Thursday, June 15, 2017

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.*


  1. Absolutely agree. Another advantage of a properly used credit card is that it helps your credit history and credit score, which is useful for everything from obtaining a mortgage to getting better rates on insurance. Used improperly, they can be a disaster, but that's all up to the user.

  2. I agree. I tend to use my card for everything, just to keep my bank information from getting out there too often. Even if my credit union has been pretty good at spotting some questionable activity, it hasn't been perfect.

    And can I just say I wish my kiddo was in your Daisy troop? Lighting matches and building fires are what I signed my girl up for, and all her troop does is crafts and stories.

    1. Talk to your troop leader and volunteer to be the camping mom. In order to take a troop camping, or even for a day outing with a fire,you have to go to a training class. Especially if your daughter's troop is new, the leader has probably had enough training for awhile. Also, she may have other committments on the weekends. Most troop leaders would love to have a mom step up and volunteer to coordinate outings, including camping and firebuilding.

  3. Gah Ramsey grinds my gears with stuff like that. I used to avoid credit cards like the plague, but not because I thought there was no way to use them responsibly--I just didn't want to open the door that opened up that possibility. Now I take advantage of some of the above benefits, though. And even during those times, I still had credit open via auto loans, which some PF bloggers also hate.

    1. I've never been a fan of debt--my credit cards are a convenient form of payment, I don't consider them debt. However, last summer we planned to buy one car and ended up buying two, and we were offered a terrific deal on the second--a less than one year old car for about $10,000 less than new--even if it was more money than we wanted to spend. Luckily our good credit allowed us to finance at less than 2%, and I've earned more than that on my investments

  4. Remember that Dave is talking to people who are seriously in debt, so many of his listeners probably fall into that "can't use credit responsibly" category. But yeah, to say that no one can use them responsibly is absurd. I know people who bought cars using their rewards points from credit cards (years ago before they changed some of those rules).

    Me? I'm not sure I'll ever trust myself with a credit card again after the giant debt hole we've dug. But I wouldn't say no one should ever use one. Just like matches (which is a perfect analogy!).

    1. You are doing a great job digging yourself out. I suspect your whole attitude toward money has changed in the last few years. You'll get it done.

  5. Counseling families with money problems- the credit card, almost always, seems to be the pit. There is something about being told that "you only HAVE to pay $25 on the $2000 bill" that seems so enticing to people. Putting credit cards on ice seems to work for most of those families. They freeze them in the ice bucket until they are paid off. Then we work back into buying and then paying off immediately (which is what we have done since the 1980's). OOOOhhhh the temptation is so great!
    We only used a debit card for a month--and overdrew our account. We haven't used one since (1992).
    We do use cash. Neither of us ever leave the house without a $20 in our pockets (and a credit card for back up). Our last trip we paid entirely with cash. Cash does wash :) . Ten days- on budget. It is as likely to get stolen as any other valuable item, so we are careful. Knock on wood- it works for us!