Do you need a credit card?
No. No you don't. Cut the thing up now!
I am an ex-owner of multiple credit cards. To be honest, I don't really remember actively seeking them out. They found me!
As a young twenty something who had gone through a few rough financial patches the idea of a piece of plastic that could 'bail me out' if an unexpected event occurred seemed like a sensible idea. The paperwork was practically non-existent. All I had to do was sign on the dotted line and I had 3 credit cards within the week.
I had envisaged using the card only in situations like I needed an emergency spleen transplant. Plus they had all these amazing points that would save me money. What's not to love? In 3 years if I spent lots on the cards I could have enough points to fly to Sydney.
They also waived the $110 fee x 2 (for my wife and I) and the $88 fee on the other card for the first year.
It got better. They even gave me 55 days interest free. If I was super clever and paid off the credit card at the 54th day, I would be one clever cookie.
The problem was that I did use it. Not a lot at first, but little by little. I also forgot to pay it back by the 54th day. It was hard to remember what product you purchased when too. We were also building and there was a lot of other costs associated. Putting it on the card earned us points. Subtle, subtle poor money management began to creep in.
At the end of two years we had nearly $25,000 on our credit cards at 18% per annum.
We eventually sold the house and moved somewhere more affordable. We cut up the cards and realised the hidden curse in a credit card.
So what do we use now you ask? Debit cards.
Debit cards have the exact same features as credit cards and you can use them exactly the same. There are no points though, but no fees either. No interest expense, but a small interest amount is earned.
The only catch, if you can call it a catch, is that you can only spend what you have earned.
This is budgeting 101. Only spend what you earn. This is the key to improving your savings potential.
I understand that some people could potentially use them to their advantage and capitalise on the incentives, BUT... the banks are banking on you losing out.
The average American owes $15,706 on their credit cards!
Source: https://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/
Cut them up!
Do You Need A Credit Card?
July 13th, 2015 at 04:51 am
July 13th, 2015 at 06:11 am 1436767915
July 13th, 2015 at 08:02 am 1436774528
I have paid thousands in insurance over the years and have never made a claim. I find it highly improbable to lose $1000 in some fraudulent action. As you said most of it is usually reclaimed on your behalf but it can take months. It does happen of course, but I believe that it is more of an unlikely event than the norm.
Being in debt because of credit card overspending is, however, far more likely. As such I think most people should avoid having one.
July 13th, 2015 at 11:26 am 1436786814
Meanwhile people who know how to use credit cards responsibly are reaping the rewards, in free travel, cash back, etc. I used to be one of those people that should cut up every credit card - and I did, for a while - but I learned how to be responsible about them, and last year I got over $800 in free money from using credit cards. I've got over $500 so far this year, and compared to many here at SA, that's peanuts.
If you carry a balance on your credit cards and add to it every month, then yes, you should cut up your cards to keep yourself from sinking further into the hole. Don't stop there, though. As you're working to pay off your cards as quickly as you can, learn how to use them the right way. Figure out why you got into so much debt in the first place, and take steps to ensure that won't happen again. Get smart about money and debt management, and when you're ready you'll be able to take advantage of the many perks that come with using credit responsibly, rather than spending the rest your life afraid of it.
July 13th, 2015 at 02:26 pm 1436797573
Thank you, doingitallwrong, for pointing out that the claim of $15-16K credit card debt does not correctly portray the average American. It may be the average of those Americans who do carry CsC debt, but most do not. I think this claim circulates in part because it make people feel more comfortable with carrying CC debt. "I'm just doing it like everybody else. Everybody has debt."
As for CC fraud, it has happened to us, both to my husband and to myself. It was very easy to clear up, requiring only one phone call and *poof* the fraudulent charges were off our account. It took minutes, not months. In one case it did take days because they mailed us a form to return by snail mail (before the days of most business be able to be conducted digitally).
I've never encountered hidden fees or unexpected charges. I find the card issuers are pretty upfront about the contracts.
July 13th, 2015 at 07:00 pm 1436814048
However, I do not put things on my credit card unless i have the money in my checking account or know it is budgeted and in the bank in a savings account. I mark down credit card expenses as though they were checks written in my checking account. Makes doing the card reconciliation easy.
July 13th, 2015 at 11:37 pm 1436830662
July 14th, 2015 at 12:59 am 1436835552
Perhaps the title of this post is tailored more towards the person who is in credit card debt and is looking for help on Savings Advice. You lose your audience a little if you begin with qualifying remarks about who the post is suitable for. It's my first attempt at blogging. Certainly not Tolstoy but I've been having fun.
I am really glad I found this site. You guys are amazing and having some incredible advice for helping people to become empowered in their finances.
I certainly have many friends who got themselves in a huge amount of trouble with a credit card. I think all of you who have commented would certainly not be in that camp and it is fabulous to hear that you are getting rewarded through using the cards.
One sad component of the incentives is that I do feel they can only offer such rewards because the odds are in the bank's favour. They know that while a few might use CCs wisely, the majority (debatable) won't. Even if the figures stated above regarding CC debt are representing the minority, the bank is banking on (pardon the pun) making a windfall from those people who mismanage their cards.
We had a similar example in Australia with our pubs. A lot were looking quite drab and were struggling. When poker machines were legalised in came the plush carpet, the subsidised food and the cheap drinks. It is not exactly similar to CCs but I do believe the banks only provide such incentives because the odds are in the favour that they will not be used with financial wisdom.
Thanks for commenting. What a great community!
July 14th, 2015 at 01:07 pm 1436879260
Got many first class flights to Asia (on Cathay Pacific, too!), and I always get more worth out of the free yearly hotel night than it costs in annual fee.
July 30th, 2015 at 05:17 am 1438233444