Do You Need a Credit Card?

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Some things in our culture we rarely question. You go to the grocery store to buy food, you keep your money at a bank, and in your wallet is at least one credit card. Cash is quickly going the way of a land line and laser disk player but should it?

If you’re like me, you pay everything with your credit card. I keep $50 in my wallet to cover purchases at farmers markets, concession stands, and valet tips that come with business lunches. (Florida loves their valets) Short of those types of expenses, everything I buy goes to my credit card but maybe I’m an example of the type of person who relies on their credit card too much.

Credit cards are as controversial in the financial circles as healthcare in the political circles but do we really need a credit card as some people believe or should we go the way of Dave Ramsey who hasn’t given up his love affair with cash?

Dave Ramsey

Dave Ramsey and Suze Orman might be the best known personal finance gurus in the mainstream media. Dave Ramsey is well known for his stance that credit cards are one of the largest wealth destroyers in our daily lives. Articles like this illustrate his old school ways of managing your cash using an envelope system but just because its old school doesn’t make it out of date.

Ramsey believes that using cash to pay expenses makes us more mindful of where our money is going because we physically have to hand it over where credit cards don’t provide that same tactile element. If his hundreds of success stories are any proof, he might be right.

They Don’t Take Cash

I read about Ramsey years ago and as a 20 something I instantly thought of my online purchases where I got a killer deal on Amazon but had to have a credit card for that, and most of my other online purchases. It doesn’t seem like a good idea to pay more for something (plus pay sales tax) when I could use a credit card online and pay less.

Ramsey believes that using a debit card for those purchases makes financial sense but even debit cards allow you to overspend in ways that don’t happen as much when using cash.

What About Building Credit?

A credit card is the only way to build a credit history, right? That’s not true, according to this article. Do you have a gym membership? How about student loans? An apartment? A credit card isn’t the only way to build a credit history and even some prepaid cards report your activity to credit bureaus.

The hard core anti-credit crowd will make waves by asking you this: What are you building credit for, anyway? To buy a car you can’t afford? To purchase a home that is out of your price range? To finance an education? It’s nearly impossible for most Americans to purchase a home by saving money but short of that, they may have a point. In a country where trillions of dollars in collective wealth was lost just four years ago, these people aren’t finding much of an audience but it’s worth reevaluating are thoughts on buying what we can’t actually afford.

Cut and Dry?

I’m one of those who pay their credit card in full every month but it wasn’t always that way and although I have the ability to pay in full, that doesn’t keep me from overspending a lot of months. For people who have financial emergencies in their lives, the credit card may be the only option to make it to the next check.

We might live in the same country but financially, we live in different worlds. Saying that credit cards aren’t a necessity might be too much of a general statement but one thing is clear: Credit cards are a tool and when used responsibly, they can hold financial value. (I love my rewards points) When used irresponsibly, they get the bad name they deserve and even if you’re paying your balance in full, you might still be using your credit irresponsibly.

{ 17 comments, please add your thoughts now! }

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17 Responses to “Do You Need a Credit Card?”

  1. Matt says:

    Paying off a credit bill is better than cash if you get cash back

  2. Modest Money says:

    I’m also one to use my credit card for most purchases, but I don’t feel I use it irresponsibly. Since I always make a point of paying it off each month, I never really use it to overspend. Plus the card is giving me cash back to use. If I have cash in my wallet, I am much more likely to use that for various small purchases, whereas I wouldn’t bother with those items if I were to be paying via credit card.

  3. The short answer is yes, if just for emergencies. The key is to get a good card, and use it wisely. There are some situations where you really, really want to have a sword, even if it’s a double-edged one.

  4. Tim,
    The graf about how and why you build credit is outstanding and often overlooked. Some consumers think they must have debt, but don’t have any idea what they’ll do if they build a solid credit report.

    Tim, what do you think about a generational gap in credit card use? Do you think younger consumers swipe for purchases more than their parents?

  5. The first thing I recommend to people who are trying to save more money is to cut up their credit cards! It’s so much harder to spend cash in large amounts..

  6. Martha says:

    You absolutely need a credit card so that when you rent a car, get a hotel room, etc., you won’t have to have a hold placed on money in your account. When I was a senior in college I needed a credit card to travel when I was interviewing only for me to find out that it was a lot harder to get a credit card than I expected! I had to apply for over 10 cards before I was given one; if I had applied for one earlier and used it responsibly I wouldn’t have had any issues.

    • Another option for college students is to apply with parents as cosigners for the card. Parents with good credit can help their children get better terms on their cards.

      Martha, did all of those declined applications significantly hurt your credit report?

    • You’re doing something wrong if you need to apply for 10 credit cards. The basic intro credit cards with $500 limit are always granted to those with no credit history in my experience.

      • Martha says:

        No, it didn’t hurt my credit score, thankfully! 🙂

        And, I’m not sure what I was doing incorrectly at that point but I finally was approved for the American Express Blue for Students card. This was in the early 2000’s so credit card applications were a bit different. I could have applied, and probably been approved for, one of the many cards that were handing out free t-shirts on campus. However, I never did, so when I actually needed a card I applied on the credit card websites. I tried to apply for any credit card not focusing on any “basic cards,” maybe that was the difference. When I found the Blue card it was a good fit for me as a college senior.

  7. Tony says:

    By paying with cash, you’re giving up almost all your leverage if there’s something wrong with the product or service. Credit cards provide benefits beyond cash back; my American Express gives me extended warranty, theft insurance, and extended return windows. You’re also protected if your wallet is lost or stolen. If there was cash in there, you’re out of luck.

    If you have the discipline to not spend outside your means, I think credit cards are the way to go.

  8. elloo says:

    Credit cards are great if you’re disciplined about not getting into buying frenzies. They are easier to carry than a wallet full of cash, you can get cash back on certain cards, and good luck trying to rent a car without one. Let’s not be financial luddites. Just use credit cards maturely.

  9. timparker says:

    If you’ll pardon the analogy, when in college, I was told that business meetings meant having a cocktail and I would stand out as odd if I was the only person drinking water. In my family, I have a few alcoholics and as a teenager I made myself the promise never to drink.

    I’ve still never drank and I’ve never had a problem at business meetings. Here’s the point(s)

    1.) When People say you “need” something, it’s rarely true. You don’t NEED a credit card.

    2.) If you have risk factors that would indicate that you should steer clear, do it. Some people should never have a credit card…ever.

    3.) Excessive spending can ruin your life in similar ways as substance abuse so respect it as such.

    4.) We generally have a very skewed self concept. You might be overestimating your personal finance skills. Look for ways to be even better as a personal money manager.

  10. I have a credit card, but I use cash for all purchases whenever possible. I think it would be challenging to live in today’s world without a credit card, but those inclined to spend more than they can afford should embrace that challenge for the sake of their financial security. Cash (including a debit card) is king. Check out MasterCard’s or VISA’s earnings history to get a sense of the degree of credit card misuse by consumers.

  11. Casavvy says:

    If you are trying to get the most out of your money then a credit card is an excellent way to do that; as long as it is used responsible and paid in full each month. The benefits that you can get from credit cards can include cash back and rewards that cash cant provide. But if you don’t pay your bill in full each month the interest will greatly outweigh any rewards that you get. Also if you loose your cash or its stolen, you can pretty much kiss it goodbye. With a credit card you have a good chance at getting your money that was used to purchase things fraudulently back.

  12. Shirley says:

    Proof that a young fellow is learning (this happened last week):
    “Gram, here’s my credit card. Keep it for me so that I will have it if I absolutely need it. It’s too easy to just swipe a card at the gas station.”

  13. Money Infant says:

    I use my credit card for online purchases and travel expenses and…well that’s it. Everything else is paid for with cash and something of the same type of envelope system Mr. Ramsey advocates. It works well for me.

  14. VHD says:

    ‘Need’ is a bit of a loaded word in the case of credit cards — but it’s hard to argue against the convenience and how much it makes life so much easier.

    I’ve argued frequently that CCs are just a tool and, as much as any tool (e.g. a hammer), it can be double edged. Use it properly and it’ll make life much easier for you; use it improperly and it’ll make life harder.

    With my CCs, I get cash back, I get purchase protection, extended warranty, online records of my purchases, and etc. What do I get with cash? Nothing. And the few negatives of CCs (interest, overspending, etc) never affected me because I completely pay off the balance every month and I keep a budget.

    I do not advocate CCs for everyone. Simply put, some people just can’t deal with it for their own personal reasons. Otherwise, however, credit card provides many advantages with little disadvantages.

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