Maybe you’ve heard someone say that they can “manage a credit card” and keep it under control. They go into a long explanation of how credit cards can benefit an individual with rewards, easy payments, and the building of a FICO score. Perhaps you believe this yourself!
I’d like to explore another viewpoint. What if credit cards really couldn’t be managed well? What if the so-called “benefits” of a credit card were merely illusions? What would happen if one rejected credit cards altogether?
Credit card offers are everywhere: School campuses, billboards, internet ads, television ads, our mailboxes, and on and on. Living in today’s world, it’s difficult to see how it is possible to handle money without incurring debt.
Waging war on credit cards starts with a solid conviction that you really can’t manage credit cards to produce a better financial future. Allow me to present three reasons why credit cards ultimately will be a curse in your life, not a blessing.
Reason 1: Using credit cards lowers your potential to raise your income.
Speaking from experience, I know that owning a credit card allowed me to trust in its ability to provide easy money rather than trust in my ability to produce an income on my own. I was working a minimum wage job part-time, and was completely satisfied where I was at.
Maybe you make more money than that and you’re currently using credit cards. Perhaps you don’t feel like the credit cards you own are holding you back from anything more. But trust me, just having the ability to use someone else’s money discourages you from improving your income.
Sure, maybe you pay off your credit cards in full each month, but remember that adhering to the idea of credit takes away some feeling of financial responsibility. Personal finance becomes much more personal when you force yourself not to rely on other people’s money.
Reason 2: Using credit cards to earn rewards promotes more spending.
3% Cash Back! Free Airline Miles! Free! Free! Free!
Free sells. Think about it for a second. The credit card companies are offering rewards for a reason. They know that rewards lure customers to spend more, maintain a balance, and ultimately pay more in interest.
Even for those who pay off their credit cards every month, you’re probably spending more by using the card. Cash is very difficult to spend when it is all you have designated for discretionary expenditures. Try the envelope system instead of your credit card! It’s more difficult to spend cash, isn’t it? There’s an emotional reaction that goes on when you lay down the Benjamin’s to make a purchase. You develop a sense of attachment to your hard-earned money, and it’s much harder to let it go.
Reason 3: Using credit cards sets you up to hold a balance and get charged interest and fees.
I’ve met too many people who “intend” to pay off their credit cards every month and “intend” to manage their credit cards well, but ultimately they end up paying the price in interest and fees. And that, friends, is exactly what the credit card companies were hoping for. Good intentions don’t always keep us from falling into a trap. Instead, we need to cut up the credit cards and get out of debt.
The last thing you want to do is pay interest to some corporate power. Right? Learn how to destroy your bad financial habits and stay free from credit cards.
Do you still think you can manage your credit cards well?
Not convinced yet? I encourage you to truly contemplate how getting rid of credit cards might benefit you. Remember, there is an entire industry out there whose sole purpose is to take your money by charging you interest and fees. Do you really think you can outsmart them? Maybe you can outsmart them – by shredding those credit cards!
Have you been living credit card-free? Would you ever go back? We’d love to hear from you in the comments!
{ 25 comments… read them below or add one }
I do think I manage credit cards pretty well, I’d think that only reason 2 applies to me, though i don’t know how much. Paying off the large balance bill at the end of the month is a painful experience for me and it does deter me from making purchases without thinking. That being said, perhaps I should try some sort of envelope method and see what the results are.
We don’t use credit cards for daily living. We only use the credit card we have at our credit union to purchase airline tickets or book hotels for vacations, that don’t accept our regular debit card. Then we transfer the cash onto the card as soon as it posts.
I could not disagree more with the premise of this post. As someone who travels extensively for work, I net between $1-2k in free money each year simply by routing my work expenses through my personal credit cards. I’ve never paid a late-fee (not that I’ve never been late or forgotten a payment, but I’ve found companies to be very forgiving to long-term customers), zero financing charges, and zero interest. I view cash spending as a waste of free money! Plus, using the credit card gives me an easy view into exactly where all of my money is going. This allows for easy forecasting of monthly/yearly expenses and a good way to find excess expenses that can be cut.
Hey John, I’d have to respectfully disagree with your points.
Regarding reason #1, having the ability to use credit isn’t discouraging me from trying to improve my income. I’m still looking to get promoted at work, and earn other income on the side.
As for reasons #2 and 3, in my case, I don’t think credit card rewards tempt me to spend more. I’ve never maintained a balance, and pay off my card in full. When I shop with a card, I still look for inexpensive deals as if I was paying cash.
With this said, I do have friends that use the cash system more than they use cards. I have no problem with it, and respect their decision to do so.
We use credit cards to our advantage. We use them for the benefits (cash back, extended warranties, item protection, fraud protection) for lots of purchases and for travel. But, they’re really just standing in for a check, debit card, or cash, as we have budgeted for these items and pay the cards off monthly. Why not get more for your money if you’re disciplined enough? The anti-credit-card posts are not for everyone.
You can use credit cards AND the envelope system. I have an ING savings account that I nicknamed “Credit Cards.” Everytime we make a cc purchase, we transfer the purchase amount to this account. Our credit cards are linked to this account and set up to deduct it automatically. Theres a built-in limitation (amount in checking account) but if you screw up and overspend, there is no overdraft fee. You just make it up in the next paycheck. We pay off our balance every month and accumulate rewards in the process.
As for the “you probably spend more using the credit card” argument. Rubbish. Is this method essentially any different than using a debit card? Oh, wait, yes it is! We accumulate rewards, interest, improve our credit score while minimizing the possibility of overdrafts — all without carrying a credit card balance!
I will admit, I have a love hate relation ship with credit cards. I like the cash back, but do question if I spend more. Currently, I am tempted to say no, or at least not much. My reasoning for this is how I track my spending. Instead of blindly buying and waiting till the end of the month, I go home and enter the receipt into my ledger. I know where my assets and liabilities stand at any given day. This also let me know where my spending for the month is compared to my budget. I did the same thing when using cash and debit cards. From what I can see I have no less psychological with credit cards then I do with a debit card.
Like I said though, I do question this on occasion. Looking at my budget and spending though I am not sure what I wouldn’t buy if I was using cash. In general though, I think your arguments would hold true for the majority of people.
I appreciate the respectful criticism! I agree that these concepts are not for everyone, but still strongly believe the world would be a better place without debt. Please note, I’m only speaking from my own experience with credit cards. Thank you all for your honesty and keep those comments coming! I think as Christians we can agree to disagree on these issues if need be.
some people can manage them well. most people can not.
I’ve never had a credit card. While I sometimes feel that I might be missing out on perks (cashback and miles), I’m comfortable knowing that I can only spend what I already have on my debit card.
I went credit card free at the end of January. Instead, I opened a second free checking account at another bank, deposited $X into it and got the debit card. It is my emergency “credit card” that isn’t touched unless there is no other choice. For everything else I use my main checking accounts debit card. I also use the Budget program from http://www.snowmintcs.com which uses the envelope method and find it helps me control my spending more than anything else I have ever done. Since moving away from using credit cards I have managed to put off my car loan ($13K) and am now debt free other than my mortgage.
Life is good. I will never, ever go back to credit cards.
I cut up my last credit card more than 5 years ago and have not missed them in the least. I have had no problem doing everything I previously did using a credit card with a debit card.
These is an ease of making those purchases that could wait when you have a credit card you can buy it with. I agree you may pay off the balance every month for many months but then life happens and you get caught up in the cycle of credit card debt. I love the envelope system, works great in my opinion. I believe you have to be extremely disciplined to properly use credit cards. The alternative is building that emergency fund up nicely and learning the envelope system to set aside for purchases that are in the future.
Great post.
Thanks for posting this, John. I enjoyed reading it; however, I would have to partly (and respectfully) disagree with credit cards ultimately being a curse in our lives. As I completely agree that credit cards are a curse in most people’s lives I also believe they CAN be a blessing. But you need to be extremely well-disciplined.
Like many Americans I am very busy and try to be the most efficient with my time.
I know some people that use the envelope system. I completely agree that it is the best system for some people. What I don’t like about the idea of using it is: 1) Using cash in general is a lot more time consuming checking out at stores, 2) If you are at Walmart spending from many different categories how can you remove cash from 4+ different envelopes in a timely manner? You would have to run select items through the checkout 4+ times. 3) The people I know that uses the system do not keep receipts and record purchases. Many tax deductions can be easily overlooked this way.
People who only use cash and debit cards still should make monthly budgets. The same is said for people who use credit cards. So as long as people with credit cards are disciplined and stay within their budget they can get rewarded with cash back.
I also would say, as I still have student loan debt that I am trying hard to eliminate, if your salary is paid biweekly you can hold off on paying for everyday items by using the credit card and paying your debt down earlier, saving you some interest. For me I have even done this with promotional 3-6 month 0% interest credit cards and it has worked well. But people would need to be very careful that they don’t dig too big of a hole that they can’t get out of. I am fortunate to have an extra income that comes in only once a year that I was counting on.
I know this got really long, but I just wanted to share my perspective.
With all that being said there is one point that I would like to add to your post:
Reason 4: Using credit cards may set a bad example for your kids.
I am concerned that my 1 year old will grow up watching me use a credit card everywhere that he doesn’t grasp the concept of money. I can try to teach him by my words and show him that I am paying the bill and everything is kept in order, but if I don’t put into action what money (cash) is meant to do it would be hard for him to keep everything in check when he becomes a teenager.
I’m going to have to reevaluate the way I am managing my finances. Thanks again for the post.
Credit cards are a tool. It can be used productively or not. It depends on the person. It’s not the credit card/credit companies’ fault if we spend too much or not pay off the monthly balance. It is our own responsibility how we use it.
I have a card that I have setup to automatically pay some of my bills and I have the card set up to pay off the balance monthly. I don’t use it for anything else. Other than that I’m living credit card free. I am however interested in getting a rewards card and using that monthly instead of my debit card and pay it off every month. This would get me the rewards and I’d still be following a budget.
“Are you carrying a balance on your credit cards? Think about how much that dinner really cost you! The bill may have come to 50 dollars but if you are paying 23 percent interest on the money that dinner could cost you more like 70 dollars. Perhaps a baloney sandwich will sound better. I had a guy ask me if 16.99 percent was a good rate. I answered yes it is very good! Good for the credit card company!”
I’m overwhelmed at the number of responses this post received! Obviously, these ideas are controversial, but I know I’ve gained a lot from you out there who have challenged the concepts in this article.
Thinking about all of your responses, I’m starting to realize that the subject of being able to manage credit cards well is a philosophical discussion. Some of you aren’t using credit cards and will never go back. Others have stated that they automate their credit cards so they pay them off without ever thinking about it. Can there really be a conclusive test that says that people spend more when they use credit cards? I suppose not. Can we really prove our points one way or another? Perhaps not.
Whatever your stance on the subject, I’m happy I got all of us thinking. My perspective on credit cards remains unchanged, but you all have intelligent arguments and I thank you for that.
As for me, I can guarantee two things: I won’t have any airline miles, and I won’t have credit card debt. That, I can rest assured of. Keep commenting brothers and sisters!
Hi, I live in Australia and work in the community sector. A fringe benefit we get is the tax back on credit card payments we’ve declared in advance up to a set amount. That increase our income as this amount is part of my salary packaging. I can get the tax back on the full set amount over the year even though I may only be able to declare part if it. That’d because I can declare the remaining balance within 5 months while getting the full tax back payment in each paycheck. This means I can spend on my credit card within my budget and actually get more money. The point is it’s up to each of us to be responsible. Credit cards may not be for everyone but they can be used beneficially by those who are disciplined enough not to overspend.
Another reason… merchants must charge more for there products to cover the credit card merchant fees. If people used cash rather than credit, things would cost less.
Our church accepts credit cards for donations. The rationale is that they want people to give in what ever manner they want in order to encourage more giving. A lot of people give via CC so they can get airline miles. Irks the heck out of me. 4% of the contribution of their contribution must go to pay the credit card company so that the donor can get 0.5% back in airline miles. Unbelievable.
My parents have both had the same credit cards for years and years. They pay them off every month, and are careful not to over use them. They don’t just buy things they want, rather things they need or have already saved up for, then pay them off. It has worked really well for them, and they both have credit scores over 800- I believe they do manage their credit cards well, and they are a good example to my husband and I.
There are very good reasons to use a credit card nearly exclusively, with a second one for a backup.
There is no more secure way to do business daily than by credit card. Cash can’t be recovered if lost. Debit cards are too risky; if it’s stolen or copied, you might get your money back, but it’s going to be very inconvenient, especially if you’re away from home. ATM cards are nearly as risky as debit cards, are less convenient, and are expensive to use in many cases.
In contrast, you are not liable for credit card theft at all under most circumstances, at least in the US. With one phone call, and maybe a followup report, it’s off your plate. Use your backup card until a replacement arrives.
I haven’t carried a balance in years; the benefits of credit cards can be realized without the debt. Undisciplined people are going to struggle no matter what tools they use.
I got my first credit card 23 years ago when my husband lost his job and I was a full-time mother of five small kids. I used it to buy everything from groceries to school books and uniforms and pay utility bills – I spread the cost of living more evenly and avoided incurring any charges by always paying the full balance…it made the difference and gave me control of my finances. I became a student and used it see me through that, then I started my own business and used it to finance my start-up – I had two rules – only buy essentials and always clear the balance on time. I did this for 3 years while my only source of income was social security. I saw it as a short-term loan but of course I know that credit card companies would go out of business if everyone was using it like I do…they rely on the fact that people will slip up or run into trouble and end up paying the huge interest rate. I insured against this by getting loan approval from my credit union just in case things went wrong and I needed a low-interest loan to pay off the card at the end of the month. Fortunately I never needed it. I still use my credit card for the convenience of online bookings and shopping abroad. Managing money is a life-skill well worth developing and imparting to our children. Credit cards per se are not the problem….they are just one temptation among many in our world to avoid responsibility, should you decide to be feckless but a credit card can be an opportunity to get back on your feet should you decide to be grown-up about it.
Yes, shred them out those credit cards and drive an older car these means had helped us getting our debt under control just a year before the recession.Use cash wisely by buying needs only no wants.