My Love Hate Relationship with Credit Cards

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Credit CardsWith the total amount of credit card debt now topping $693 billion or $6,500 per household, personal finance gurus may largely shun their use and existence but consumers continue to embrace them as a vital part of their financial portfolio. As a result of this divide, the internet is full of articles arguing both sides of this controversial financial topic and if we’ve all learned anything from all the reading, most of the authors, (including myself most of the time) had a definite opinion and aren’t interested in presenting the other side.

For this article, let’s try to be a little more fair and balanced and concede that both sides could make some valid points. What are they? Let’s take a look.

The Pros

People who don’t subscribe to the idea that credit cards are largely hazardous to your wealth may first say that a credit card used by a responsible consumer can produce rewards points and provide short term credit interest free if the bill is paid in full each month.

They would also say that a credit card, when used responsibly, is good for your credit score since you proving that you don’t get in over your head to the point where you can’t pay your bills.

Another pro might be that credit cards may offer additional warranty coverage for large purchases along with the right to dispute the charge if the product or service doesn’t live up to the contract. If you pay in cash, you have little or no leverage when a dispute arises.

Finally, with cash becoming more and more antiquated, you may need a credit to purchase online or put a deposit down on rental cars, hotels, or other services. Sure, you could use a debit card for that but as we’ve all learned, it probably won’t be long until banks are charging us a monthly fee for the use of those debit cards.

The Cons

The largest problem with credit cards isn’t with the card but the average consumers’ ability to manage their expenses. If the average household debt is $6,500 at 15% interest, that amounts to $975 per year in interest payments alone and that doesn’t include any fees that may be charged along with the payment of the principal balance.

Next, using a credit card is a bet on your future ability to pay the debt. None of us know what tomorrow will bring and although the chances are high that nothing catastrophic will happen to you any time soon, what if it does? How will you pay that debt? A 0% balance transfer sounds great, but can you pay the 15% the card will charge after the promotion expires?

We don’t realize that when we owe somebody else money, we’re levered to them. Your credit card company may raise your interest rate, cancel your card, or change the terms. With the down economy still forcing consumers to use their credit card to pay for necessities, any changes in terms can cause unmanageable financial emergencies for those who rely heavily on their card in addition to adverse effects to their credit score.

Bottom Line

Both sides may find common ground if they agreed that credit cards, if used responsibly, aren’t as bad as they appear but to say that all consumers are using credit cards irresponsibly by choice isn’t fair either. For those living in a state of financial emergency, their credit card may be their only short term hope.

Our challenge as a country is to begin a nationwide aggressive financial education campaign that will teach children responsible financial habits that they can take with them in to adulthood.

(Photo: sovietmole)

{ 10 comments, please add your thoughts now! }

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10 Responses to “My Love Hate Relationship with Credit Cards”

  1. Jeremy says:

    I’m personally an advocate of embracing credit cards. There are just so many benefits to using them. If used responsibly, the credit card issuer will essentially pay you to use their card. The catch is that many people use them irresponsibly and that is how card issuers afford to pay for usage. By avoiding them, you are basically admitting that you do not have the willpower or financial wisdom to only charge what you can afford to pay off right away. That power is largely in your own hands though.

    • Ben says:

      Lack of willpower is not the only reason.

      Avoiding association with the companies based on their unscrupulous practices whereby they take advantage of irresponsible people with outrageous interest, finance charges, and fees is based on ethics and morality.

  2. AaronB says:

    Using a credit card lets me track my purchases without having to remember them and /or write them down.

  3. Bravo! The best solution is definitely education. That includes kids and adults. When people are educated as to the use of credit and how it serves to put people in financial bondage to others, they are much less likely to use it and thus get in a financial bind.

    I personally advise against the use of credit. It’s my mission and passion to teach people just what a bad deal it is and how to overcome it.

  4. NoCleverName says:

    A disadvantage of using cash is that you are paying the increased cost of an item that is added by companies assuming customers are using credit cards. Living within your means and paying your balance in full every month is the key to using CC’s to your advantage.

  5. Ben says:

    I use Discover Card, pay off the statement balance every month, and have the cash-back reward direct deposited into my checking account.
    Yet, I do not like credit card companies and have often considered eliminating or reducing my usage on the principle that they are ripping off irresponsible people big time with interest, finance charges, and fees.

  6. timparker says:

    One of my other issues with credit cards is that they serve as another poor tax. People without the realistic means of paying their credit card charge it up because they never learned how to use them correctly. Others are in such a financial emergency that they don’t have a choice. The proponents of credit cards are the people who understand the tool and how to use it.

  7. Shirley says:

    I find that paying the regular monthly bills (utilities, cable TV, internet access, etc), groceries and gas on my Discover card is much more convenient than writing a check or carrying cash. It affords me an ongoing record of my expenses, boosts my credit score and is paid in full each month. The frosting on the cake is the $50 cash-back credit nearly every other month. Used wisely it can be a good financial tool.

  8. Casavvy says:

    Another benefit to credit cards is it allows you to pay one bill each month. By using a debit card or writing checks you are constantly withdrawing money from your account. If you use your card to make all of your purchases then you can keep your money in an interest earning checking account longer therefore earning you more interest.

  9. timparker says:

    No doubt that when used correctly, paying everything with one card makes bookkeeping easier.

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