There is this idea that there is good debt and bad debt, in which credit cards are listed in the “bad debt” column. (See “Good Debt vs. Bad Debt“) There are financial gurus that swear up and down that credit cards are horrible and should be avoided at all costs. There are other gurus, bloggers and others in the finance world that preach that credit cards are good as long as they are used right.
One of the things I love about personal finance is that it’s not always cut and dry. There is not always a right and a wrong. Personal finance is just that, personal. Here is a list of a few things I have heard (and experienced) over the years about credit cards along with my views on each. You may share some of my thoughts and you may totally disagree, and that’s ok. We all look at things differently based on our situation.
1. Credit cards are evil and should never be used – DISAGREE
Credit cards are simply a tool. They are a form of payment. Like with any tool, credit cards can be used for different purposes. When used for benefits, such as cash back, store rewards and airline miles, credit cards can be awesome! However, if you are not able to effectively manage your credit cards and your spending, they can seem evil and get you into trouble. In these cases, the problem is not the cards themselves, but rather the habits formed around them.
2. I need to get credit cards to build my credit so that I can later buy a house – DISAGREE
Yes, we can use credit cards as a tool to build credit (as mentioned above). Credit cards, just like any other tool can pose great risk if not used properly. You can fall into the risk of not paying them off every month which can then cause the minimum payment cycle. (I have been here more times than I would like to admit). If you do not have credit, you can still buy a house, you may just need to do a little more work on your end, but it can be worth it.
3. Credit cards can offer some great benefits if used right (but don’t buy things you don’t need just to get store rewards)- AGREE
You can use credit cards for things such as store rewards and airline miles. These can be used to get awesome discounts on merchandise and tickets. We do need to be careful here though. Although these are great benefits, make sure you are not purchasing something you don’t need just to get points. You can end up wasting money on items you will never use. Also, with airline miles, they can help to cut down the cost of tickets, but if you are carrying over a balance each month or spending outside of your means, this can backfire.
4. Credit card balances should be paid in full every month – AGREE/DISAGREE
When using credit cards to buy items, leaving a balance at the end of he month causes you to spend more than you need in the form of interest. You are wasting away your hard-earned dollars. Be sure to pay it off in full! The exemption to this is when you are taking advantage of a balance transfer or another type of interest-free offer, which can save you tons. Just be sure to pay off the balance before the promotional period ends!
5. I need to keep a balance on my credit cards so that I can raise my credit score – DISAGREE
This goes along with #2 above. By leaving a balance, you are running the risk of accumulating interest unnecessarily. By paying the card off each month in full, you build an excellent payment history, which does help your credit. You do not need to leave a balance each month.
6. Credit cards promote instant gratification – DISAGREE
Sometimes we use credit cards to buy items that we don’t truly need, but rather want to have gratification. Once you buy that new, shiny item, are you really satisfied knowing that it is truly not paid for? That gratification can quickly turn into a negative future obligation when you see the monthly statement, and more than likely with interest.
7. Credit cards get you in a downward spiral of debt – DISAGREE
If you stay on top of your payments and pay off your cards each month, you can again use them to your benefit. The problem here is to have the discipline to actually pay it off! (Having autopay setup can help with this.) If you spend and spend and spend while making only the minimum payments the spiral of debt becomes reality. The good news I that this is preventable. Will power has a hand to play in this as well.
8. Credit card companies cause so many problems – DISAGREE
The great thing about humanity is that we have free will. I have heard many people who are in debt exclaim that credit card companies are only out to get us. When we are not thinking with our emotions, we know how ridiculous this sounds. Sometimes the truth can hurt. Credit card companies make gazillions of dollars through fees and interest. This does not make them evil, it makes them profitable. You can avoid interest charges and fees by paying your bill in full and paying on time. You are in control. The problem is not with the credit card companies. The problem is with our actions, our thinking and our habits as consumers.
What is your view on credit cards and credit card companies? Do you agree/disagree with the statements above? What have your personal experiences been? I would love to hear from you in the comments below. Also, come follow me on Facebook and Twitter @defeatingnormal. I very much appreciate your support. You can also subscribe to this blog by entering your email address at the top of this page. Thanks for reading!