The Ultimate Personal Finance Dilemma: Should I Use Credit Cards?
7 Compelling Reasons To Stop Using Your Credit Cards!!
And on the other hand, you have seemingly everybody else. But the credit card proponents recognize that credit cards are dangerous, and place conditions on them. Such as: You have to pay your balance in full every month.
For the first 10 years of our marriage, my wife and I used credit cards. We always paid off our balance each month, and we never paid a cent of interest. But our budget always seemed to be a struggle to master. We always overspent in one category or another. Then we decided to take Dave Ramsey’s advice.
So . . . we cut up our credit cards. We have been credit card free since January 2017. And contrary to popular opinion, we have had no issues paying for things with Paypal (online) or debit cards everywhere else.
I’ll give you 7 reasons why we gave up our credit cards, and you should too.
Reason #1: What if you can’t pay off your balance in full each month.
This is major tenant in the you need credit cards group. “Always pay your balance in full each month.” But if for some reason you don’t pay your balance in full each month – you will get charged interest (we all know this).
Interest on things you should never pay interest on – like groceries, gas, or light bulbs.
You may say, “Well, I’ve always paid my balance in full each month so far. What would ever change?”
Just a word of warning . . . If you think like this – you haven’t been alive long enough. Life has a way of causing negative things to happen. Eventually, you will need a new transmission in your car, a new roof, or refrigerator. Maybe even in the same month. What if your spouse has a fender-bender?
Hopefully you have some sort of emergency or rainy-day fund to cover those things as they come up. But if you don’t, what do you do?
Charge them, and worry about it later? This reasoning/planning sets you up for disaster!! We all know how bad credit cards can be if you don’t pay them off each month. Compounding interest can work against you too.
According to Nerdwallet, Americans owe an estimated $905 billion dollars on their credit cards!!! That’s billion! With a “B”!
Everyone that I’ve ever asked about their credit card usage always tells me the same thing.
“We use credit cards for this or that. But we ALWAYS pay them off every month!”
I only know of one honest person who has admitted to carrying a balance on their credit card.
So . . . either I only know and talk to the people who are disciplined enough with their credit card usage to never carry a balance (unlikely). Or . . . some of those people are lying.
So be honest with yourself. If you’ve ever paid interest on a balance, you’ve also more than likely canceled out any benefits you’ve also received.
If you have an emergency/rainy-day fund, then why do you need a credit card?
I have heard many people say, “I only have it in case of an emergency.”
I can’t emphasize this enough. Don’t use credit for an emergency!
This is the absolute worst time to ever turn to credit cards. Imagine in the middle of a crisis – the stress of the emergency – and you have to charge it!! Think: a broken down car on the side of the road, or a new fridge to keep your food from spoiling.
You’ve just postponed your stress. You still have to pay for the emergency, you’ll just be doing it long after the crisis is over. And every time you make a credit card payment, you’ll be reminded again of what happened.
An emergency fund takes care of this. You pay for the emergency – in cash – and you’re done! You then replenish the emergency fund over time. The stress of the emergency is stress enough. Why add to it?
Reason #3: Contrary to popular belief – you don’t actually need credit cards to live.
I mentioned earlier that we have been credit card free since January of 2017. And we have used our debit card as a “credit” card in places you would normally need a credit card (online, rentals, and hotels).
I also was able to use my debit card during a recent trip to Europe. I simply informed my bank of my travel plans, and they opened some of the restrictions that would have normally been in place.
Another reason people give about why they use credit cards is for the perceived safety and security of your transactions online. “What if someone gets your information? They could wipe out your checking account!” This is simply not true.
We have the same disputing features from our local bank as the major credit cards. Any transaction that we did not initiate – we have the opportunity to dispute and remove. My wife had this happen to her earlier this year.
Someone in Long Island, NY, ordered a pizza and some sneakers from Foot Locker using her card number. Maybe they were having a pizza party at the park? Who knows?
Either way, our bank delayed the transaction and questioned us. Of course, it was fraudulent, and they took care of it. My wife received a new card a week later, and we continued about our lives.
Most banks offer this security service now-a-days – you just have to ask them about it. Also as a side , the majority of your money should not be in your checking account. If, in the remote chance, it does get wiped out, you won’t lose everything.
Reason #4: When you use plastic (credit or debit) to purchase items – you tend to spend more.
This one is very dependent on the specific person. For instance, one person might go into a store with 2 particular items in mind to buy. They walk in – purchase those 2 items – and walk out.
Others may struggle more with impulse purchases, and walk out with those 2 items and some extra things they didn’t even know they needed.
Retail stores are masters of snagging the weak-minded (financially speaking), and they thrive on getting you to purchase more than you originally intended. McDonalds was one of the first to implement credit card purchases, and they reaped immense benefits because of it!!
But, if you use cash (as we do for groceries), you can only spend the cash you have. It limits the amount of impulse buying opportunities. There’s just something different about handing over your hard-earned cash.
Reason #5: Even though you can get rewards – the potential risk is always present.
Every time you borrow money, risk is involved. It’s risk/reward . . . or high risk/high reward. They always go together. You can try to mitigate that risk by only buying things that you have planned. Or you can put money aside to cover the bill at the end of the month.
You can even transfer it to another “holding” account. (I’m not originator of this one. – but it’s actually quite genius) The fact remains. You are still BORROWING money – even if it’s only for a few days or weeks. The risk is always there that you won’t be able to pay it back at the end of the month.
If that risk can be mitigated by simply not using credit cards, then what are you waiting for? Do you think the rewards justify the risk?
For me, I’ve decided that I’m not going to borrow from the credit card companies anymore. I can’t accept a risk (no matter how small I can artificially make it) that I can just as easily avoid.
Oh and by the way, those rewards are simply some of your own money being handed back to you.
Let me just preface this by saying – We live in a capitalist society. Everyone deserves the opportunity to make money in some fashion or another. I’m not saying that banks shouldn’t have that same chance.
I don’t know how many of you realize that for every “plastic” transaction, the banks involved (card issuing bank, merchant’s bank, Visa, Mastercard, etc.) split roughly 2.0% of the transaction – which is paid by the merchant or passed on to you as the consumer. This is called an interchange fee.
This interchange fee is higher for premium rewards cards. And this is what we’re really talking about here. Most would not advocate using a credit card without some sort of reward. This interchange fee is also higher for internet purchases – which are considered riskier.
Now when you use a debit card, this fee is also collected. However for large banks (Think: Bank of America, Chase, Wells Fargo, etc.), this fee is capped at $0.21 + 0.05% per transaction as a result of the Durbin amendment law. For smaller banks this interchange fee can vary, but the average is $0.44 per transaction.
So, let’s do the math, for a $100 purchase.
- Credit card – $2.00 – to be split between the banks involved in the transaction. Higher for “rewards” cards.
- Debit card – $0.26 – to be split between the banks involved in the transaction. For smaller banks the fee for the same purchase would be higher – $0.44 on average.
So if you’re trying to help the big bank’s bottom line, keep on using that rewards card. Just think about that every time you drive by their glass and chrome building.
Big box stores can more easily absorb the fees (they also can negotiate them lower). But trust me when I say, small businesses hate these fees. It’s awfully hard to be pro-small-business when you walk through the door brandishing your 5% cash-back card.
Reason #7: You can (if you want to) have Great “Credit” Without a Credit card.
Things like a great interest rate on a home mortgage, apartment in a reputable complex, better insurance premiums, even a job in some situations can be easier to obtain with a stellar credit score. But a credit card is not the only thing reported to the credit bureaus. Installment loans, rent (maybe), or student loans are also reported. If you are current on these loans your credit should be good also. Check out this post over on Credit.com for more info.
Not that someone who writes under the nickname “the cash dad” would ever advocate for debt or credit, I do however understand the need or desire for a home mortgage. And obtaining the best interest rate possible can help you to save thousands of dollars in interest over the life of the loan.
Just know that you can do it without a credit card. Don’t get suckered into the trap of chasing a high credit score just so you can borrow more money.
So what do you think? Are you with me? Have I changed your mind regarding credit card usage??
Credit cards are very prevalent, and their mis-use is also prevalent. Simply because of the convenience, I have no doubt that credit cards are here to stay, but I won’t be using them.
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