Credit card offers are everywhere. The ads are stuffed into our mailboxes, written on free t-shirts at college campuses, and even uttered by some pretty well known financial buffs on TV. But before you sign on the dotted line, it’s a good idea to think twice and consider some credit card alternatives. Should you really apply for that new card?
Growing Up with Credit Cards
Like many of you, I grew up watching my parents use credit cards. They earned some airline miles, got some cash back, and as far as I know paid off the balance every month. You might say they were “responsible” credit card users.
They explained to me that one day I too could have a credit card. After all, it would help me build my credit score and allow greater financial freedom when I grew up. I’d even be able to afford a mortgage and get a house of my own!
Before long, I viewed the credit card as a gateway into adulthood. That shiny new piece of plastic was more tempting than a Wonka golden ticket, and I wanted one now!
Then I received it in the mail. It was a brilliant blue. It had my name on it. It’s was my very first credit card from Chase! I was a responsible adult and paid off the balance every month, never paid it late, and made sure I spent within my means.
Rethinking the Use of Credit Cards
Four or five years later after I received that card I began to question the use of credit cards in my life. Were they really necessary to get ahead? Moreover, was I spending more money with my credit card than I would be with a debit card or cash?
Soon I came to the conclusion that the use of credit cards in my life represented a major risk. What if “Future John” wasn’t as good at paying off his credit cards every month? What if “Future John” had to pay a lot of interest? What if “Future John” began to solely rely on the “security” of owning a credit card instead of finding ways to save money and increase his income?
I took out the scissors, grabbed my two credit cards (yes, I had two at that point), and cut them into pieces of celebratory confetti. Yay!
Why Shouldn’t You Apply for a Credit Card?
I don’t expect to convince all of you out there to cut up your credit cards. All I ask is that you consider three reasons why you can do without one:
1. You can now earn cash back rewards with a debit card.
That’s right, you can finally get a cash back debit card. The nice thing about this is that we’re earning over $300 a year and payments are deducted straight from our checking account. Unlike a credit card, we don’t have to worry about paying it off every month. That’s a pretty sweet deal.
2. You can “lend yourself money” by getting on a really good budget.
You won’t have to rely on credit cards for everyday expenses or emergencies if you learn how to make a really good budget.
On commission? No problem. Add a line item to your budget called the hill and valley fund and use it like you would the “take a penny, leave a penny” jar you’d find at your local convenience store.
3. The Bible says it’s not such a good idea.
Scripture is pretty clear that going into debt isn’t a good idea. Why play games with credit cards? Consider some of these verses:
The rich rule over the poor, and the borrower is slave to the lender. – Proverbs 22:7 NIV
Do not be one who shakes hands in pledge or puts up security for debts; if you lack the means to pay, your very bed will be snatched from under you. – Proverbs 22:26-27 NIV
It is better not to make a vow than to make one and not fulfill it. – Ecclesiastes 5:5 NIV
Let no debt remain outstanding, except the continuing debt to love one another, for whoever loves others has fulfilled the law. – Romans 13:8 NIV
Allow me to be clear: it is not a sin to own a credit card. However, I think it’s pretty clear that owning one is a bad idea or risky venture at the very least. If you are a “responsible” credit card holder, I’m not mad at you. After all, I was one once upon a time.
Do you agree with John that credit cards aren’t a good idea? Let us know your thoughts in the comments.
{ 26 comments… read them below or add one }
My wife and I don’t use credit cards and we live just fine. We’ve booked hotel rooms, air travel, and my wife has traveled internationally. She went to Mexico and another trip to Great Britain, France, and Italy. I think the only thing we haven’t done is rent a car and that’s just because we haven’t needed to.
Even though I’m no top of my finances enough to use credit responsibly and pay it off every month I don’t bother. I would rather have no credit and live the Dave Ramsey way than mess with credit cards. One month I made a mistake and didn’t pay my cell phone bill (I think I forgot to hit ‘confirm’) but that only cost me $5. I don’t know what it would have cost me in interest if I had made the same mistake on a credit card bill. Besides, I would prefer to not give my money to the mega bank companies with the way many have been acting lately.
There is no need to use a credit card unless you are going to spend money you don’t have.
Awesome stuff here Mike. Way to go! You’re in the minority of people would would go this route, but I am too. You know, I just don’t like being baited into a deal (to get rewards) knowing that the bank’s intention is for me to go into debt so that I pay them enormous amounts of interest. Even if I can play their game and win, it rubs me the wrong way.
A couple of years ago I decided to add up a year’s worth of expenses to see if I spend more using a credit card. I did that because I was considering getting rid of my credit cards. The conclusion was surprising (at least to me)- credit cards actually saved me money.
The reason was because I had a lot of expensive reoccurring expenses (like insurance payments), a lot of reimbursable expenses, and a lot of purchases overseas. When I included the credit card rewards for those purchases, the rental benefits, and the fact that I didn’t pay for foreign currency purchases (which my debit card charged 1%) and compared that to the discretional spending I did on credit cards (even assuming I spend 12% more on those discretional categories) I still was better off using a credit card.
I guess that’s part of the reason why I have a travel website that promotes credit cards as a way to earn travel. They can be financially beneficial.
Credit cards are certainly not for everyone, but for some people I think they can actually save money by using a credit card (even as opposed to a debit card).
Hello Craig! Thanks for writing man. It seems you have a pretty good system down, and for people who are on top of their finances (like you are), I’m sure you have some pretty good tips. God bless!
For those people that are not responsible and carry a balance then a CC is a bad idea and I agree with you. People of all ages fall into the CC trap, young and old alike. But for those that are responsible and pay the CC in full each month and carry no debt then I think they are a good thing. Lets face it trying to earn any amount of interest on your money today is a fruitless thing. Most savings accounts of any type don’t even pay enough to keep up with inflation. So using a CC responsibly and getting perks for doing so is ok in my book. I use a CC most everyday. It’s used like a debit card but I get perks and rewards and save a lot of money. I pay in full each month and carry no debt except for my home mortgage.
Thanks for writing Pat. We agree on your first sentence, yep! I’d suggest there are other ways and better ways to keep up with inflation, like investing in mutual funds – you don’t need a credit card to do that. I have to commend you for paying off the credit cards in full each month, not everyone can do that!
While I agree that owning one or several credit cards can be dangerous, for me it is simply a way of building credit and improving my credit score. I also do nicely saving money with rewards points! I charge everything each month and then pay all my bills at the end of the month. I am debt free and have been that way since 2009. Also, it should be noted that if it were not for building credit, my bank debit card is also a VISA so I would always use that and keep one credit card with a $5,000 limit for emergencies. Also, if I currently owned a home, I would also cut up all but one credit card.
It seems like you’re doing pretty well Thom, congrats on being debt free! Do you plan on remaining debt free? Why are you building your credit score? Mortgage in the future? Getting a mortgage would really be the only reason for you at this point I’d imagine, and some lenders will lend to you regardless of your credit score as long as you show a good consistent income. Thanks so much for writing and taking the time to respond to my article!
Good job on creating interest here, John. Well, yes – I plan on remaining debt-free until I decide it is time to buy a home. I went bankrupt back in 2005 and my credit score is now back to 739. I want to get it as high as possible to have more interested lenders when purchasing a home. After the purchase, as long as equity is built, owning a lot of credit cards is not necessary.
I think at least one major credit card is required. I tried to rent a car while I was visiting my mother in Florida and you can’t use a debit card and they do not take cash.
Melody, you’re right, some car rental places only accept credit cards. Others don’t, however, and many times you can just walk across the street to the next rental place and use your debit card. It’s always a good idea to check with a rental company before you leave on a trip to make sure they accept debit cards. Excellent point Melody, I should have addressed this in the article.
Credit cards are useful if you’re ever going to shop for a mortgage. However, they can be a trap if not managed well. I often wonder what Jesus would say about money in this new ‘economy’ of invisible electronic transactions and an entire world that ‘runs on credit’. Good verses to keep in mind, though.
It would be interesting to see what Jesus would say, I agree! Honestly, I could only guess.
I strongly disagree with this premise. Credit Cards receive a bad reputation only because people don’t use them as they should, meaning to always pay them off in full each month, no exceptions.
I personally have 8 different active credit cards, all with no annual fees. Each card serves a unique purpose, such as 5% back on gas, x10 points on groceries, etc. I upkeep an Excel spreadsheet with all the benefits from each card so I know which to use where to maximize my reward. Results after a couple years: I’ve received free flights, free xbox, thousands of dollars in cash back, and unparalleled consumer purchase protection. And it boosted my FICO score over 800.
Relevant background: I am 23 years old with degrees in Finance, Economics, and Computing. Opened my first credit card at age 18. No outstanding loans.
My credit cards:
American Express Premier Gold (185 annual fee is waived if requested over phone)
US Bank Cash + Visa Signature
Capital One Cash Rewards World Mastercard
Discover More
Chase Sapphire Visa Signature
BankAmericard 1-2-3 Cash Visa
Citi Platinum Dividend Visa
Citi Diamond Preferred Mastercard
Greg, thanks for writing. I’m know you’re not alone in your feelings here, and I appreciate you adding to the discussion!
For me credit cards are dangerous, as Satan could tempt me, ’cause he knows I cannot control it when it comes to spending. So I have not had a credit card for many years. Thank You Lord.
However, we cannot hire a car in South Africa, for example, without having a credit card. We simply cannot visit our parents in South Africa without hiring a car. You got to have a car to get around, ’cause the public transport is no good. So, in a way, we do need a credit card whenever we fly to South Africa. How do you fly to South Africa, and hire a car, without having a credit card? These car hire companies around the world do not accept cash?
Martin
UK.
Martin, thanks so much for writing! Congrats on not owning a credit card! Have you not seen your parents in years though? Were you taking public transportation the past few years? A little clarification would be appreciated here! I love it that you’re offering an international perspective!
As mentioned in the article, I watched my parents use credit cards responsibly as well. But it’s easier to be responsible when you have less of an option to be irresponsible, wouldn’t you say?
Credit cards just like money is not the problem. Anyone can own a credit card without having to feel guilty about it. Disciplined financial planning is also essential whether you have a credit card or not.
Credit cards also have some practical advantages as mentioned in previous comments.
As for the banks, interest is only a part of their income. The banks need to make a profit and the only way to do this is to create more credit by creating loans, mortgages and dishing out credit cards etc.
Have we ever considered the fact that we are predicting the future by making debt? If you have a credit card facility of $1000 and you have cash on hand of $3000, then fine, go ahead and use the credit on the card.
The alternative, as is common practice, is to use the credit and settle it after 30 days. The presumption is : I’ll be alive in 30 days or even tomorrow; I’ll have a job; the company will pay me and nothing will go wrong. Am I ‘playing God’ that I can see and control the future?
I had a $2500 credit facility on my credit card and I was earning in excess of this every month. As a financial planner I had a detailed budget and was disciplined in matters of finance. We had one bad month whereby we couldn’t afford to repay the credit card. The lack of income sent us into a spiral of bad debt and personal and family stress which I would not wish on my worst enemy. It took just one event to prevent us from maintaining a clear monthly credit card.
If you think about it, you don’t need 30 days credit. Because once you’ve used it, you’re back to where you started – You can either then continue not spending or get more credit.
If you then need to use a credit card, make sure that there are funds available so that it’s your money you’re using and not the banks credit, basically using it as a debit card.
This was pretty thought provoking, thanks for writing in! God bless!
I too use credit cards reponsibly. I never carry a balance to avoid paying any interest. Maintaining a good FICO score is very important. It can impact you in many areas of life including applying for a job if a prospective employer conducts a credit check as many do today. It can also impact your ability to rent an apartment. It is unfair that the FICO score is used in this way but it is the system we must work within.
I agree with you Paul that it’s pretty sad so many businesses and people care about other’s FICO score. If I were renting a place, I wouldn’t mind sitting down with them and explaining that I have a fully funded emergency fund (partly due to the fact I’m debt free) and they will get their money on time every month. But some businesses are just too focused on the FICO to consider anything else.
I’ve been credit card free almost five years now Whoo Hooo!! I’ll admit it was scary at first because we are soooo programmed to depend on credit and debt. But I’m happy to say I have not had one issue and I’m forging ahead to live completely and totally financially free.
That’s so awesome Rhonda! Keep up the great work!
Good article. But I would tend to disagree. We put 95% of all our purchases on one card that accumulates milleage every month. We pay of the Credit Cards each month. This has paid for a variety of our trips over the years.
1) Credit cards offer much better protection against fraud.
2) Credit cards offer better rewards than debit cards.
3) Having credit provides a history for renters and purchasing a home. It can also affect your rates for insurance for example.
4) Having a credit card is important for work related expenses such as rentals which some car rental companies do not accept debit cards.
Dave Ramsey strongly opposes credit cards because he believes the average consumer is irresponsible with plastic. If you are drowning in debt then perhaps this might be the case. However, if you pay off your credit cards every month they can be a great tool for great perks. It’s like anything else in personal finance – it takes discipline.