Are Credit Cards Good or Bad?

Guess what?  I teach kids to play with matches.  Yes, I'm a Girl Scout leader and one of the things I teach my Daisies (kindergarten and first grade girls) is to light a match.  I also teach them how to build a fire.

I've been a Girl Scout leader for more years than most, and I'm afraid I don't vary the presentation that much from year to year (but that makes it easy to see who "got" it when they went through it last year).

I always start by asking the girls to raise their hands if they think matches are dangerous.  Of course, they all raise their hands.  Next, I ask them to raise their hands if they think pencils are dangerous.  None (except those who've heard me before and remember) raise their hands.  Then I ask them to raise their hands if they would like me to poke them in the eye with a pencil.  For some reason, none raise their hands.  I then ask again if pencils are dangerous, and with kind of confused look on their faces, most raise their hands.

Finally, I point out that pencils are like matches--both are tools that can be dangerous if misused, but which are very useful and safe if we use them properly.

Matches are not only like pencils, they are like credit cards.

I've read more than one personal finance blog article about work-arounds that make credit cards unnecessary.  I've read that I should turn down that offer to save 10% on the items I've already decided to buy, because to get that discount, I have to get a store credit card.  Dave Ramsey says that "Responsible use of a credit card does not exist."  Is he right?

I don't think so.

Advantages of Credit Cards

• Credit Cards are not directly linked to your bank account.  One of the most frequently suggested replacements for a credit card is a debit card, which withdraws money from your bank account as soon as it is used.  Frankly, to me that is for more scary than the possibility that I will misuse the card.  I've had my wallet/credit cards lost or stolen and we all know store computers have been hacked.  I've never been asked to pay for something I didn't charge, and I don't have to worry about a fraudulent credit card charge causing havoc with my checking account.  The bank may reverse the charges if a thief uses your debit card, but what about all the people whose checks bounced because of the unauthorized purchase?


• If cash is stolen or lost, you can kiss it goodbye; if a credit card is lost or stolen, you just cancel it.  I wish I could tell you that my wallet has never been stolen, but I can't. I wish I could tell you that I've never left a credit car lay someplace, but I can't.  I wish I could tell you that neither cash or card had ever seen the inside of my washing machine, but that would be a lie.  The bottom line is that credit card companies rarely hold you responsible for any unauthorized charges, and even if they do, there is a legal limit to your liability.  Cash can be lost or stolen and you have little recourse.


• Credit card points, discounts, miles etc.  If you can use your credit cards properly, these can build up into tidy sums of money.  Yes, late charges and interest will eat them up in a hurry, but if you pay the card off every month, without fail, on time, this is free money (except for taxes).


• Credit cards provide a readily available source of easy to access credit, for EMERGENCIES.  As far as I'm concerned, credit cards should be paid off monthly, with no balance carried over until the next month.   You should have some money in the bank available to use for the everyday extra expenses and minor emergencies of life.  In general, using your credit cards to pay for things you can't afford to pay for this month isn't a good idea.  The interest rates are outrageous, and you need to learn to live within your means.  That being said, stuff happens.  People get laid off--and good luck trying to get a loan if that happens.  Credit cards obtained when things are good, and used responsibly can end up with high enough credit limits to carry you through a couple of months.


• Credit cards can alleviate short-term cash flow problems caused by unexpected bills.  In most families, an un-fixable washing machine must be replaced ASAP.  Yes, you should have sufficient savings to handle things like that, but what if you don't?  Sometimes the time the credit card (or the 90 days same as cash) buys you is enough.


• Credit cards are an easy way to provide family members with access to funds, without actually giving them money.  My out-of-town college student and my in-town young adult both have credit cards with my name on them.  They also both know what they may and may not use them for (they can use them for medical expenses/emergencies, auto emergencies, school bills and anything I send them to obtain for me).  If you budget your checking account to the penny, having someone use a debit card in those situations can be problematic.


• Purchasing with a credit card gives you more power if you need to withhold payment or dispute a purchase.  While some debit cards claim to give you purchase protection similar to a credit card, reality is that in any negotiation, the person with the money on his/her side of the table is at an advantage.  With a debit card you are trying to recover money you have paid; with a credit card you are refusing to pay.  

Problems with Credit Cards

• They make it possible for you to buy things you don't need and can't afford.  


• The interest is outrageous if you don't pay the bill in full every month

That's it--the problems with credit cards aren't problems with the cards, per se, but rather problems with the user.  If having a credit card will turn you into an irresponsible spender, then by all means, don't get one.  However, I'll admit to rolling my eyes at people who devise and stick to elaborate budgets that give jobs to every dollar every month and who can tell you to the penny what their electric bill was last month without checking their bank statement but who refuse to get a credit card.

Credit cards aren't good or bad.  Credit cards are tools; it is the user who determines whether they are misused or not.  

*Part of Financially Savvy Saturdays on brokeGIRLrich.*