit cards for their protection. Meaning – large purchases will usually go on a credit card as the immediate form of payment. I don’t charge what I can’t pay off immediately (and I don’t mean when the statement comes, I mean IMMEDIATELY). I think there’s a difference. A credit card should not be a monthly floating loan where I can spend a little more this week even though I don’t have it, because next week I will. That’s playing with fire, because sooner or later, next week will come and I WON’T have it for whatever reason.

    I like the chargeback capability, and my credit card company takes the charge off my account while a chargeback is processing, meaning I’m not OUT the cash and waiting to get it back. I’ve only ever had to do this once all the way through, but it’s still peace of mind and gives the consumer a little leverage when dealing with big bully companies.

    I use credit cards for convenience as a front-end access to my emergency fund. When I say fronting the emergency fund, I mean solely as an immediate access to money that is already in the bank. I don’t USE the credit cards as the emergency fund, I just use them to carry the transfer time when there is an immediate need. My emergency fund sits in an online bank earning better interest, but that means it takes a few days to transfer it to my main checking account. Thus, if we are on the road and the car has problems, I cannot sit around and wait. I pay with a credit card, immediately transfer it from my emergency fund when I get home, and use that cash to pay off the credit card.

    And that leaves… the Rewards.

    Personally, I’ve chosen not to use credit cards for this. Which seems a little silly since I use them for the Protection and Convenience reasons, but my problem is this:

    No company is giving rewards for free. There is no such thing as a free lunch. Those rewards are only available because they are funded by those people whose backs are breaking under loads of credit card debt. I use to be those people. I can’t bear the thought of profiting from them now. This is at the purest form, a decision of conscience. Personally, I feel a bit hypocritical to preach a debt-free lifestyle and then profit (in the form of rewards) from those I’m preaching to just because they are not there yet. There is certainly temptation to use rewards – it would be nice to get back from the credit card companies since I gave them so much originally, but I just can’t shake the feeling of dirty money.

    Trent is right, there is no “right” answer. This is just my take…

  20. Stacy says:

    Having a credit card can be great protection while traveling. Airfare, lodging, car rental, and emergencies are all things I would rather not pay with a debit card.
    As long as you have the discipline to pay your balance off each month, those reward points can also help you pay for travel.
    To make sure we can pay the balance each month, as soon as we charge something on a credit card, I “move” money from our checking account to a dummy account in Microsoft Money. (the money is still in our checking, but earmarked for the credit card bill) When our credit card bill is due, I move the money back to checking and pay the full amount owed.

  21. CF says:

    We use credit cards whenever we can for payments, and get back about $1,300 a year. We also pay them off each and every month, so have never paid a penny in interest or late fees.

    HOWEVER, I can’t dismiss the argument that we may save more than that $1,300 each year if we forced ourselves to pay everything with cash. There is definitely a disconnect when using plastic. I’ve just never had the discipline to try it.

    As far as debit cards go, I refuse to have them – while theft and store error are uncommon, I hate the fact that they act like credit cards but immediately take the money from your account. And while this is a bit off topic, that’s part of the reason I haven’t switched to ING or similar, because, as I understand it, you must use a debit card, not a basic ATM card.

  22. Chris G. says:

    Main reason I use credit cards is to keep my purchases separated from my checking account. I rarely use my debt card for purchases, as I am worried about a mistake (or someone outright stealing the card #) causing an overdraft on my account.

    At least by having a credit card, any issues are separated from my checking account.

    The key is to set limits. Every time I buy something on my credit card, I try really hard to think “do I really need this”.

  23. Mike says:

    “Something else to think about is that Dave Ramsey said that people spend about 12% more if they use a credit card vs cash.”

    “One convincing argument against the use of credit cards is that if you use cash, you will likely spend less than if you could swipe a card.”

    I think this argument only works if you are against using credit cards AND against using debit cards. It seems that people who are anti-CC advocate using debit instead (Dave Ramsey included), which would lead to the same problem of overspending compared to cash.

  24. JP says:

    I always use a credit card and usually make a payment weekly on them. I use online banking so it is really easy to check balances and make payments. Plus I can monitor my spending weekly plus I get the rewards and don’t have to worry about due dates. I have never understand why people complain about due dates – if you pay your bills when you get then it shouldn’t be a problem

  25. JP says:

    Also I like using credit cards because I know the company has to report the income and pay taxes – when using cash it can be “overlooked”. I know that is cynical – but if I have to pay everyone else should as well.

  26. Seth says:

    I keep hearing this “you spend X% more when you use credit cards compared with cash” and I wonder if this is true in my case. I’m sure it is valid for the average consumer, but the average consumer spends more money than they make so I would say has spending problems to begin with. Then throw on the ease, convenience, painlessness of using plastic and I can see how spending more is a reality.

    But what about me? I follow a strict budget. I don’t spend what I don’t have budgeted except what’s out of my control as when gas prices shoot through the roof. I pay off my cc bill every month. I really don’t see how my spending would change if I used cash instead of my credit card.

  27. Phil A says:

    I fall on the side of using credit cards as a valuable tool. I always use my credit cards for gasoline and groceries and some other expenses as well. I like them for their convenience and mainly because of the rewards I receive after racking up points. I pay off the cards in full every month. If I was not able to pay off the cards in full then I would leave them in a drawer and use only a debit card for my purchases.

  28. Credit says:

    I agree with this assessment. Once you have fixed your inability to manage your finances, credit is a powerful tool if leveraged responsibly. Access to credit is a key factor to living well. It is important to establish a strong record of responsibly using credit. Canceling credit cards or having a below average number of credit obligations out of fear will reduce your future access to credit and could cost you upwards of $100k through your lifetime. This easily dwarfs making your own soup or rinsing Ziploc bags.

  29. I have the Chase Freedom cash rewards card. 1% cash back on everything except auto & food purchases, where I get 3%. In 6 months, I have made back about $80.

    It is sad that most people are not able to use these cards to their advantage. Credit cards become a license for fun, with the anticipation of paying it off. Then comes that unplanned expense and the card becomes the emergency fund.

  30. Louie says:

    As a 19 year old college student i have a credit card, and i use it very frequently. I carry no balance on it and pay it off every month. On the whole, i would say while i agree that with the statements of “if you dont have cash to pay for it then dont buy it” well there is a lot of convenience in having these tools at your disposal. why not buy something at 0 percent for 12 months if you have the discipline to pay for the things you purchase. I use my card all the time because not only is it good training for me to learn how to pay bills etc but it is an excellent opportunity for me to learn how to stay out of debt and build up the mystical FICO score, which will become important when i graduate and am looking to consolidate my student loans and everything else i might need credit for as i get older. Credit card debt stems from two things, the inability to say no or in rare instances those people that are barely keeping their head above water, in either event credit card companies have no problem forking over the credit limit and “working” with you, that is until you need a little help in return. It seems like every month that i log onto my account information my credit limit goes up. What 19 year old college student needs a 2000 dollar credit line? These companies prey on people and the simple fact is that if you can truly live your life with out them, good, stick it to em.

  31. Johanna says:

    I, too, use a credit card in order to beef up my credit history. I don’t have student loans, and I’ve never had a car loan (because I’ve never had a car), but I would like to buy a house someday, which means having a mortgage, which means having a good FICO score.

    But now they are saying that your FICO score suffers if you don’t use both revolving debt *and* installment debt. My parents have suggested that I get a small personal loan from my bank, even though I don’t need the money, just so that my credit report will show that I can make the payments. Is this a good idea? Has anyone else done this?

  32. Danny says:

    I have to agree with above about using tools wisely. We have the Chase freedom card and are about to get our $250 check. Free money basically. All I had to change was to swipe the blue card and pay it off every month instead of the yellow debit card and they pay me to do so. I have no idea why everyone who doesn’t have a spending problem isn’t using a rewards card for everything.

    Just because something can be used both wisely and poorly doesn’t mean it is evil.

  33. jtimberman says:

    Okay, I’ll bite.

    How much did you have to spend on your Citi card to earn $500 worth of car rebate points? Can that $500 be applied toward a used car purchased from a private party?

    Answer: A lot, and no. I’m unaware of any car rebate points from credit cards that can be applied toward anything but a brand new car, which will lose more in depreciation than the rebate when you drive it off the lot.

    Buying cars from a dealer, brand new or used, is the most expensive way to buy cars. Duh. I only buy cars from private parties, and no, I can’t use reward point rebates, but I also didn’t lose $500 in depreciation when I drove away.

  34. cv says:

    I think Brian’s point about credit card rewards is interesting. How much of the profits of credit card companies is from interest and fees charged to people using their cards irresponsibly, and how much is from the 3% or so transaction fee that most of the card issuers charge merchants? I’m surprised that no one ever makes the argument that by using credit cards you’re contributing to higher prices on everything as merchants have to pass along those transaction fees to the customer.

    That said, I’ve used credit cards since I was a teenager for the convenience, and I’ve never paid interest or a late fee. I have a joint card with my girlfriend, and I love the convenience of being able to charge shared household expenses like groceries and car stuff and deal with one lump sum each month instead of a pile of receipts the way I used to do with my old roommate.

  35. Frugal Dad says:

    I think this must be an individual decision, as one size doesn’t necessarily fit all. There are those who are responsible enough to carry a credit card, use it only for goods/services you would have purchased anyway (utility payments, gasoline, etc.) and pay in full each month.

    However, others that find the temptation of a $5,000 credit line too strong and frequenly succomb to the power of consumerism – making ill-advised purchases simply because they have the available credit. I was in that category myself, and opted to give up all my cards but one, and I keep that one at home only for emergencies. When I am debt free I will use that ONE to pay utilities online to benefit from the rewards program. Of course, no one ever got rich off rewards programs!

  36. Ensign Eddie says:

    I am definitely in the “credit card is a tool” camp. In the past I did have trouble with missing due dates but it was MY FAULT, not the credit card companies’. Usually I could get a late fee removed (even when I was actually late) just by calling them. As long as you have a good history they can usually be dropped. But you have to ask.

    I finally solved the “due date” difficulty by creating a spreadsheet with all of my bills (not just credit cards) listed each month. As a bill comes in, I mark the due date in the spreadsheet. This way I can see at a glance if I have missed a bill and know to go looking for it. I haven’t missed a due date in years.

    Today I use one credit card for convenience. I don’t like to carry a lot of cash and feel more secure using it than a debit card (if there’s a dispute I don’t have to have money put BACK into my checking account…it never left it). I also use it to pay for certain recurring bills such as phone, satellite, and even my city water bill.

    But I can see how using plastic (credit AND debit) can cause people to spend more. I know I have on occasion. But I use my trusty spreadsheet to help with that as well.

    I realized early on that I could not keep up with a dollar-by-dollar budget. So I created a budget on a spreadsheet and, as part of it, I give myself a weekly allowance of cash (I do carry some) that I can spend any way I see fit. As long as I don’t find myself heading back to the ATM (no-fee, of course) during the week, I don’t sweat it.

    However, I also have a budget line for my credit card. I allow myself to charge a certain budgeted amount each month. As long as I don’t go over that, I don’t sweat it. However, I DO play “Beat the Budget” and actively try to come in under the budgeted amount. For instance, this month I’m $300 under. woo-hoo!

    I guess the key to any of this is find a plan that works for you. You may not maximize your financial potential, but it’s better than most of the people that can’t even tell you their checking account balance (I can, btw. I have it in three places and triple check it weekly….I’m such a nerd….).

  37. Amelia says:

    Trent, I am 100% in agreement with you on the credit cards. I am still currently not using them at all until I pay off my debt completely but will probably employ a strategy similar to yours when the time comes.

    On a related note, I just started my own blog about getting healthy and personal finance! I am so inspired by you and will probably do a follow-up post about this myself.

    Thanks for sharing your perspective!

  38. Megan says:

    I agree with you wholeheartedly. I use my credit cards to build up rewards and then pay them off each month. Until recently, I’ve only used one card, but I’m slowly starting to use my Discover card more for purchases eligible for their special 5% cash back offer.

    There are so many different types of rewards cards out there. I use an Amazon.com Chase Visa, because I can use the rewards on just about anything. My mother starts putting everything on her Disney Visa a year or so before a trip to Walt Disney World, and usually ends up with enough rewards to cover a significant portion of the dining expenses for the trip.

    As long as you’re responsible and careful, I think rewards cards are a great option.

  39. partgypsy says:

    Savvy, JP, the problem is when they do not send you a monthly statement. You are waiting around to receive that statement to pay your credit card, and it doesn’t arrive.
    And again on my most recent statement they charged me a late fee even though I paid in full and on time!
    I am sticking with my credit card because I pay it off every month and also receive rewards, but I really do not like how they do business.

  40. ri says:

    I’m on the heavily pro-cc side. I pay with my cc every time possible.

    Before getting a cc, I paid with a debit card every time. I did this for convenience – I didn’t have to go to the bank when I needed money,and it got me into the habit of keeping track of my bank balance in my head.

    After I got a cc, I still applied the same principles. To me, spending with the cc is equal to withdrawing from my bank, so I’ve never been unable to pay the balance in full.

    Plus, I can keep the money I would have been spending all month in a high-interest savings account. Granted, this probably only works out to a few pennies earned a month, but I’m sure over the course of a lifetime it adds up.

    Finally, there’s the cc bonuses you get. Yes, I get points, but I also get warranty coverage from my cc company, I’m protected against fraud, and if there’s a dispute, the cc company has more clout with the merchant than I possibly could have. In fact, my brother recently had a problem with a gym – thank goodness he had paid with his cc. The cc company ensured payments were stopped, and was even able to recover back money the gym had collected that they were not supposed to. If he had paid cash or debit, that money would have been long gone.

  41. Megan says:

    I don’t think credit cards are evil, but I can definitely understand why they get people in so much trouble. It is very easy to spend beyond your means, which is what the credit card companies want you to do.

    I go back and forth between using the credit card almost exclusive to make purchases in order to get the rewards and avoiding them altogether and just using the debit card.

    I think using credit cards responsibly and paying them off on time is perhaps the best way to improve your credit score. As an above commenter alluded to, no credit is just as “bad” as bad credit.

  42. KentuckyBob says:

    I’ve personally gone 100% cashless as a measure to decrease my frivolous spending. I have problems with cash, there’s just something about having it in my pocket that makes me want to spend it. I used to buy coffee all the time, and snacks from vending machines, and packs of gum at the gas station. Little things, but if you do it every day it adds up quickly. Now I can’t get anything from a vending machine at work, and if I want a coffee I have to put 60 cents on my credit card. The silliness of doing that keeps me from doing it very often. When I have to get gas (once a week at least), I just swipe, pump, and leave. I don’t even go into the store anymore so I no longer have that temptation. Of course this is just my experience, but it’s another way to look at things.

  43. Andy says:

    I agree that they are a tool. If your spending is not under control, just get rid of them. Cancel them, but them up, be finished. If it is under control, then it is maybe worth it for the protection, convenience and cashback (as Brian described).

    Disagreeing with Brian though, I see cashback as getting back some of the 3% that companies charge for using the card (where it is already built into the price of the item), not so much profiting from those in debt.

  44. ryan says:

    Trent, I agree with you. Credit card is a valuable tool to get discounts/rewards points/cashbacks but strict discipline must be made to:
    1. ALWAYS pay full amount
    2. Keep track of your payments which use credit card so that you are completely sure you have enough cash to always pay full amount
    3. NEVER pay late
    4. AVOID credit cards with annual fees

  45. John says:

    Right now I owe $21,000 at 0%. I have the money in cash. Say, cash earns more than 0%. I have borrowed about $100,000 over the last year on credit cards, but have not paid one penny of interest. Hey, isn’t that cash worth $2,000 in easy interest?

    I don’t carry a credit card, just a debit with a low balance ($300). I destroy the physical cards. But there’s a good argument for using one. Specifically if you buy something that is broken the card bank will invervene on your behalf. A bank might do same for a debit card, but there is less financial incentive for them to do so.

    I derive some comfort from knowing I have access to an enormous line of credit. What’s the argument against having a huge cushion? Apparently the argument is that you’ll misuse it. And I agree that’s a terrifying thought. People tell me I should not try cocaine. And I am vigilant about information security.

    My work is short-term and insecure, but the compensation is very good. Without easy credit I’d be forced into jobs that aren’t right for me. Or I’d be forced into suboptimal investments in my IRA or medical savings. I want maximum tax advantage, and having an enormous credit line can help.

    You are absolutely right they are dangerous tools. It took a lot of dangerous tools to build my house. Try building a house with a plastic knife and a safety razor.

    Also I agree: These companies sell servitude. They want to make you a slave. No debate there. It’s better to run out of cash then to run out of credit. Right now many people are living on credit cards as the economy chokes. Stop them. Help your friends avoid the trap.

  46. No Debt Plan says:

    I think most people who fall into the “never use them ever for any reason” group are people that have been burned badly, and are now fearful of credit.

    When it comes down to it, you’re right. Credit cards are not evil. (http://www.nodebtplan.net/2008/01/10/credit-cards-are-not-evil/).

    Indeed they are a tool; just like a gun. They can be used responsibly or irresponsibly.

  47. No Debt Plan says:

    I should also note I use credit cards for every purchase we make that takes cards. Last year we earned $432.xx from paying our regular bills. I’ll take free money.

  48. Dan says:

    I also use a single credit card and pay it off each month, and as a result have never had a problem with credit card debt. I read a statistic (I believe from your favorite personal finance book, Your Money or Your Life) that said that on average, people spend 23% more with credit cards. But I wonder if that number is smaller among those who pay off their balance each month. I would enjoy knowing the answer to that.

  49. Johanna says:

    @partgypsy: Why not get in the habit of checking your account activity online at least every week or so? I do this to make sure that all the charges are for things that I actually bought, and that the amounts have not been altered – I’ve heard horror stories of restaurant staff changing the tip amount that the customer writes on the receipt. So I check while everything is fresh in my mind, and I remember how much I intended to pay. And this has the added bonus that I never have to be reminded when the bill comes due.

  50. jmacdaddio says:

    I have always believed that credit cards are like fire: a useful tool but one that can wreak havoc if you’re not careful. I’ve played the 0% APR game in the past where I put everything on my card, pay the minimum, and park the difference in ING. It’s not a bad way to rebuild a savings cushion if you need to. Just don’t get burned, that’s all!

  51. Becky@FamilyandFinances says:

    I have the Chase Freedom card that gives us $250 back once we’ve earned $200. I’ve never had them move the due date around or play any other “monkey business” with us.

    We use our credit card for everything because of the convenience and rewards. I don’t doubt that we might spend a little more than if we had cash, but my husband and I are both naturally frugal, so I don’t think it’s much. It’s worth it to us for the convenience and not having to carry cash around.

  52. Becky@FamilyandFinances says:

    Oh, and we have never carried a balance, of course :)

  53. Tyler says:

    “In the world today you need credit to get a home and buy a car.”

    That is simply not true. I bought my house having no credit cards, loans, etc. in my name. How did I do this? A manually underwritten loan! You people, like Dave Ramsey says, are “bowing down to the almighty credit score.” If you need a car, save up the cash and pay it!! I can’t believe people think that credit cards are necessary. Use a debit card if you need to purchase something online. The rewards from a CC are optional to the consumer and are not a REQUIREMENT in today’s world.

  54. Tyler says:

    At comment #31, Johanna.

    AHHHH I can’t believe this type of crap exists. People, please research before you trust/decide on what other people say, including Trent. You don’t need a FICO score to buy a house. There are lots of lenders out there who manually underwrite home loans. I am a customer of one lender. How do you think people 20-30+ years ago bought houses? They didn’t have a FICO.

    You won’t need to build your credit because this will eliminate any need for it!

  55. Sandy E. says:

    I just feel it’s a question of time before the rules will change, unbeknownst to me, and I’ll get burned re using my credit card, and reading up on any of that is not how I want to spend my time anyway. I’m out of debt, including mortgage – since Oct., and it’s one of my goals now to stay out of debt for one year. After I manage that, I’ll do it again for another year, and so on. So whenever I do use my credit card, it takes 2-3 days before what I charged appears on my online bank account and as soon as it does, I make a payment, transferring funds to bring it back to 0. I do this with every purchase, even though I might make 4-6 in a month or more! I do not wait for my due date to pay off my card. I realize too that if I didn’t do this, then when the balance becomes due on the due date, that balance might appear so high that I possibly would not pay it all and carry a balance – (what the credit card people want). Each time I make a payment after my purchase, that’s less $ I have to spend elsewhere, so keeps me in check. This has been working well for me since Oct.

  56. guinness416 says:

    I accept that people may spend more with a credit card (is there a cite for that 12% figure, by the way?) than cold hard cash but would bet that this applies to “people” in general and not people on top of their personal finance game, or getting there, like those of us in this comments section.

  57. Troy says:

    It makes business sense to have a credit card for a few great reasons.

    Understand that a credit card’s purpose is not to take place of cash, rather, it is to supplement the ability to mitigate risks.

    1. A credit card extends your payables; therefore, leaving you with more cash on hand.

    2. Protection: A credit card offers a lot of financial protections….more than banks…which also lessens your risk exposure.

    3. Lose your cash…too bad, but lose your credit card…you will no financial loss if you report it in a timely manner.

    I don’t want to list rewards as a benifit of credit cards because the costs of the credit cards providing the rewards is passed along to the consumers in the costs of the products. Rewards are essientially a partnership between the credit card company and the retailer.

    Rewards are nice though.

  58. savvy says:

    @ comment #39 – But surely you know that you’re supposed to get a statement so why not just log onto the website or call the 800 number to find out when the due date is? If I don’t get a particular bill, I don’t think I’m absolved of any responsibility. Sure they SHOULD send you a bill but I’m responsible for paying whether they do or not.

    In your previous comment (#11), you admitted you paid three dates after the due date. Therefore, you were late and they charged you a late fee. I don’t see a problem there.

  59. Nick says:

    I’ve had a very positive experience with my current credit card. I’ve been following Trent’s plan of using the card for rewards but being VERY dilegent by paying it off every month. In fact, I now make electronic payments on the card 2-4 times a month to ensure I am tracking my money.

    The card I use is the American Express Blue card – you have to sign up for the rewards program separately, but it is entirely free. I’ve found that the customer service is really quite good as you get access to the basic customer support that the gold and platinum cardholders get, but you don’t pay for it (they of course get additional benefits – but I don’t want to pay the annual fee)

    Now, all of my bill payments (phone, some loans, cable, etc) get automatically billed to this card and I earn points. Just after one year of this I paid them exactly $0 in interest and was able to save about $300 on a plane ticket for my parents to come visit me in Washington, DC.

    I see it as a huge benefit if you are disciplined enough to track your money and keep a watch on your spending. If you are undisciplined however, you should never own a credit card.

  60. Andrew says:

    I’m all for using credit cards for the majority of purchases, especially when you have a good reward system in place to receive cash back at year’s end. However, I live in an area where we have a plethora of “mom and pop”-type produce and grocery stores, where I do a lot of my shopping, which are struggling to exist in a large city with the likes of Safeway and others. Given this situation, it seems obvious that in order to compete these stores have to keep their profit margins razor thin to compete with the price breaks afforded large grocery chains on their bulk shipments of goods. Once the processing fees for credit cards (and, to a lesser extent, debit cards) are paid for, the store could be making little-to-no money from you. This is people’s livelihoods we’re talking about, and if they can’t survive they’ll have to raise their prices, at which point they cease to be competitive and will have to close down shop. I can’t help but feel a little guilty about this, because the last thing I want to see is a country full of big-chain faceless stores. Does anyone else feel the same way?

  61. KF says:

    I am actually particularly wary of credit cards tied to bonus points/money for car purchases. My grandparents did this, and as a result they only bought new cars from GM. Yes, they got big discounts thanks to their credit card points. But, I think they might have saved the same amount of money just buying their cars and trucks gently used from an individual instead of new from a dealer. Both entities involved in this case (the credit card company and GM) – are profitable, sophisticated companies that certainly are not losing money to consumers like my grandparents. The credit card companies know my grandparents will spend more on plastic and that they will partially subconsciously justify this because of the points, and GM knows it will get their business and obviously still turn a profit.

  62. Tom says:

    @jtimberman

    With the Drivers Edge card, it’s basically like any other Citi Card, where you earn cash back rewards that come in the form of a check that can be used to purchase any type of car(from wherever) or vehicle service. Normally it has a 1% cash back rate, and 3% back on drug stores, groceries, gas. You can also submit forms for the miles you drive for $1 every 100 miles. Whenever you get your car serviced you send a form in with a copy of the service invoice which has your cars mileage (you send in a form with the beginning mileage when you first sign up). I had this card for 4 years and you definitely rack up the money pretty quickly. Think about how much you drive (I drive 30 miles to and from work everyday x 5 days x 50 weeks = 7500 miles = $75). It adds up quick.

  63. Gena says:

    You said “There’s clearly a problem out there with credit cards.” I disagree. There’s clearly a problem with people not taking personal responsibility or being accountable for their actions. Credit cards aren’t evil anymore than alcohol is, used responsibly and in moderation. The problem is that so many people can’t/don’t. Several people have likened credit cards to power tools. I think the “power” part of that is worth pondering.

  64. Great minds in the same path! I just posted a contrarian point of view on this subject last night. :-)

    Credit cards are like fire: a great invention that can help you or harm you. If you light a campfire under a pine tree, you’ll burn down the forest. But if you use fire responsibly, it’s an indispensable tool. Same is true of credit.

  65. Johanna says:

    @Tyler: I looked up manually underwritten loans and found this:

    http://www.wbir.com/money/story.aspx?storyid=54420

    It says:

    “I had my customer bring in bills he had paid on time for the past year to create a credit history. Typical ones used are car insurance, utility bills, cell phone bills and cable bills. You can expect to have to provide 3-4 different trade lines if you haven’t established a traditional credit history and score.”

    I don’t have a car, my utilities are paid by my landlord, I have a prepaid cell phone with no regular bill, and I don’t have cable. I have a landline phone, but that still leaves me 2-3 bills short. It’s easier for me to use a credit card than to rearrange my life to give myself more bills to pay.

  66. Ryan says:

    All credit card all the time, mainly for the reason that everytime (rarely now) I withdraw $20 from the ATM, my wife takes it within minutes of my arrival home. It’s like she has full wallet radar.

  67. Personally, I find credit cards my best financial optimization tool. (you say… so what?)

    Here in Spain, you have a kind of credit cards what you pay the full amount of your debt at the end of the month with no commissions. I do not know if this kind of credit card is available on other countries, but in Spain it is.

    Most of that kind of credit cards offer several discounts on fuel or other goods. That can be a little of money each month, but it is ADDING money.

    You can combine the card with a back account that gives to you interests. So you have interest for the money that was kept on your account one month more that it would be.

    You can low the money available on the card to the amount that you can spend. So you can put a hard limit of spend.

    You can see by Internet how much you have spent on daily basis if you want, to keep control -very interesting at the end of the month-.

    And the most important issue: most cards -mine has it- gives to you a monthly report, where you can read where you spent at dime level. And they gives to you aggregate sums of what you spent on meals, on fuel, and so on, so you have a powerful analysis tool to know here the money is going.

  68. kathryn says:

    Like Kentucky Bob, I believe one size does not fit all. Some people may spend more using plastic, but some people may spend less. I’m one of them.

    We used to take a certain amount of cash out of each paycheck to cover groceries and “misc.” expenses. Month after month, that cash always disappeared, but I rarely had any sense of where it all went. If I was heading out, I would grab a 20 (“just in case”) and it never made it back into the envelope. Some was spent on groceries, lunches, snacks, or stuff, and some just floated around, showing up in coat pockets and bags months later!

    Now that we use a credit card (Chase Freedom) for 95% of everything, I know _exactly_ what I’ve spent my money on. I download the detailed statements each month and track my spending for the year.

    We’ve actually spent less since switching. My system is that I can charge no more than $XXX dollars per month. I FEEL the limit growing closer each time I swipe that card. Handing over cash just doesn’t register pain in the same way…probably because it’s already gone from my account.

    To each, his/her own!

  69. d^2 says:

    what is the opportunity cost of NOT using a credit card for every purchase? if you have a citi dividend card, it is very clear: citi dividend card gives you CASH BACK of 1% on EVERY PURCHASE MADE.

    so if i spend my cash instead of my credit card, i am paying 100% of the purchase price instead of 99% of it.

    in effect, all cash users, debit card users, and non-convenience users are subsidizing convenience users!

    you don’t have to use a credit card, especially if it is too hard to control yourself, but there IS an opportunity cost to not using one!

  70. partgypsy says:

    Savvy,
    Yes there was one month (after paying twice that month) they said I was late, and I paid a late fee. The second time they charged me a late fee I had paid on time (they acknowledged this and refunded my money).
    This was after months of me calling them, and them assuring me that I would be receiving electronic statements when my bill was due, and every month not receiving them.

    So yes, now I do check my credit card statements multiple times a month, have set up where I can transfer money from checking to my credit card bill electronically, and also put a reminder in my electronic calendar when my credit card statement is due.
    Altogether, it’s a bit of a hassle for something that is supposed to add convenience to your life.

  71. jtimberman says:

    “Dunn and Bradstreet did a study which made this comparison, and the results that they found were quite surprising. Statistically they found that on average you will spend 12-18% more when making a purchase with a credit card as opposed to cash. They also discovered that the average McDonalds transaction increased from $4.50 to $7.00. When they looked at vending machines, the average transaction size nearly doubled.”

    Quoted from this:
    http://www.associatedcontent.com/article/142336/do_we_really_spend_more_with_credit.html

    I can’t seem to find the study by Dun & Bradstreet, but Dave Ramsey also mentions such a study when he talks about people overspending on credit cards vs paying cash.

  72. IA_Engineer says:

    I’ve heard the argument that people can lose the connection between credit cards (a piece of plastic) and real money. With me it just doesn’t work that way. I have a hard time making the connection between a piece of paper cash and real money.

    I almost never see cash in my finances. I’m paid via direct deposit, I make all of my purchases on a credit card that earns cash back, and then pay the full credit card balance via online bill pay. I only carry small amounts of cash for the rare occurances that I can’t use a credit card.

    In my case, the numbers listed in online accounts seem far more “real” to me than pieces of green paper. As a result, I’m more likely to spend cash on frivolous purchases, but I’m very disciplined with my credit card purchases.

    I also like having a record of where all of my spending is. Credit card statements are great! I can look up how long it’s been since my tires were rotated, how much I donated to charity last year, etc. If I use cash, I have no record of where any of it goes!

    Responsible credit card use works great for me.

  73. SJean says:

    I actually feel like spending cash is less “real” because it doesn’t show up in my online banking. If it isn’t on my computer, it doesn’t exist. I think this is common in my generation (20s) who have grown up onlline.

    I do think CC companies do try to get whatever they can out of you, agressively I think the fees/rates are often unfair and high, and changing due dates is especially tricky. Yes, you can avoid these things, and no, it isn’t that difficult. But they are ready to pounce on any lapse.

  74. Ryan S says:

    Dave Ramsey said in the 3/11 podcast that even if you are *twice* as disciplined as the average cc user, you are spending 6-9% MORE than the *average* cash user.

    If you pit a disciplined cc user against a disciplined cash user, you’re back to the 12-18%.

    !!!

  75. CP says:

    I have accumulated a decent amount of rewards as a result of my credit card usage. Although I tend to purchase everything using a credit card, I only feel comfortable doing so because I know that I track all of our charges and do not normally exceed budgeted amounts. If I did not have a plan of attack, I would probably switch to cash.

    Also, rewards are only good if you can use them for something that you actually want or need. The first reward card that we had was the GM Card that earned 5% for the purchase/lease of (almost) any GM vehicle. We used this card for years and even began losing points before we finally purchased a GM product. Since we used these points, we have not used the GM Card at all because we do not like the restriction of having to purchase a new GM vehicle.

    We ended up with the Drivers Edge card, since their lower earnings % was more than offset by the flexibility of being able to make any type of dealer-made purchase or lease. Even the use of this card has been limited to times when Citibank has offered promotional rewards (e.g., 5% rewards on all purchases for 3 months), as many of the true “cash back” cards are more useful.

  76. Giff says:

    @ Ryan S

    Do you (or Dave Ramsey) care to provide a link to the article / study / research that backs up his 12-18% number?

    Good luck…

    I think you will have a hard time finding much data to support that claim. If it’s out there, I sure would like to see it.

  77. Seth says:

    The only reason I would spend less with cash is if because there is a limited amount of cash in my pocket. If I couldn’t purchase everything I needed with cash on that trip I would indeed spend less with cash than with a cc on that trip. But then I would need to return to the store again to purchase the remaining items on my list wasting gas, my time, and who knows, maybe I’d see something else I’d like to buy on this second trip and I’d end up spending even MORE with cash.

  78. jay says:

    We use our CC a bit differently than most. There is one that I’m using as you do, to earn rewards. Its at 0% so the tension is minimal as I know ultimately it’ll be paid off if I carry a small balance month to month.
    The primary use for us now, is to shift, i.e., balance transfer, fairly hefty HELOC balances to either temporary rate offers (run the numbers at Bankrate) or lock in to REALLY low permanent rates.
    The trick, of course, is that you CANNOT make a purchase after doing this (cut up the card), as THAT is what the CC companies want to do: slam you with their high purchase rates which you’ll take years to payoff, since lower interest rates get paid off first.
    Takes vigilence and good bookkeeping.

  79. Shanti says:

    Thank you for posting this. As an avid Dave Ramsey listener myself, I hear all the TIME how credit cards are evil and we need to get them out of our lives. I have chosen to get out of credit card debt and close the dozens (yes, dozens) of cards that I had. I have one remaining card to pay off with an incredibly ridiculous limit on it :)

    Personally, I intend to keep this one card until I have an amount equal to the line of credit available to me in savings. I don’t honestly think there will be a time when I would be in such crisis that I’d need that much money out of a credit card, but if it gives me peace of mind, so be it.

    Some commentators pointed out the statistic that Dave Ramsey gives all the time (which is true, and born of some clever and well-done market research) that people always spend more when using a credit card because they’re not as attached to the money when they use plastic. While this may be true, it is an individual thing – you don’t HAVE to be a statistic.

    Personally, I NEVER carry cash. It’s not a security thing or anything; I got my first debit card when I was 13 and have been using it for all of my purchases since. I honestly have almost never used cash.

    That said, if you are disciplined and would otherwise use a debt card anyway, the argument that you spend more with plastic is null.

    I have entertained the thought of getting a card for points and covering the balance every month like I would with my debit, but I haven’t done it yet. Dave Ramsey also says that only like 15% of people actually redeem the points they earn on cards they get for the points. I’d like to think that if I opened a card for a specific purpose (specifically, miles!) I would use it.

  80. Jim says:

    I really like this post in the matter of credit cards. The answer as to whether or not credit cards are necessary, they are not. I think the bigger issue with credit cards is the ability to go into debt and/or carry a balance on them. In the past I have heard credit being used as a tool, which it is, but it is a tool that can hurt you if you don’t know what you’re doing.

    I’m not a only cash person but prefer to use my debit card. When I use it I don’t get any rewards or anything for doing so, what is my incentive? I have a credit card I can get 3% cash back on things like gas. So if I buy my gas with it, just as I would with my debit card, I get 3% of whatever I paid back. On the flipside, I like to know I have paid for stuff and don’t have to do anything extra like worrying about the credit card bill. Credit cards are not bad, going into debt and staying in debt is the real problem.

  81. I like the security of a credit card, and using it online, for bigger purchases, etc. And we’re going to Europe in the fall on our long, long, long collected frequent flyer points. I’d say that’s worth the incentive. We pay it off each month and never carry a balance. We have two cards and rarely have more than $200 a month on them.

  82. jtimberman says:

    @Giff,

    Dave Ramsey mentions the study in Financial Peace University, which was recorded in 2000 or 2001. Given the millions of accountability partners that he has through his show, FPU training and books, I sincerely doubt he is making it up. It would be nice to have a copy for reference though.

    As I mentioned in comment #71, there must be such a study out there, as another blog (linked in 71) refers to it, unless that blog poster is referring to what Dave talks about.

    Either way, I’m sure that study exists, and probably requires some paid account or commercial access through D&B.

  83. Shanti says:

    Also – to RYAN S:

    Here’s a link to the Wall Street Journal’s article about McDonald’s findings when studying cash vs. credit cards, and why McD’s and other fast food chains now takes plastic:

    http://online.wsj.com/article/SB1038251126696585228.html?mod=home_whats_news_us

    Excerpt:

    While the chains that take credit cards do have to pay fees to credit-card companies, those fees are offset by test results that indicate consumers spend more when they charge. Indeed, a Visa U.S.A. study released this month showed that the average fast-food transaction with credit cards was 20% to 30% higher than cash. Subway says the average credit transaction has doubled to $9 since the chain started to roll out cards three years ago.

  84. Tony says:

    It’s all about knowing yourself. I know that no matter how financially responsible my credit card intentions are, I tend to only use it to buy something I can’t afford meaning it takes me time to pay off the balance. Knowing this, I stay away from them completely, even after hearing about friends earning rewards. Too many of those friends start out in it for the rewards, and end up with that $2200 in credit card debt in the blink of an eye. They have so much fun racking up the rewards, they forgot their bank account couldn’t cover it. There are some people that have the discipline to be responsible with credit cards, but not many. Human behavior often let’s the credit card get the better of a person.

  85. Anne says:

    While it’s not true for everyone, I think it’s probably true for most people (including myself) that we tend to spend more when we use credit v. cash. ESPECIALLY if we’re chasing rewards. A $100 reward on $10,000 of spending is only a good deal IF you were going to spend all $10,000 anyway. If you would only spend $9,500 if you used cash, then you got a really bum deal.

    For me personally, I do a compromise where I charge recurring bills–things that I definitely would have to pay for anyway, like my utilities–to a credit card, but any discretionary spending, even groceries, I pay with cash. I use the CC for convenience and get a little bit back in terms of rewards, but cash keeps me from spending mindlessly. Especially since it keeps me from shopping online–all those Amazon one-click purchases and iTunes downloads are too easy to do, and those charges really add up.

    Great post. I agree there’s no universal right answer.

  86. Giff says:

    RE: Spending more at McDonald’s with plastic.

    Before anyone goes around spouting this as any sort of proof, consider other factors why this might be the case.

    Are you more or less likely to spend cash on a small purchase (e.g. at McDonalds, usually <$5)?
    I don’t know about you guys, but I’m MUCH more likely to spend cash at McDonald’s. I use credit cards for almost everything, but I still carry around $20 or so for small purchases.

    The reverse is also true, I would contend that most are MUCH more likely to use plastic for a larger purchases. Here’s a quote from the article:

    “A typical fast-food user spends about $3 to $4 for a meal.”

    And how about the very next line (shown w/ context) that Shanti conveinently left out of her quote about the biggest reason fast food joints love plastic?

    “Indeed, a Visa U.S.A. study released this month showed that the average fast-food transaction with credit cards was 20% to 30% higher than cash. Subway says the average credit transaction has doubled to $9 since the chain started to roll out cards three years ago.

    BUT THE BIGGEST INCENTIVE IS SPEED.” (emphasis mine)

  87. jake says:

    Credit cards really show who you really are, financially.

    I have always payed the entire balance on my credit card each month. I have 5 credit cards but only use 1. The others are only if the main one is not accepted.

    Here’s my thing, people think about the credit card’s limit instead of their bank account. I know friends who say “Oh I can afford that I have $3000 credit left on my credit card.” Which is not always the best way to go.

    I always think about my bank account balance when i make a credit card purchase, “Can I pay the balance off at the end of the month?” If I answer yes then I buy it, if I answer no then of course I skip the purchase.

  88. Giff says:

    @ Jtimberman

    That’s the funny thing… everyone quotes this mystical “study” and yet no one can turn it up!

    Even if it does claim the “12-18%” figure, how can the study be validated and examined if it can’t be found!

    I just did a google search myself and couldn’t find it (maybe I’m not looking hard enough).

    I’m not arguing the possibility that some people MIGHT spend more with plastic, but I am definitely against reducing the overspend to a single generic statistic – that is absolutely ludicrous, even coming from the mouth of Dave Ramsey (who has a funny habit of citing numbers convienent to his arguments, and his arguments only).

    There are a million different scenarios that would need to be tested before any generalizations could be made (age groups, purchase amount, # of years as a credit / cash user, purchase category, location, event, etc.). Do you see what I’m getting at?

    Just read through the posts above and see how many people say they spend more or less with credit cards. I see no consensus on this 12-18% figure and it needs to stop being treated like a fact.

  89. Rick says:

    I found this really great site that helps analyze which credit card is best given your spending habits:

    http://www.creditcardsearchengine.com/?af=124470&ac=700

    I personally think credit card arbitrage is an excellent opportunity for disciplined spenders.

  90. !wanda says:

    The article Trent linked to said that around 30% of American households pays off their credit cards at the end of every month. That’s a lot of people using credit responsibly. Given the difference between the average and the median amount of credit card debt, it seems that a small number of people who have credit card debt have *a lot* of it, skewing the average. Those are the people who need to destroy their cards, not the responsible majority.

  91. Sara says:

    I agree that using credit cards correctly can be a good financial move. I use credit cards whenever I can to get rewards points, and I pay the full balance every month. I have never paid a cent in annual fees or credit card interest.

    I’m a bit surprised to see that people have had problems with credit card companies trying to trick them into paying late. I have a card from Chase, and they allow me to set up automatic bill payments to pay the full balance on the due date, so I don’t have to worry about forgetting to pay, and even if they changed my due date, the payment date would be adjusted accordingly. I also have an American Express card, and they send an e-mail alert a couple of weeks before my payment is due, so I have plenty of time to go to their web site to make a payment.

  92. G.E. Miller says:

    Dangerous power tool – good analogy. I agree, I think that cards are good if you use them the right away, and that Dave Ramsey is, in effect, the ‘tool’. If you’re in debt, you shouldn’t have credit cards, but if you’re not and you pay your balance, there is no reason not to. Wrote an article on how to use cards to your advantage a while back: http://20somethingfinance.com/blog/2008/01/04/credit/

  93. We prefer not to use credit cards, but we still have them and use them from time to time.

  94. anji says:

    @ jtimberman (comment #33)

    you state your opinions of the citi driver’s edge card as fact, yet you are completely wrong.

    not only can you use your rewards for ANY type vehicle purchase (not only from a dealer), you can also use your rewards for ANY type of car repair or maintenance instead of for a purchase. this is how the majority of who use the card, use the rewards. those of us who have to drive a lot for work rack up the rewards quickly, and appreciate the significant break on inevitable car maintenance and repair.

  95. Parsimonius says:

    My income, about $48k, is more than I actually spend on my family of four; so I have an increasing balance and pay off the card when the statement comes in. This, by the way, is the definition of “rich”. Anyway, I use the credit card for its convenience. In the grocery store I can use the self-checkout. At the gas station I need not go inside. I can go to any hotel or restaurant without being concerned if I have enough cash. Once I bought a dishwasher at a Yaohan department store in Borneo, with absolute minimal hassle; this unplanned expense was about 800 ringgit.

  96. cv says:

    I was just about to post what Giff said (comment 86). When I’m at a place like McDonald’s and my bill comes to $3, I pull out cash, but if it comes to $12, I might pull out the credit card for convenience. Therefore, these study authors seem to be saying, I spend more when I use plastic. Technically true, but I use plastic because I’m spending more, and not the other way around.

  97. A.M.B,A. says:

    I’m all for responsible use of CCs. Wouldn’t be any other way. However, I’ll NEVER give up my CC. Last summer, I needed to rent a car for the day (approx. $30). I could’ve paid cash, but did put it on the card. Long story short, got into a multi-car accident (I was not at fault), found out I was NOT insured for the rental via my personal auto insurance and I did not purchase the auto rental company’s insurance. Thankfully, I put the charge on my Visa. After battling insurance companies, VISA paid the full $18,000 that was billed to me. Had I paid cash, I would be stuck with that multi thousand dollar bill. CC’s can be a good thing, too.

    A.M.B.A.

  98. NCN says:

    Thanks for the link-love!
    A few thoughts about why I don’t use credit cards -
    1. I don’t like to use ‘anything’ that I don’t really need. I live w/ a debit card and have yet to face a circumstance where I ‘needed’ a credit card. Three years and running! :)
    2. I find that MOST people (think average dudes who lives paycheck to paycheck) overuse credit in general – and a credit card makes this ‘overuse’ ‘readily accessible’.
    3. The decision to live without a credit card is a personal one. While I enjoy it, I have no problem learning from folks who DO use them. I think , that after 3 years of living on a budget and spending wisely, I could easily ‘go back’ to using a credit card. BUT, last year, I managed to save over 40% of my gross income in retirement / education savings accounts. I’m doing ‘just fine’ without the ‘magic plastic’.
    4. I think that most folks will agree that a MAJORITY of people (not ALL but MOST) – overspend when they use plastic. I’ve seen numbers between 8 and 25 percent!
    5. I earn reward points when I use my debit card, so I don’t need reward points from a credit card.
    6. I never have to worry about interest, late fees, due dates, or mailing ‘mishaps’.
    Rock on,
    NCN

  99. Justin says:

    I’m ambivalent about the use of credit cards, and I’ve switched back and forth over the last few years on using them versus not using them. I’ve got an Amex Blue Sky now that I use for almost all of my purchases and bills since I can get a $100 credit on a purchased ticket for every 7500 points (dollars) redeemed.

    That being said, I do have one “trick” I use for managing my finances. Similar to Jake’s comment (#87), I use Quicken (for now — Q for Mac bites) and I have the layout set up so that the accounts list window only shows my checking account and both credit cards. The main number I pay attention to is the total balance rather than the individual balances of each account. So if I have $3000 in checking and owe $500 and $100 on each card, the number that really matters is the $2400 at the bottom. That’s how much money I have as far as I’m concerned. Once I put something on a card, it’s as good as spent.

    (Also, I add known expenses long before they come due so they never surprise me. For example, on paycheck Fridays, I enter the paycheck and either the next month’s rent or automated investment at the same time. Just another trick in my money management arsenal.)

  100. I just don’t understand why people are so evangelical one way or the other, especially those that don’t use cards. Who are we trying to convince here? People on the fence? I use my card for everything and all I get is $200 a year for it. I pay no interest, I budget hard, and it works for me. It doesn’t for others so the cash back rewards or miles aren’t going to be worth it if the system doesn’t jive with their personality. Ok, done. But why get nasty about it?

  101. jm says:

    “$9300 is the average cc debt? That’s about what I’ve made off the credit card companies over the past year. ”

    I call bullshit. $9300? if your rewards are 1%, you spent $930,000 dollars on your credit card last year! even if you have an awesome card that gives you 5%, like some gas cards, that means you bought nearly $200,000 worth of gas.

    If you are going to lie, at least do it convincingly.

  102. Mary Ellen says:

    I listen to Dave Ramsey and for a good chunk of his audience (judging by the people who call in), I think that getting rid of credit cards entirely is a good idea and a big improvement on the way they’ve been doing business. But Dave Ramsey is a black and white thinker with a cookie cutter approach (a good one, but still cookie cutter) and people are individuals. We fall into the camp of rewards card, pay it in full every month. We put all our gas and groceries on one card–things we would be paying for anyway–and pay it off. I’ve gotten a free trip to see my mother, and a very nice iPod classic (160K memory) out of rewards points. After posting this, I am going to redeem some more points for restaurant gift cards to use on our upcoming vacation (airplane tickets for a family of five put on a cc and already paid for on the last statement).

    I too would like to see the actual study that cites the 12% – 18% figure. In all honesty, it works the other way for me. Cash just seems to flow through my fingers and disappear, but every time I pull out the card, I am paying attention.

  103. Christopher Hylarides says:

    As a frequent business traveller, a credit card is indispensable while travelling. Quite frankly, I don’t have the $5000 in cash to blow each time I make a 2 week trip for hotels, meals, and transportation. However, since I expense all of this, it means that I don’t carry a balance in theory(and if expensing take to long, I can expense the interest as well). I have a credit card that gives cash back. It costs $70/year and last year I got back over $500. I also use it for any day to day purchases as well as any other large buys (ie computers or whatever) that I pay off when I get home via internet banking. This maximizes my cash-back. The only thing I don’t like about the situation is having a credit card with a $15,000 limit, but this is the cost of the job I’m in.

    This is ideal for me. I have the discipline to ensure that things don’t get out of control and other than for work expenses, I haven’t carried a balance since I was in school. I learned to hate debt then and have been avoiding it since. Like many people I treated the credit card like free money. Luckily I never went above a $2000 limit and it was easy to pay off once I got a job.

  104. LC says:

    My position is don’t get a credit card until you can prove that you can make it without one. I never had a credit card until age 28. I completed college and grad school, lived in 3 places on my own, had 2 different jobs, bought a house, and lived there for over a year all with no debt at all. Then I read about how people are getting over $500 back in rewards from their credit cards and thought it would be foolish to pass that up, especially since I have proven that I can afford my lifestyle without them. They are a useful tool, but very dangerous for people who can’t control their spending or who can’t estimate what their true expenses will be before moving into a new place.

  105. LC says:

    @Tana – see my post above. My credit score when I bought my house was over 800 and I have never had a credit card. Explain how “establishing my credit” with a credit card would have helped me…

  106. Bill says:

    Couple of comments. My wife and I have been on the Ramsey plan for about 6 months (and are debt free, fully saving 15% for retirement, and saving for a house (we owned one previously but are in transition.) At any rate, we’ve gone without CCs (all cut up) for 6 months now and don’t miss them one bit. In that time, we’ve bought items online, purchased hotel rooms and plane tickets, etc. We definitely spend less than we did in our CC days with no difference in lifestyle.

    I’ve come to resolve my situation like this – I hear time and time again that responsible CC usage means paying off your balance each month. OK. I’d argue, the usage of cards means that, for some reason, you can’t handle your purchases without a 30 to 60 day float. Why not?

    Rewards really don’t add up IMO. And I used to go for them too.

  107. SWFL_Dan says:

    “If nothing else, other people will be building wealth by borrowing responsibly (such as to buy land or a home) and you’ll be sitting in some trashy rental because you don’t have enough cash to pay for a new house without borrowing.”

    See, now this is a prime example of someone that probably should not use credit. They are unaware, apparently, that buying land or a home is a FANTASTIC way to build wealth in the slowest possible way – in most cases, you lose money buying a home.

    The proof of this is all over the internet. The only people that consistently say having a mortgage is a GOOD investment are the mortgage companies.

    Start here: http://millionairemommynextdoor.blogspot.com/2007/10/rent-vs-buy-hidden-cost-of-lost.html

  108. @NCN:
    “4. I think that most folks will agree that a MAJORITY of people (not ALL but MOST) – overspend when they use plastic. I’ve seen numbers between 8 and 25 percent!
    5. I earn reward points when I use my debit card, so I don’t need reward points from a credit card.”

    I just don’t get this. How is using your debit card different than credit (in regards to overspending) if you pay credit off each month anyway.

  109. dougis says:

    I have to agree with the Credit card as a tool concept.
    I carry one card for work (which is an airline mileage card). We have two others that we use on a regular basis.
    1) A rewards points card
    2) A Upromise card (the rewards go into a 529 account for our kids to use for College).

    My wife pays them off each month so we don’t carry a balance, but it is nice to know that if something does go horribly wrong we have several thousand $$$ in limit that can be used in the event of an emergency (not the best way to use them, but if we need them they are there) and in the meantime we are keeping our credit rating high so we pay a lower rate on our mortgage.

  110. LC says:

    Another advantage to credit is that debit cards do not offer the same protection as credit cards. Case in point: I was on vacation and made a purchase outside of my typical spending area. The bank called and asked to confirm that it was really me. I was very reassured thinking that they would cover me in case of fraudulent activity. A few weeks later, there was a $90 charge that I did not authorize. I called repeatedly to complain and have them remove it and they spent weeks “verifying, etc…” eventually they said that they cannot cover it.

    Also, you can’t rent a car with a debit card.

    And… if you overspend with plastic, you will still overspend with a debit card.

  111. Michelle says:

    The three keys to credit cards: lists, lists, and lists. Buy what’s on your list. If you know what you’re doing before you leave the house, your method of payment is irrelevant. There’s no wiggle room for CC users to spend more, as cash users claim.

    That said, I appreciate that some people are uncomfortable with CCs, but I don’t think advocating for everyone to give them up is sensible.

    To use your tool analogy, I’d probably cut my hand off with a jigsaw…but I’m not going around telling carpenters to stop using them.

  112. Greg says:

    I use a brokerage account that includes a credit card as well as a American Express. Both combine the dollars spent for a rewards program. My wife and I charge everything, including most utilities. Cards are automatically paid off every month. In 10 years I estimate I have received $10,000 in rewards, mostly taken in the form of Home Depot certificates. I did my own home renovation, saving an additional $5k. Doesn’t work for everyone, but has been a boon for us. You have to be aware of your spending.

  113. Mark says:

    It really comes down to your discipline. Some have it, some don’t. In my case, I have a mixture – depending on the type of debt. I have paid off gas credit cards each and every month for 20 years without a hitch. However, I’ve also been caught in the trap of over-using a regular credit card to the point that I didn’t pay it off each month as planned. That has cost me thousands of dollars. I finally had enough.

    I’m now off of all credit cards – including gas cards – after going through Ramsey’s FPU last year. I admit my life is different. I manage my finances closer than before – and that’s the real point.

    If you are disciplined enough to pay everything off in the first place, good for you! However, most people don’t have the discipline – that’s why the average household debt is so high. Cutting up cards a la Ramsey is attacking the symptom, but it also forces you to a place to where you have to deal with the root cause – yourself.

  114. Jeff R says:

    American Express provides a great service by doubling the manufacturer’s warranty. I recently bought and HD TV and having AE double the warranty took care of any consideration of a service contract that I usually turn down anyway.

    AE will also help customers resolve any issues should a purchase not prove satisfactory.

    All my credit cards are paid in full monthly.

  115. Just Simple says:

    I feel rather than blaming and categorizing credit cards as evil or something, lets just focused on our disciplines.

    Credit cards are just a tools. We are the users and it’s up to us to decide whether it’s evil or not.

  116. Jacinta says:

    I’ve read every comment, and at no point does anyone point out that, if you are in debt, canceling your paid off credit cards can be disastrous for your credit rating.

    Your credit score depends on a whole lot of things, but one of these things is easily in your control. It’s your debt to credit ratio.

    Imagine you have 3 credit cards. One owing 5k with a limit of 5k, one owing 4k with a limit of 4k and one just paid off with a limit of 3k. Right now your debt to credit ratio is 9:12. That’s not actually too bad, and congratulations on paying off card number 3! So now you cancel card number 3. Suddenly your debt to credit ratio is 9:9. That’s *awful*. It not the size of the numbers that count, but the closeness of the fractional number (debt/credit) to 1.

    If you are still in debt, freeze card number 3 in an ice block, cut it in half, throw it out – but do not cancel it. Wait until your debt to credit ratio has reached closer to 1/2 or less. If owning these paid-off cards is costing you a lot of money in annual fees, then cancel them at a rate of one per year, starting with the one with highest annual cost.

    Be aware that opening lots of new credit cards over a short period (even for balance transfer) can also impact your credit rating.

  117. Jacinta says:

    I tried posting this earlier, but it got eaten by the gremlins.

    I’ve read every comment, and at no point does anyone point out that, if you are in debt, canceling your paid off credit cards can be disastrous for your credit rating.

    Your credit score depends on a whole lot of things, but one of these things is easily in your control. It’s your debt to credit ratio.

    Imagine you have 3 credit cards. One owing 5k with a limit of 5k, one owing 4k with a limit of 4k and one just paid off with a limit of 3k.
    Right now your debt to credit ratio is 9:12. That’s not actually too bad, and congratulations on paying off card number 3! So now you cancel card number 3. Suddenly your debt to credit ratio is 9:9. That’s *awful*. It not the size of the numbers that count, but the closeness of the fractional number (debt/credit) to 1.

    If you are still in debt, freeze card number 3 in an ice block, cut it in half, throw it out – but do not cancel it. Wait until your debt to credit
    ratio has reached closer to 1/2 or less. If owning these paid-off cards is costing you a lot of money in annual fees, then cancel them at a rate of one per year, starting with the one with highest annual cost.

    Be aware that opening lots of new credit cards over a short period (even for balance transfer) can also impact your credit rating.

  118. reulte says:

    Even if the 12-18% for credit card vs cash users is correct – it is only a statistic for an aggregate group and does not apply to any given individual.

    I have 3 credit cards (I can hear the gasps of horror right now!) one of which was my first ever – establishing a length of credit of over 20 years. However, I don’t like the terms anymore and use it only occasionally on eBay for items less than $50 – this keeps it active. The second credit card was offered by my bank as an adjunct to my account and I accepted but no longer use that card. My third card, the one I use, is a rewards card and every so often, I go online and ask to trade my points in for a check. In paying my credit cards, I don’t wait until I get a bill, I pay the credit cards off every time I get my money via direct deposit – that is every two weeks I pay off whatever is due on my cards. At that time I also monitor activity — just in case.

    Obviously I believe credit cards are a tool. However, they are a tool requires training for best usage. I think the problem is that so many people don’t understand that it takes training.

  119. chris says:

    Now that you are out on your own and self employed, I would be very, very careful of having credit cards. You are no longer on a monthly or bi-weekly pay schedule which makes things like bills on a monthly basis a whole new beast. I switched to cash and debit cards after learning a very hard lesson the first year of my business…you may buy things on credit and not have enough income from your biz at the end of the month to pay off.

    …just watch your income streams.

  120. People, I think, have varying degrees of misconception on the idea of credit cards and sometimes arguing about this is endless. We cannot judge them by simply relying on their comments, they must have a reason for doing/saying those things.

  121. ChrisD says:

    The people who say that credit card companies are NOT evil and that all you have to do is not carry a balance are being a tiny bit naive.
    Of course it is important not to carry a balance and if you have a lot of debt that you can’t pay off then you are not managing your finances well.
    BUT that is no excuse for the following practices:
    If a person with many credit cards falls behind on ONE card, increase the interest rates on the other cards.
    Or lower the credit limit on another card, bringing that person over the limit and then charge fees and late penalties AND raise the interest.
    Charge a very low minimum payment. This looks like it is a favour, but it’s a psychological trick. It makes people more likely to rack up debt as it is affordable and then, by paying only the minimum, they pay a lot more interest over the longer lifetime of the debt.
    Give someone a card with a low introductory rate and allow balance transfers. Then apply a ridiculously high rate to NEW purchases, but apply payments to the old low interest purchases so that they whole (unaffordable) original debt must be paid off before you can get rid of the high interest debt.
    See e.g.Maxed Out: Hard Times, Easy Credit by James D. Scurlock

  122. deRuiter says:

    Credit cards are wonderful tools which offer frequent flyer miles for rewards. Pay off your balance twice a month, watch those free miles accumulate and enmjoy the flights. If you don’t have self control, then don’t have a credit card. I’m with the writer who says a credit card is no more dangerous than a hammer, if you use the tool correctly it won’t hurt you, it will help you accomplish your goals. Don’t spend more than you would spend in cash each month, and pay off your balance as soon as it’s due. You’ll do fine!

  123. Charles Cohn says:

    The person who refused to use rewards cards because they were “dirty money” is passing up a good thing unnecessarily. Remember that dirty money spends just as well as clean money. The only thing you have to worry about is that it’s legal and won’t get you in trouble.

  124. Currently it sounds like WordPress is the best blogging platform out there right now. (from what I’ve read) Is that what you’re using on your blog?

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