Recently, the Atlantic had published an opinionated article, telling us all why credit cards are making us bad people. The author supports his claims with a decent amount of scientific research on the topic that “proves the concept” that credit cards can make you spend more money, which in turn makes you a bad person. While the article applies to the vast majority of Americans, I know first-hand that responsible credit card ownership is possible, and many times it’s extremely beneficial to use credit for all of your purchases.*
I think it’s complete bullshit to place the blame of financial illiteracy on an inanimate object, like a credit card. Unless your credit card is traveling out into the night, and racking up charges unbeknownst to you, then you have to take responsibility for all of the charges that are made. Since when did it become okay to pass the blame of our own actions? Where is your dignity that you can’t admit that you alone are the reason your credit card bill is outrageously high every month? Unless of course, your credit card learned how to swipe itself. I’m not calling anyone out for consumerism, but I am calling you out if you think credit cards are making you spend more money.
The usage of credit cards has risen more than 400% in the past 4 decades. I take this to mean that in a few years, everyone will have a credit card of some sort or another. Picture, if you will, a fleet of kindergarteners strapped with Spongebob Squarepants-clad Amex’s. That’s truly a scary thought, but when you think about it, 5-year-olds with credit cards would probably end up doing less financial damage than most adults, because they’d always have adults around to say “You don’t need that sweety” or “Save your money”. But adults don’t usually have the same luxury. Most people don’t talk about their bad spending. They feel embarrassed about the amount of money they spend and cover it up by telling people only about the deals they’ve received.
Dave Ramsey frequently quotes a study that states that credit card users spend something like 15% more on purchases than people who only use cash. While true for the average American, the same shouldn’t apply to Early Retirement hopefuls. When I was in my early twenties, I charged everything, and made minimum payments on my maxed out credit cards. The way that I used my credit card is the reason why you hear people warn others about how dangerous they can be. My younger self kept Amex in business and I probably facilitated many people’s rewards dollars, so you’re welcome. I, personally, have completely changed how I look at finances, and am now able to reap the many benefits of card ownership. You can too.
Instead of scaring the bejeezus out of people, or telling society it’s okay to pass the buck on yet one more thing, I think a more appropriate topic about consumers’ use of credit cards might be: “If credit cards are getting the best of you, something’s wrong”. With a tagline like that you can seem edgy while dealing with the real issue: irresponsible credit card usage. Responsible credit card usership can be extremely beneficial and actually save you money. Save you money? Yes, credit cards can save you money and in more ways than one.
What does a responsible credit card user look like? Anyone that doesn’t lose their financial logic when they’re holding a piece of plastic instead of paper. When you have a finite amount of money in your wallet, it’s easy to say “I don’t have enough money” to buy something; but when you have a credit card with a limit of, oh I don’t know, $5,000 it’s hard to say you don’t have enough for a purchase. The difference between a responsible credit card user and the average person is that the responsible credit card user is always going to opt to spend their money as if it were cash. They don’t spend money that isn’t backed by a physical dollar in their bank account and they would never make a purchase that couldn’t be paid off when the statement came in.
There are a few awesome things that are afforded to credit card users. The first is purchase protection, which essentially let’s you return items back to stores even if it’s outside of the window of the store’s return policy; it also gives consumers a warranty period (usually a year) where if the item breaks you can return it for a new one, or the credit card company will give you back the money you paid for it. If the store gives you any shit, just call up your credit card company and they’ll handle the rest. Try doing that with cash, but don’t hold your breath. Or you’ll die. Seriously, don’t try this.
Another awesome perk that you won’t get from using cash is cash back rewards. There are a ton of awesome cards that offer 5% cash back on the stuff you actually spend money on. For example, the Discovery It card will be offering 5% cash back on gas fill-ups July-September of this year. Those paying with cash, on the other hand, will have the immediate benefit of knowing they don’t owe anyone money, but also won’t be able to partake in the free cash back. The smart credit user won’t make purchases just because they can get cash back for them. They wouldn’t go out to eat just because they can get 5% cash back. With a mindset like that you’d end up spending more to earn more, which is illogical.
Credit cards provide consumers with something that most people wouldn’t take the time to actually keep themselves: a transaction register. At any point, you could check your credit transactions to see where you’ve spent, how much you’ve spent, or if you’ve been overcharged for something. The same thing is offered for those that primarily deal with cash by means of a debit card. Either way, you have to swipe some form of plastic for this result, otherwise you’ll need to manually log all purchases if you want to track your spending. I prefer to use plastic, because I can log onto Mint and see categorically where all of my money has gone over the month/year/etc.
There is nothing about credit card ownership that will make you a bad person. They won’t change your diet, unless you allow them to. They don’t change your spending, unless you allow yourself to be careless. They don’t make you fat either, unless you really like ice cream; but as long as you can spend the same amount at the grocery store with plastic as you would with cash, then no harm, no foul. If, for some reason, you really feel that a piece of plastic has more control over you than you do of it, by all means switch to cash. Just understand, that the card doesn’t cause irresponsible spending, it just allows it; the consumer is always to blame.
*Please whatever you do, don’t buy a car with a credit card. Even if you can pay it off in full, just don’t.