Are credit cards bad?

[cheapbastard]

Usually on these types of forums you find that most people give the adivce to cut up your credit card. Credit Cards are evil.

I find them to be great. They are convenient and provide a great service. I do realise that many people get into hot water over their credit card bills. We always pay it off every month, and that is what you have to do if you want to have your card work for you, instead of you working for your card.

We use our credit card to pay for almost everything from groceries to insurance. For every dollar we spend we get "Reward Points" that translate into store vouchers for all kinds of products.

It provides us with an interest free loan for as long as 55 days. This allows us to keep our money in our mortgage account, saving us heaps of interest.

Because we have a gold card, it also provides us with free travel insurance. This is good because we do travel quite a bit.

The card also provides insurance for goods we buy. If we break it we are covered. If someone rips us off with a faulty product or service we can get our money back.

My question is this: Is there anybody out there that thinks this way as well?

[BAGAGT1]

If you have the discipline to work the CC like that, then I agree that there is nothing wrong with them. Unfortunately, it is very easy for many to quickly find yourself in a CC jam.

Although I have never been over my head in CC debt, I can see how it can easily happen, it is so easy to buy things when you know you don't have to pay for it in full at the end of the month.

[mbhunter]

Cheap B, that's the only way that credit cards should be used. That's how we use ours. For every reason you mentioned. Use them for all they're worth but never pay a cent in interest. I think that the days are numbered when you can do so without an annual fee.

[PrincessPerky]

A CC is not a good or bad thing, it is an object, kindof like saying the computer is bad, it is a tool, if I let it steal my time then I am abusing it, if I use it for some amusement and some learning and such it is a good thing.

On the other hand I have no willpower, if fudge is in the house I will eat it , if my limit is skyhigh, I will use it. So no CC for me (well DH has a billion, but we don't use them anymore)

[BCompDude]

Originally Posted by mbhunter

Cheap B, that's the only way that credit cards should be used. That's how we use ours. For every reason you mentioned. Use them for all they're worth but never pay a cent in interest. I think that the days are numbered when you can do so without an annual fee.

I don't think that there will be annual fees applied to credit cards as the interest fees/late or over the limit fees more than compensate them for the "loss" of an annual fee. The number of people that responsibly use their credit cards compared to those that do not is laughable--I seriously wonder if the majority of Americans will ever "get it" when it comes to credit cards. . .I assume that time will probably never come.

[Bluezy]

I'm not fond of credit cards and would rather not have one at all if I could. However, one cannot function well without a credit card. I keep one for emergencies.

[cheapbastard]

Hi PrincessPerky. Thanks for the analogy of instant credit and chocolate. I have always had will power when it comes to spending money, but chocolate or anything else sweet is another story. Once it is in the house, I will find it and eat it. It sort of puts things in perspective for me.

Hi Bluezy. Great quote .

[obi_positive]

If you have the money in the bank and pay off the balance each month, that's great. The plastic itself is not awful, what's bad is the interest rates, credit card companies' tactics and the human desire to have now what you haven't earned yet. I hate to see so many people place their earnings toward paying off credit card debt/interest instead of building wealth and retirement savings. Why spend your present days paying off past purchases when you can save for the future or give your money to causes you support. Using a credit card for many people is like trusting a casino with your finances.

• Merchants mark up their prices to recoup cost associated with processing transactions. Cash patrons also end up paying the higher prices.
• Interest rates above 20% are ridiculous. High interest rates are the new debtor's prison that keep people making minimum balance due payments while the debt grows higher than the minimum balance due.
• Credit card companies target consumers with little cash who don't understand the implication of debt. That's why they go after college freshmen on campuses all over the country.
• The "in case of emergency" reasoning for holding a card is what gets people with good credit into trouble. Saving 3 months worth of income, insurance, and negotiating skills will pull most people through any emergency. Putting your emergency on plastic can be costly for years to come. We just worked out a payment plan for some medical bills recently, the first question the hospital asked was, "Can you put this on a credit card?" Let's see, if I pay you as I can afford to, I pay off the debt sooner without an extra 21% interest tacked on to the bill, so "No." Most people are on track for a major emergency every 10 years (bigger than a car breakdown), just be prepared for it. Personally, I've been on track for to have an emergency every 3 years.
• Many people seeking bankruptcy protection have credit card debt.

[Amytheamazing]

I use my credit card to pay for everything so I can get the points or cash back or whatever it may be. I also pay my credit card off every week instead of waiting for the statement to come and accidently spending the money twice.

[CRFSaver]

So I just had to get my two cents in here. I don't think credit cards are bad as long as they are not abused. Unfortunately people abuse them and they get a bad rap. You can't rent a car these days without a credit card and even buying airline tickets is getting harder so even if you only use it for special occasions you still need one.

I just wanted to give some clarification on some things here. It used to be the case that merchants would charge a different price for for credit versus non-credit card use. The associations dont allow that anymore. Either way interchange has become so low that it is actually cheaper in many cases to take a credit card payment versus cash, coin or check. The reason being, merchants get charged for processing cash, coin and checks just like they do for credit cards by their banks. Add on top of that having to pay for armored car services as well as the fact that card charges can be deposited next day, meaning the banks get no float, the merchant gets their money faster.

As for 20% interest rates, have you ever looked at why rates are so high? It is not just an arbitrary number. A typical top 10 credit card company has over all CC charge-offs between 4-8 percent. What most people dont realize is that charge offs on sub-prime accounts are anywhere between 10-15%. Add to that funding costs of 2-5% plus overhead, it makes sense why rates are over 20% on many of those cards.

Card companies do not specifically target people with little cash. That is a business model that has killed any CC company that used to do that. They target college students because statistically those students will eventually pay off their loans given that college graduates statistically make more money then non-college graduates.

Card debt most of the time is a choice. My sister makes more money then me, quite a bit more but also has more credit card debt then I made at my first job out of college. That was a choice. She didnt need to buy those 450 dollar boots (yes 450 bucks!). the 15 other pair of shoes she never wears or wore one season.

You are right, people dont need to pay their emergencies with credit cards. But that is not the fault of the credit card company, that is the fault of the individual. I think people forget that the money has to come from somewhere.

Do credit card companies do sleezy things? Some do. It is unfortunate and it overshadows the good that have come in credit cards over the years. Ask your parents how hard it was to get a credit card 25 years ago and the fact that every single card had a 19.99% interest rates. For those that have 0% interest rates on their cards, they are doing quite well.

Are their changes coming? Yep. Either from the OCC and FED or from companies realizing some of these practices dont pass the smell test. Some do and some dont. Some people love their credit cards and some people hate them. I am indifferent to mine. I pay mine off at the end of the month but when I was in graduate school, they were a godsend.

[Amytheamazing]

I think CC companies also target college ages due to the lifetime value of a customer. It's better for the CC companies to gamble on almost everyone at that age so that when they are out of college and they have a real income they will hopefully be loyal to their first CC's

Also the target customers of a CC company vary based on the services offered by the CC. Obviously, someone who can get the super duper American Express card isn't going to be interested in the secured MC with a $300 limit for people with bad credit. Different customers = differerent expecations

[CRFSaver]

You are correct Amy. Given the cost to acquire an account ( around 150 bucks) the longer a card company maintains the customer the easier it is for that customer to be profitable. At least thats what the NPV models say...

You are also correct on offering services based on needs. I use an AMEX charge card so I shouldnt be getting in the mail a solicitation for a secured card.

[robb_0909]

Say you put $300 on your cc in a month, then all of a sudden you lose your job. Not only are you without a paycheck, now you have another monthly payment with 20+ percent interest. That is the only thing I see wrong with using cc to purchase everyday items. I have one for emergencies, hotels, and renting cars. I like knowing if the worst possible thing happened I would be able to handle it.

[Amytheamazing]

I am a grad student on assistantship so if I lose my job it's because I failed a class and getting kicked out of my master's program is worse for me than a credit card bill. But paying it every week keeps it from getting away from me.

[BAGAGT1]

Originally Posted by robb_0909

Say you put $300 on your cc in a month, then all of a sudden you lose your job. Not only are you without a paycheck, now you have another monthly payment with 20+ percent interest. That is the only thing I see wrong with using cc to purchase everyday items. I have one for emergencies, hotels, and renting cars. I like knowing if the worst possible thing happened I would be able to handle it.

That is what the emergency fund is for, If I lost my job today, I have enough in my emergency savings to pay in full all of my loans (two car notes and a loan for furniture) except for my mortgage and still have enough to carry me for at least a couple of months. I'm a big believer in having a large enough e-fund to carry me through a long layoff if neccesary.

[moneyrant]

Done more harm than good for most

[PRICEPLUS]

Cash is King. What did people do before credit cards? They saved up for something or did without for the most part. Maybe we should go that route again as a culture!

[marglo]

I agree that credit cards have (in a sense) done more harm than good for most people, including myself in the past. However, it was really not the card that did the harm, but my desire for instant gratification!

Now I no longer think of a credit card as a means of getting something I cannot afford. I use it only to buy things I can afford so I can get the miles or more likely these days, the cash rewards. I use those cash rewards to help pay down the old balances I am still paying off from my past foolish spending days. So I am no longer debting, I am simply using the card as a means of payment, like a check or debit card and getting rewards for doing this.

I have heard you spend more if you are using a credit card...in the past yes, I have done this, but I don't feel I do any more. HOWEVER, in September, as an experiment, I am planning on taking cash from our bank account for things like groceries, gas etc. that we normally pay with a card just to see if I actualy spend less. Some of you might also want to give yourself this test just in case. At the end of Sept, I will have to compare how much we saved with how much cash rewards we would have earned using the credit card. The way I look at it is...if I do find I have more money left at the end of the month, I can put more on my debts and get them paid off faster! :-)

[zakity]

I use the credit card for everything, but I also keep track of what I spend and try to not go over the budgeted amount for things. I have a spreadsheet that I use for bills and I add everything that I buy on the cc to the cc line. When the bill comes, I usually am surprised because it is slightly less than my estimate. I have a set amount budgeted for gas each month and I round things up because I only deal with dollar and not cents on my spreadsheet.

[Roger]

Of course credit cards are not evil. Neither are guns, alcohol, cigarettes, cars, cash, computers, birds, or books. If you misuse the product it will cause problems. If you handle them properly no problem. Have the money available to pay off the credit card statement each month IN FULL and you will be okay. Fail to pay it one month, and you had better change your thinking about the plastic.
Roger