The Credit Card Holy Wars

One of the most frequent negative comments I get on The Simple Dollar relates to credit card usage. I often advocate using credit cards for their purchasing convenience and rewards points, then paying off the whole balance each month. In effect, this means that I use a credit card as an extension of my checking account, albeit one that earns rewards for me. Over the course of the last six months using this strategy, I’ve earned about $500 in car rebates using my Citi Driver’s Edge card - and I’m carrying no balance at all. That $500 will go toward the purchase of a new car in the future.

So what’s wrong with that? There’s a rather vocal group of people out there who basically state that credit cards are completely unnecessary, some even going so far as to decry them as evil. Take this recent comment from Kerry on my article about a financial recovery toolkit:

You mentioned that you put your credit cards in your top dresser drawer and then over time were able to put them back in your wallet. Why not destroy them completely and close the accounts?

If you cannot pay cash for something, then you do not need it.

Along these same lines, individuals like Dave Ramsey and blogs like No Credit Needed follow that same philosophy: no credit cards, period.

And then there’s the other group… Part of the reason that the anti-credit card group is so fervently opposed to credit cards is because it is incredibly easy to lose track of the connection between plastic and real money, and when that connection is lost, it’s incredibly easy to get into a dangerous debt situation.

It’s for this reason that so many people are in deep credit card debt. Check out this article by Liz Pulliam Weston cracking the numbers on average credit card debt nationwide. The average American has $9,300 in credit card debt and the median American has $2,200. What these numbers mean together is that half of all Americans have more than $2,200 on their credit cards - and some of those have a lot more than $2,200. According to the article, 8.3% of households owe $9,000 or more on their cards, but many of those households owe way more than $9,000.

There’s clearly a problem out there with credit cards. A large subset of people out there treat them as if they’re free money, charging up balances that are going to be difficult to pay off. I routinely hear from readers with $30,0000 to $40,000 in credit card debt - and I myself had well into the five figures in credit card debt once upon a time.

So what’s the real answer? I look at credit cards as being like a very dangerous power tool. If you’re careful and take the proper precautions, they can save you time and shower some rewards on you as well. On the other hand, if you use credit cards with reckless abandon, you run the serious risk of some intense financial damage to yourself.

Here’s my advice. If you’re in a bad financial situation, get rid of your credit cards. Lock them up somewhere where you can’t get at them and don’t use them for a long while. However, if your finances are under control and you’re in good shape, the convenience, consumer protection, and bonus rewards offered by credit cards make them a worthwhile tool.

I strongly invite differing perspectives in the comments here, as I know quite well there are people who have come to different conclusions on the subject.

The Simple Dollar chronicles a man's road to recovery from "total financial meltdown." As author Trent Hamm puts it, "The Simple Dollar is a blog for those of us who need both cents and sense: people fighting debt and bad spending habits while building a financially secure future and still affording a latte or two." We'll post a couple of entries a week, but you can check out his writing daily at
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wbbh 03/30/08 - 04:37 am
When you pay cash, you pull

When you pay cash, you pull it out of your pocket and hand it over in exchange for what you are buying. Using a credit car detaches you from that process and you will have a tendency to spend more. Most card holders carry a balance and do not pay them off. A credit card makes it very easy to spend more tan you can afford. It is really simple, if you don't have the money in your pocket, you cannot afford it. Just tell that brat inside screaming, "I want it now!" inside your head to shut up.

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