How Those Evil Credit Cards Can Be Good for You
Wednesday, 8th August 2007 (by J.D.)This article is about Choices, Credit Cards
This guest post from Justin McHenry is sure to be controversial. Though I just spent three weeks using a credit card while on vacation, I’m still wary of them. McHenry has some thoughts for people like me.
When people ask me what I do and I tell them I run a credit card comparison site, they generally look away, as if I’ve just said I’m a pimp. Or a crack dealer. Or a crack-dealing pimp. When I tell them credit cards aren’t all bad, they’re skeptical. You probably are, too. I might not be able to change your mind, but if one less person in the world thinks I’d give cigarettes to an asthmatic, this post will have been worth it.
Used properly, credit cards can offer you some real benefits. (Yes, used poorly they can ruin your life, but that’s been established elsewhere. I’m here to give you a few positives.)
Before his trip abroad, J.D. mentioned getting his first credit card in a long time. He talked about the dangers of doing so, but he also exhibited what I’d consider the mindset of a responsible credit card user. This mindset can be summed up in a single sentence, which you should make your credit card mantra:
“I pay off my credit cards on time every month.”
Follow that simple rule and credit cards will be your best friends, keeping you cool in the summer, warm in the winter, etc. When you have made paying off your bill completely each month a given, instead of an option, or a wish upon a star, you have the mindset to take advantage of the two main benefits of credit cards: (1) convenience and (2) protection. Let’s look at each.
Convenience
Walking around with a lot of cash leaves you vulnerable. Vulnerable to losing it, vulnerable to having it stolen. And it requires repeated stops at ATMs when you run out, which can be a major hassle. Credit cards solve this problem. You can use them almost anywhere today, for even the smallest purchases.
In addition, credit cards are often necessary for travel, especially if you book airline flights online or want to make advance reservations for a rental car or hotel. In many cases, you simply can’t do these things without a credit card. At best, it’s a hassle. Maybe that’s fair, but it’s reality.
Also, when you travel abroad, as J.D. has just done, a credit card allows you to make purchases more easily and often more cheaply, without having to pay international ATM fees or deal with travelers checks.
Protection
If you lose your credit card, or someone steals it and hits the bars, your credit card company can not legally make you liable for any more than $50 of those fraudulent charges; in reality, most credit card companies won’t charge you at all, because they want to keep you as a customer.
Credit cards also protect you as a buyer. If you make a purchase and the item breaks, or is lost while being delivered, or a company won’t give you a refund, your credit card company will go to bat for you. Call them up, say you want to dispute a charge on your card, tell them why, and in most cases they’ll erase your debt and go after the merchant that stiffed you. Now it’s between them—as far as you’re concerned, the matter is over.
But Wait! There’s More!: Bonus Benefits
There are two more fringe benefits to consider, although I believe they are less important.
- Over 75% of the credit cards on the market today offer some sort of rewards program, whether it’s getting a small percentage of cash back, points toward merchandise and gift cards, or airline miles. In most cases, these reward programs are free—you don’t pay an annual fee to get them. So, as long as you are following your mantra (“I pay off my credit cards on time every month.”), you get free stuff for using your credit card. These rewards can be lucrative if you’re a big spender, but I suggest you only think of them as fun extras; otherwise you can become obsessed with racking up points and do something stupid with your credit card.
- Credit cards are a free short-term loan. While I don’t suggest you think of them as free money, I do suggest that you think of them as a convenient way to save yourself from forking over big wads of cash for no reason. Example: You want to book a flight today, while rates are lower, for a vacation that won’t occur for two months. If you even have the option to pay cash, it will mean paying an awful lot upfront for something you won’t be using for a while. A credit card lets you make that purchase quickly and easily, with no interest for the month in between when you bought the ticket and when your credit card bill is due.
Credit Cards’ Evil Ways
If you think I’m a shill for credit card companies, let me set you straight by telling you this: Credit card companies want you to screw up. They want you to forget your mantra. They want you to pay off only part of your balance, pay it late, maybe even go over your credit limit. When you do, they’ll pounce, gleefully charging you out the wazoo for each mistake and showing no mercy when you say “It’s never happened before” and “Can’t you make an exception this one time?” These days, credit card companies are making less and less money from interest charges and more and more from fees, so they need you to screw up.
The solution: Don’t screw up.
A Word About Debit Cards
Debit cards have increased in popularity, especially among younger people. If you can’t internalize the mantra “I pay off my credit cards on time every month,” then by all means go for the convenience of a debit card and the protection from buying what you can not afford.
However, three words of caution on debit cards:
- Debit cards do not offer the same protections as credit cards. First, they offer little extra benefit if you have a dispute with a merchant. Debit card purchases are treated the same as if you made a cash purchase. You may get your bank to help you, but who has your money? The merchant, who is under much less pressure to give it back.
- If debit cards are lost or stolen and used fraudulently, you could be charged much more than you would be for a lost credit card—only $50 if you report it within two days, but after that up to $500, depending on how much the card was used. (After 60 days, you’d have to totally eat the fraudulent purchases, but who would not know their debit card was stolen for 60 days?) In addition, if you try to use your card while you are unaware that someone is fraudulently emptying your bank account, this could lead you to make purchases without money in the bank to cover them, leading to the equivalent of bounced check fees. And, of course, when your debit card is used fraudulently, your money is gone from your bank account, and it may be weeks before the situation is handled and the money is restored. Contrast that with a credit card, in which the money you’ve used to make purchases is the bank’s money, not your own, so you do not lose cash when fraud occurs.
- This may be a personal thing, but debit cards can make it difficult to keep track of how much money you have to spend. Because you make purchases without getting a running total of how much is left in your account, you must keep track in some way, whether it’s using a checkbook-type ledger or just checking your balance online often. In short, a debit card requires discipline. (In that way, debit cards and credit cards are definitely the same.)
Thank you for reading. Now I’ll go back to stealing candy from babies.
Justin McHenry is Research Director for credit card news and comparison site IndexCreditCards.com. He also blogs about personal finance at Zen Personal Finance.
I dunno, maybe I’m in the minority here, but my debit card has all of these features.
I’ve been following that mantra of “I pay my credit card in full and on time every month” for the past five years and it really does work for me. I treat it as if it were a debit card. Having a credit card simplifies my financial life, and as long as I set a ceiling for how much I put on my card each month (which of course is many thousands of dollars below the credit limit that the credit card company has set), I can always pay it off in full. I don’t have any reward scheme on my card, but that’s fine too as I’ve found in the past that reward schemes lead me to acquire things I don’t really need.
I followed this approach for over a year, charging everything to my American Express, and paying the balance off each month. That was one of the benefits of using American Express, I had to pay it off each month. The problem was that it caused me to spend more money than if I had been using my debit card. With my debit card, I’m forced to keep an eye on my checking account balance, which helps me make better spending decisions. Using a credit card also made budgeting more difficult, as the amount to pay of the credit card would vary significantly from month to month. As for the added risks of a debit card, they just aren’t that significant to me.
I follow the mantra of “I pay my credit card off every month,” and I have had nothing but good credit card experiences. When I have had to dispute charges in the past, my bank refunds me the amount immediately and then follows up with the merchant, so I spend little time with that amount on my card. I once had to cover my parents at a hotel overseas when the amount for their stay was over their daily limit … I could not have done that without my credit card. I agree with pretty much everything in your article, and stand as someone for whom credit cards have definitely been a good thing to have.
thanks for giving me a reason to trim my rss reader by one more feed.
“get rich slowly” has a post promoting credit cards. unbelievable.
I also follow this mantra and tend to use my credit card for work expenses which I can claim back after the fact. This allows me to avoid having serious cashflow issues due to business trips.
I don’t find credit cards evil at all, opposite actually. Used properly, they help build your credit, protect your money, and as mentioned, most will reward you with points/cash.
I had some fraudulent charges made on my debit card account and they were completely refunded almost immediately - the only caveat is that I was out about $900 for a day or two. I’ve since opened up a separate account for internet purchases and transfer funds accordingly.
And I’ll second the comment above - I had a credit card with a low limit ($500) that I paid off every month. I spent much more money that way, but if you hold a tight budget you’ll probably be fine.
Amen to credit cards helping you with merchants!
My husband ordered a very expensive optical sight before deploying to Iraq. It hadn’t shown up four months later, the merchant wasn’t returning emails or phone calls (to me, in the States) and finally, since he’d bought the thing on the MC, we called USAA and they yanked the charge back. Got some really nasty messages from the company at that point, but we referred them to USAA (our MC holder) and never heard another peep.
Not really seeing the controversy here.
Common sense, good advice.
Well played.
Credit cards can be your friend as long as you manage them properly. I have only one but I use it even to charge groceries. I pay it off every month. Paying with a card takes a few minutes longer and I have to sign the receipt, so I think about the purchase rather than mindlessly pulling money out of my pocket for an impulse buy. I carry very little cash — those small purchases really add up. As well, my credit card company gives me an annual report, broken down by commodity (groceries, automotive, travel, etc.), which gives me an overview of the year’s charges so I can see where my money goes.
Bottom line,
You do get some conveniences with credit cards.
However they do not out way the inconveniences.
1.Overspending
I wish someone would get the facts right about debit cards… !!!
Regarding the Debit card points:
#1 WRONG:
Debit cards offer the EXACT same protection as credit cards, when you run them as credit:
http://www.usa.visa.com/personal/security/visa_security_program/zero_liability.html
The problem comes in when someone knows your PIN and runs it as debit. So, don’t write your PIN number on your card.
#2 WRONG
“Visa’s cardholder protection policy requires all financial institutions issuing Visa products to extend provisional credit for losses from unauthorized card use within five business days”
#3 I totally don’t understand how using debit cards makes it harder for you to track your spending. It’s a heck of a lot easier for me to sync up my account with Quicken in the evening and know EXACTLY how much is in my account.
This guy obviously doesn’t do his homework.
After my finally paying off all my credit cards, I’ve put all but two in a safety deposit box with some other valuables. I can always get them if I need them but I just don’t need them. It’s like that Edgar Allen Poe story about the ticking clock. Heheh
All of this makes sense to me.
Here’s a simple variation on the mantra suggested here: I don’t buy anything on my credit card unless it’s already in my budget to buy it. If you already have budgeted for a purchase, and if you aren’t going to buy things that are not in your budget, then it shouldn’t actually matter how you pay for it (cash, check, credit card, debit card).
There are plenty of differences in the details between these different means of payment (how easy is it to track expenditures, whether you can limit your spending in advance, when the charge is actually applied to your checking account, whether you have any protection against fraud, etc.), and I don’t mean to minimize the importance of those details. However, none of those details are nearly as important as the simple idea of only buying what you can afford.
If credit cards made it too easy for me to buy what I can’t afford, then yes, I should get rid of them. Still, the problem would be that I am buying things I can’t afford, not how I bought them. If I take next month’s rent money out of the bank as cash and spend it on a big-screen TV, then I’m still just as screwed as I would be if I’d done it with plastic.
I agree w/ the author and re-emphasize that the key is to never, ever, ever screw up on the sacrosanct mantra; you do that and credit card companies pay you to use thier money..err, plastic! I make about $300-500/year from the various rewards plans I play with. And as previously mentioned, after you’ve had a nice long history of zero late payments and consistent paid in full balances…the co’s will go to bat for you when merchants go awry or when you’re looking for a short term, low APR (think
Additionally there’s plenty of debit cards that earn points/miles now. I use 2 Chase/UAL debit cards (one for work, one for personal). We haven’t used our credit cards in almost a year and have yet to run into a situation where we were at a disadvantage with a debit card.
I was going to say the same as Jose - if you do it right, you make money off the credit cards. We make about $100 every two to three months with our Citibank card. It’s not much, but since we use that card to charge all our groceries, gas, and other necessities and don’t buy things we don’t need, we are not buying anything that would wouldn’t buy either way. And every little bit of money coming in helps!
I disagree with every “benefit” mentioned by the author.
I just might write my own rebuttal to this post and submit it to J.D., but given the number of people who agree with the advice, I think such efforts would be wasted.
Credit cards are a crutch for the lazy and undisciplined. The real key to financial freedom, stability and peace is to control both your behavior by having some discipline and saying “Well, I don’t have the cash to buy that right now, I don’t really need it.” and sitting down every month and telling every single dollar of income what to do - a BUDGET.
Most people I’ve met that use credit cards often don’t actually write a *real* budget. One where every single dollar of income is spent.
I could say more, but then its bordering on having enough material to start writing a blog post, and I just said that would be counter productive :-).
Jason,
With one major exception.
The link you gave from Visa states:
“Visa’s cardholder protection policy requires all financial institutions issuing Visa products to extend provisional credit for losses from unauthorized card use within five business days of notification of the loss.”
FIVE business days? Meaning you might have to wait up to a week to get that money back into your checking account. What if you got cleaned out? What if you got cleaned out right before a bunch of checks you wrote were cashed?
With credit cards, you don’t have to worry about it. You haven’t paid the bill yet so it is not your money. Your checking account balance is safe because you were not using your money to make any purchases.
Totally_agree_with_the_article
I’m with the writer. I love my credit cards. Each one has a different purpose for me.
Washington Mutual - Check my Credit score
Capitaol One - Internationl Travel
Chase Freedom - Daily Purchases.
I mean as long as you’re responsible, they’re great boon. For some people credit cards might not be good, but it’s going to be different person to person. It’s all about knowing yourself.
I make about $100 per year on visa purchases, pay off monthly, and hate debit cards. I also don’t own a cell phone anymore - it is a monthly expense trap.
While we stopped using credit cards as of 1/1/07 I don’t think credit is evil. However, I don’t necessarily agree with this post - just b/c one pays their balance of each month does not translate to responsible purchasing. I always paid my credit cards off each month but I also spent on average $2000-$2500 a month on my cc. Now that I’ve switched to debit and pay attention to my purchasing/budgeting I spend an average of $1000 - $1200 a month. Add that up over the course of the year and it adds up to $15,000+ in overspending which I probably did for at least 5 years, that’s $75,000 dollars. Dang, dang, dang!! So I paid off my credit card each month but I was not responsible at all with my spending.
So now I use my debit card for my day to day spending and my debit card (with the visa logo) gives me almost the same protection as a credit card. I give myself a set amount of money each pay period, generally about $500, and when its gone its gone and I stop spending. I also earn rewards with my debit card.
Will I go back to credit cards as some point? Possibly for 0% large purchases or for travel purposes, but never again for day to day purchases.
People who overspend with credit cards are not who this post is aimed it. It’s the people that understand that you still have the same pot of money to begin with and actually have self control that get all the benefits listed.
No, debit cards do NOT have the same benefits as credit cards, no matter what your bank or Visa says.
When you dispute a charge on a debit card or your card is stolen you lose access to your bank account cash until you can get the disputes filed. Assuming you beat the 2 day clock. This never happens with a credit card.
I have a “Global Master Card” offered by the Credit Union. All the Credit Card priviledges with one caveat- I must have the money in my account. It’s really a chequing account with CC features- double warrenty, theft protection, etc. I pay $3.80/mo (I know, I know) but I refuse to use an item that harasses me on the phone, email and snail mail just to get me to use their product. How did they get my personal information to begin with?
Count me in as another person who loves her credit card. I’ve had the same one card since I was 18 and have paid it off every month. It’s a tool, nothing more and nothing less. I use my credit card to make purchases online (never exposing my debit card), to continue to build a credit history, and to gain the rewards back. I would *never* put something on my card that I wouldn’t gladly pay for with cash or debit… I’ve never understood that sort of thinking. But, different strokes for different people.
JOSHUAT: “Credit cards are a crutch for the lazy and undisciplined. [...] Most people I’ve met that use credit cards often don’t actually write a *real* budget.”
I would say using a credit card in a healthy fashion is a sign of financial discipline.
Justin says:
“No, debit cards do NOT have the same benefits as credit cards, no matter what your bank or Visa says.
When you dispute a charge on a debit card or your card is stolen you lose access to your bank account cash until you can get the disputes filed. Assuming you beat the 2 day clock. This never happens with a credit card.”
If your bank doesn’t protect you from this kind of thing, get a better bank. USAA has 24 hr customer service reps who will refund the debit charge that second, if you tell them it is a fraudulent charge. They will credit back your account, and you can happily go on your merry way. I had it happen a couple years ago when I lost my wallet during a road trip, and didn’t have a single bit of trouble.
I always shake my head at people that consider credit cards evil and absolutely cannot own one. Credit cards are a financial tool to be used wisely like anything else. If you cannot use the tool well, and instead use it as a free spending line of credit, then you have other problems to deal with than the credit card. You cannot blame the card for your bad habits and lack of control.
I have used credit cards all my adult life and have always used them as a means of tracking my spending rather than a free wheeling access to money. I pay off my balance every month because I have only spent what I planned and had money to cover.
I enjoy the convenience of “plastic” and the automatic record keeping included with it. The rewards programs are a bonus that I enjoy on top of everything.
Thanks for this common sense post to go along with all the other ideas and advice.
This gotta be the worst guest post.
“Over 75% of the credit cards on the market today offer some sort of rewards program”
and about 2% take advantage of this.
Debit cards has the same protection as credit cards. What planet do you live on??
Visa has the same policy on all their cards. Geez
I’ve recently considered actually using my credit cards instead of my debit card for stuff like gas and groceries - things I know I’ll need and that I have budgeted the money for. But I’m kind of lazy and it seems like an extra step - I pay with the credit card, so that I can pay again from my online bill pay before the grace period ends… when if I just use the debit card, it’s all done in one step.
The benefit I see is that it keeps my credit active and good. I’ve read that stagnant credit cards don’t get reported. Plus, two of my cards have a cash back feature that I can’t take advantage of without actually making purchases. So I think I will start to use them, if I can break the habit of just paying for stuff outright with the debit card, since I have the discipline to do it responsibly.
One more thing - once I needed my Zune media player replaced but I had lost the receipt. Since I bought it with my AMEX, they went to bat for me and I was able to take advantage of the warranty and get a replacement. I don’t know if I could’ve done that with my debit card, but I’m sure glad AMEX was there for me.
Wow, some people are getting really cranky about this! I live in Canada, where debit cards do not offer anything remotely close to the protection associated with credit cards. I got my first credit card this year (after about ten adult years without one) because I wanted to be able to easily rent a car when I needed one.
This broad-sweeping statement of “credit cards are wretched and evil and the devil, too!” are ridiculous. That’s like saying wine is evil because some people don’t know when to stop drinking and go home and beat their wives up when they’re drunk. And that’s the wine’s fault?
Well, I just wrote a post in which I admitted my striking lack of discipline. I can see the advantages of using credit cards, I know they are tools and so aren’t evil in and of themselves, but I also know myself.
I actually tried the “pay it off every month” method, but like others have mentioned I ended up overspending and then I couldn’t pay it off at the end of the month. Or the next month, or the next…
I guess it’s a matter of “know thyself”. I’ve had to look in the mirror and realize that self-control and discipline are not 2 of my strong suits so I’m better off eliminating the temptation.
I agree with the first poster…why is it that all the “gurus” toteing credit cards always happen to “forget” to mention that the debit card does ALL of the same things. Hell mine pays me interest AND rewards. And the second I call them to tell them I didn’t charge this or that, they give it back. I can not see how a credit card “simplifies” my life any more than a debit card. It actually doesn’t, its one more step, and one more bill. Just use your damn debit already. If YOUR debit card doesn’t do any of this YOU need a better bank.
IMO, point #3 regarding debit cards is completely irrelevant.
If anything, using a debit card makes budgeting and tracking easier because I just enter it into Quicken and bingo, there’s my balance. Some people use online banking to track debit card usage.
With a credit card, you still need to keep track of what you’ve spent to ensure that you don’t go over-budget. In which case you still need to use some kind of ledger or check your card balance periodically. And then once the statement does arrive in the mail, you still need to enter it into your checking account register… seems kind of redundant.
IMO, this is what credit cards are good for:
1. Traveling.
2. Buying online.
3. Rewards/Cash Back (not worth it for me)
I find it really strange how people who are so adamant about following a strict budget each month have an aversion to credit cards. If the only danger is the *temptation* to overspend and that you have to pay off the card every month, it should be right up your alley. Aren’t you paying your bills each month? It’s the same thing, why would you forget to pay your credit card bill and not your other bills?
If you have an overspending addiction or problem, then of course credit cards aren’t for you. Don’t give alcohol to an alcoholic. Stick to your budget and pay your bills on time, you should be doing this anyway.
“This gotta be the worst guest post.
“Over 75% of the credit cards on the market today offer some sort of rewards program”
and about 2% take advantage of this.”
I take advantage of it, and it sounds like many other financially savvy people do as well. I don’t see how this is an argument against credit cards. Good for those 2%! The title of this post is “How Those EVIL Credit Cards CAN Be Good For You” (emphasis mine), not “How Credit Cards Are Awesome For Everyone!”
Treat credit cards like any dangerous tool, like a knife. It takes diligence, knowledge, and care to use it correctly. But used correctly, it can be very useful. Those who are not good with money (knives) should stay away.
I read the people bashing cards and it’s hard for me to comprehend. I use cards and i stick to a budget. Kinda like eating, and sticking to your diet.
I make money from my cards. 0% offers leave money in my high interest saving accounts. Then there’s cashback bonuses on gas, and clothes and groceries. I made at least $200 from these offers last year, and I’m set to top that this year.
Use the cards, don’t let them use you.
True story: a few days ago we were driving a rented car down a scenic road in northern California. We went into a pot hole and got a flat tire and bent the rim. My dear spouse said it would probably cost us about $300-400 (we have a high deductible on auto insurance and, no, we didn’t purchase the optional rental insurance). After a few sad hours, I said, “Why don’t we see if AmEx covers this?” Guess what??? They do!!! Up to the deductible!!!
@KM
For budgeting purposes, a credit card is no different than a debit card. You need to enter the receipts into your budget for both.
The big difference is that with a credit card, your checking account balance does not reflect purchases that have yet to be billed. If you stay within your budget, this should not be an issue… but for a control freak like myself, the fact that the checking account balance is not up-to-date just drives me crazy.
beware of debit cards and fraud.someone gets your debit card then they have access to all of your money in your checking (and potantially savings, depending on how your accounts are set up) account. yes, even without your pin and yes it is possible for transactions to keep going through after you close the debit card (been there, not fun).
you have to deal with both the bank and the issuer of the debit card.
you may get the bennies of a credit card but /your/ money is on the line.
@Jethro- My account shows EVERY purchase I have made as soon as my card is swiped. I use USAA.
@Others-I still have not heard the reason why I should use a credit card over my debit card. I STILL have not heard why using a credit card makes me financially “savvy” Just because you say it does, does not prove any point. How exactly is it a “tool” Its just one extra step and another extra bill. My debit card does everything and more than any of my credit cards…
@Amber,
I think, speaking only for myself, that you absolutely right. I don’t see any advantage in credit cards except for the possibility of a very small cash back reward. That is why I was tempted to use our credit card, but it didn’t take me long to figure out that it was costing me a lot more than I would earn.
If your bank has a rewards program for your debit card than that’s great. Mine doesn’t, but I don’t think I’d earn much anyway.
@Amber
I must confess, I’d never heard of a rewards debit card, and I find that USAA is one of the few institutions that offers one. Still, there are some questions I need answered before I’d consider the leap.
How much is the reward? My card offers 5% on gasoline, auto repair/maintenance, supermarket/drugstore purchases and 1% on everything else.
Is there a limit to the reward per year? If so, what is that limit? My card gives me up to $300 in cash every year.
Does your card offer dispute resolution? Not the “I didn’t buy this” scenario, but more like “I bought this and it didn’t arrive” or “I bought this and the product is defective.” Does USAA credit the money to you and take up the dispute with the vendor?
Does your debit card offer free auto insurance (for the deductible) when you rent a car?
Does your debit card extend the warranty on the products you purchase?
If your debit card does all those things, then it really does do everything a credit card does. However, all I could find on the USAA site was the provision that they offer rewards on their debit card, but don’t give any details. I went to https://www.usaa.com/inet/ent_utils/McStaticPages?key=bank_checking for the details.
Respectfully,
Vincent
I have to agree with the author here: as long as the balance is paid off monthly, a credit card can be a great boon to your financial situation. Over the years, my rewards program has netted me $200 off hotel rooms, two free round-trip tickets to California and Washington, and another $75 savings on a shorter flight.
This is an innocent question (I really have no idea), but does a debit card affect your FICO rating? If not, maybe that’s where the credit card has an advantage.
Thought I’d wait until a good load of comments came in before I responded to any of them.
I’m the writer of this post (thanks J.D. for giving me the chance to talk to your vast audience). I think one of the things too many people are taking away from this is the thought that I’m saying debit cards are worse than credit cards. I’m not; I’m only saying that debit cards do not necessarily offer you the same protections that credit cards do, and you should make sure you know their rules. The protections on credit cards, such as the $50 limit in case of fraud, are federally mandated; the rules on debit cards mentioned by commenters here are industry rules, not federal law, and can be different throughout the industry (and may not always be followed by banks). If you feel your debit card is giving you all the protection you need, great. As I said in the post, if you prefer the debit card, by all means use it.
Again, this is not a hit piece on debit cards; in fact, when I sent the piece to J.D., I told him that if it was too long he could just take out the part on debit cards altogether. My original goal was only to show that there is an upside to credit cards that gets played down while only the “evil” side gets played up. The evil side makes for a better story.
One thing I left out of this post, as it was not supposed to be a credit card vs. debit card faceoff, was the fact mentioned by one of the commenters that responsibly using a credit card helps you build a good credit record, which is helpful to you in the future, especially when it comes to buying a home. Debit card usage does not affect your credit rating. If you have no credit record and use only debit cards, it can affect the rates you get in the future on a mortgage, or affect your ability to get a mortgage altogether. I think this is unfair; you shouldn’t be punished with a bad credit score because you refuse to use a credit card. Nevertheless, it can be true, especially if you don’t have any other types of loans that you’ve successfully paid. Again, I bring this up only in light of the fact that many of the comments here are of the “credit vs. debit” variety.
Thanks for all the comments. I never get this many comments at my own blog. I’m going to have to get more interesting, more often
Amber @40 -
By US law, debit cards do not have to refund the money immediately when you dispute a charge, even if it is run as a Visa purchase and not as a debit purchase. If the cashier screws up and runs your debit card twice (has happened to us) or doesn’t give you the correct merchandise via mailorder you are still out the money until it is resolved. If your bank or credit union has good customer service and refunds the money immediately, great. If your bank or credit union draws it out a while, then too bad.
Credit cards don’t take your money in the first place. So you don’t have checks bouncing due to errors. (Again, if your bank / CU has good customer service, they’ll make up the overdraft fees - if…)
That said, it’s all a matter of personal preference. I choose to not to give merchants a direct pipeline to my checking account. I also choose my credit union’s billpay function to pay my mortgage, instead of trusting my mortgage company with account number and routing number. Good boundaries make good neighbors, and we all draw our own boundaries where we’re comfortable.
Oh waitaminnit. I don’t qualify to be a USAA member. Scratch that. I can’t consider a USAA account for myself. Still, even if I did qualify, I’d need those questions to be answered before making a switch.
@kris: Nope, debit card isn’t on your credit score. It’s not credit.
@Amber: My favourite feature of a debit card is when it wipes your checking account and savings account clean when someone steals your card info. Then having to fight with all those people who didn’t get their checks paid, you know, like the landlord, power, etc. because the account was negative.
Closely followed by not being able to rent a car at 2am at the airport because none of the open rental agencies accept debit cards, even if they let you make the initial reservation on the same debit card.
The dispute process is entirely up to your bank, not all of us are privileged enough to be allowed to use USAA.
When you make a purchase with a debit card you are paying immediately. You have to fight to get your money back. When using a credit card you never pay when you have a dispute that is awarded in your favour.
Jethro @38 …
For years I would track credit card purchases in another register so as to have it available to compare with the statement and to make sure I was on track for the month’s budget. The checking account register that really only came into play while paying bills, and the savings account register that I would update once a month…. (These can also be setup in quicken.)
But I do see how the debit card is simpler.
@Nick:If your bank doesn’t protect you from this kind of thing, get a better bank. USAA has 24 hr customer service reps who will refund the debit charge that second, if you tell them it is a fraudulent charge.
Good for you. That’s a nice policy. I hope it doesn’t change. They can change it any time they like. Not so with a credit card. Not when it comes to fraud prevention and theft anyway.
The same can’t be said of many banks at all, or credit unions.
I’m shocked by all the anti-credit card posters. If you use a credit card responsibly, you can get great rewards and your FICO will definitely benefit.
I have 3 separate credit cards, but I only use one (The other two are to offset the balance of my student loan for FICO reasons). Keeping 3 credit cards, a student loan of $17,000.00, and paying off the balance of the cards each month has brought me from a 650 credit score in 2002 to an 826 FICO now. That alone will save me thousands of dollars when I buy a home.
I’ll also be taking a free cruise in November with the travel points I earn off my AMEX ($100 for travel per every $7,500 put on the card with 30,000 bonus points for signing up).
Find me a debit card with the protection of a credit card that gives the same point to travel reward ratio and raises my FICO… Then maybe I’d consider using my debit card more.
I use USAA, and they are great, but I also use an Amex card for daily expenses, etc. I only have one concept for people who say credit cards are the devil. SELF CONTROL. If you cant control yourself from spending more than you can afford you deserve it.
I’d like to know the percentage of credit card holders who actually pay their cards off each month. Any figures, anyone?
What works for me is that in my budget I have money slated for food, fun, misc. for the month.
The beginning of each month I take out the cash slated for each of the items and put each in their own envelope. Once spent I am done….I use my debit card for true “emergencies” only
Don’t forget, most credit cards allow you set up amount thresholds and be notified when you have reached them.
Also, it is just as easy to check your current purchases each night as it is to synch your debit account with quicken.
It all comes down to what works for you .. for some people debit or cash works better. Personally, if I have cash in my wallet it is as good as spent .. if I’m looking into an empty wallet, then I am given an extra reminder to choose wisely before using a credit card.
@Angie: “About 55 million Americans pay their bills in full each month”
http://www.pbs.org/wgbh/pages/frontline/teach/credit/hand1.html
Am I the only one who doesn’t wait for the bill to roll around to pay off my credit card?
I do all of my banking and finances online, and it’s much easier to pay my cc balance when there’s a break in spending (i.e. gas, groceries, large purchases, etc.). Because my credit card company likes to take their sweet time posting my bill online (usually doesn’t get posted until the middle/end of the month, yet I still have to pay the balance by the beginning of the next month, I can see they’re trying real hard to get my to slip up) I don’t even bother waiting for the bill.
I don’t feel comfortable carrying a large balance on my card, so I usually pay it off every other week or so. Why? Because I can! I get cash back rewards for charging things to my credit card.
The other reason I’d rather use my credit card as opposed to my debit card is because my checking account earns interest. The longer I keep money in my checking account, the more interest I earn. Yeah, it’s just pennies, but it’s FREE pennies. Free (legal) money is always good.
Quite the raging debate. I try to budget time as well as money. Frankly, are activities such as managing travel points, and weighing cash back percentages into every purchase worth the effort? Not for me. The rewards just aren’t great enough. Rewards are a very meager percent multiplied by my already frugal consumption. There are bigger fish to fry, pastimes with actual yield. On security, I just have a debit card tied to an account that gets loaded with just enough money to cover very few very deliberate purchases. There’s never much at risk. Other accounts are never exposed to the wilds of the greater economy. All accounts are monitored though. Fairly simple. Finally, FICO score hasn’t suffered with this behavior. I don’t know how they calculate it, but in this example of one, there doesn’t seem to be a significant downside to non-use of consumer credit. (Rant) And why must I modify my behavior to be curator for some contrived score anyway. (End Rant). Getting Rich Slowly means picking ones battles. The monetary system is a game. There are lots of distractions in this game. The consumer credit industry understands how to waste your thought energy on false rewards, just as it knows how to absorb your money. The industry embodies one large distraction to Getting Rich at all, Slowly or otherwise.
@CatWhisperer
I’m not sure what you consider a “false reward” or what you need to do to “manage your points.” I simply make every purchase I can with my AMEX card, and pay it off online completely at the end of the month.
There is no need “manage” your points with my AMEX card, simply click a button to redeem your points towards a specific travel purchase you made on your card, a total of 4 clicks.
As for your rant, you need that contrived score if you want to buy property at the lowest possible interest rate, rent a car, rent an apartment, or even sometimes to get a job… If no have no intentions to do so, then you don’t need it.
@ Angie Hartford:
From http://articles.moneycentral.msn.com/Banking/CreditCardSmarts/TheBigLieAboutCreditCardDebt.aspx:
* The majority of U.S. households have no credit card debt, according to the Federal Reserve’s latest Survey of Consumer Finances. About a quarter have no credit cards, and an additional 30% or so pay off their balances every month.
* Of the households that do owe money on credit cards, the median balance was $2,200 — meaning half owe more, half less.
@Angie Hartford
“I’d like to know the percentage of credit card holders who actually pay their cards off each month. Any figures, anyone?”
38% pay in full every month.
62% carry a balance.
38% pay only the minimum required (naturally this 38% is a subset of the 62% carrying a balance).
See http://www.getrichslowly.org/blog/2006/11/28/the-secret-history-of-the-credit-card-repeat/
Elissa @54: No, you are not the only one who doesn’t wait for the bill to roll around to pay off your credit card.
@ CatWhisperer
There’s a trick to not “wasting your thought energy” on credit cards. Don’t think about it so hard! It’s not rocket science. Maybe taking 6 seconds to ponder “is this worth putting on a credit card to get cash back?” is too much of a hassle for you, and that’s fine, but it’s 6 SECONDS. What better things are you going to do with that 6 seconds while you wait for your purchase to be rung up???
Frankly, I enjoy getting $10 for every $1,000 I spend.
As for distractions… well, if you just pay attention to the big picture you won’t be distracted. Fairly simple.
Also, to quote Liz Pulliam Weston:
* The majority of U.S. households have no credit card debt, according to the Federal Reserve’s latest Survey of Consumer Finances. About a quarter have no credit cards, and an additional 30% or so pay off their balances every month.
* Of the households that do owe money on credit cards, the median balance was $2,200 — meaning half owe more, half less.
* Only 8.3% of households owe $9,000 or more on their cards.
(End quote) I do not intend to imply that credit card problems don’t exist. But I do not think problems are required, either. Not everyone who has wine with dinner becomes an alcoholic.
I think a lot of the discussion here ties into some pervasive myths on credit card usage. To quote Liz Pulliam Weston (URL below):
* The majority of U.S. households have no credit card debt, according to the Federal Reserve’s latest Survey of Consumer Finances. About a quarter have no credit cards, and an additional 30% or so pay off their balances every month.
* Of the households that do owe money on credit cards, the median balance was $2,200 — meaning half owe more, half less.
* Only 8.3% of households owe $9,000 or more on their cards.
Source: http://articles.moneycentral.msn.com/Banking/CreditCardSmarts/TheBigLieAboutCreditCardDebt.aspx
I’m not denying that people can’t get over their heads. But it may not be the majority.
@VinTek-USAA offers FREE checks for life, FREE deposit@home with a scanner (you don’t have to drive to any banks to deposit your checks!!!) FREE bill pay, interest, rewards, FREE ATM reimbursements, plus you can combine your rewards with your USAA credit card (gasp! yes i have one) My rewards card offers .5% cash back on everything you buy, with no limit. As far as the dispute stuff, ebay and paypal offer that free, if you buy from a reputable retailer they too offer that free (had something with Amazon once) Also the deductable stuff I also have my USAA insurance with that, and the only time I’d have to use my deductable is if I caused an accident, and I have $1,00 set aside for that. I have never heard of credit cards paying dudectables or extending warrantys, but that’s still not enough to make me use one. Most warrenties are crap anyways past the original warrenty.
@Jenk If you balance your checkbook and pay attention you shouldn’t be bouncing checks. In all the years I’ve been banking, I’ve only had one time where something was charged twice…not saying it can’t happen, but I[’m saying it doesn’t often..all you have to do is go down to the merchant with your bank statement, and boom..credited back right away. What happens if they charge something twice and it hits your credit limit fee, charging you $30 for going over? Same thing.
@Justin Tell me why I had NO problems renting a car at the airport. Just run the debit card as credit. And no they DONT discern between the two.
I’m not ranting on people who use credit cards, I have two and they saved our business because we’re dumb enough not to have had any money in savings. However once they get paid off, and savings built up they’re going in the trash, because theres nothing they can offer me that my checking account can’t.
And BTW credit cards aren’t the only thing that can help your credit score.
@Amber: You were lucky then.
I have tried on several occasions using a debit card to rent a car and have been told no. That is running it as credit, as they have no other way to run it. They refused to accept it. There was well over 2000 dollars in the account at the time.
They DO discern between the two.
Most credit cards extend warranties and cover car rental insurance. Perhaps you need to look into credit card bonuses more.
@Dan
Sure. I’d argue that any rewards program can be thought of as a dividend on the consumption of goods and services. At some level in the human psyche, this simply has to put greater consumption at tension with less consumption. An extra consideration surrounding the reward is hence borne toward each and every purchase that wouldn’t be there otherwise. That consideration might be mathematical, emotional, or some combination of the two. How hard would it be to allow the concept of this dividend on consumption to sway purchasing decisions enough to erase the meager reward? If the concept of the reward allows me to justify spending on the unnecessary by just a few percentage points, then the reward is effectively erased. This is what I meant by false rewards.
The FICO score has crept outside it’s originally intended market vertical (the consumer credit market) and into others. You have cited some of them. We can add insurance and probably others to the list. I’ve therefore argued that the FICO score has become a ‘quality as a person score.’ OK it’s no longer just about consumer credit. Who wins? The Fair Isaac company sells more ‘product’. They win. Industries inside and outside that of consumer credit can get a cheap indicator of a person’s quality. They sure win. Who loses? You and I bear all the risk. We don’t know how the score is calculated. We might have a vague idea, but we don’t really know how to manage it. We are not in even in complete control of the score (ID theft comes to mind). This is why silly industries are popping up to help us monitor and manage our scores. It is also why we consider doing the ridiculous, like obtaining consumer credit so we can get good jobs. I don’t reject the phenominon, rather humbly and completely reject it’s correctness. (I also realize that my little rant did not express this stance adequately).
@Elissa
>
I could say something mean like, “Does this mean you haven’t tried to read the contract?”, But I’ll defer to the post I sent up just a moment ago.
Yes, the 6 seconds is exactly right. Unless we are 100% infallable, I hereby submit that human nature will erase our rewards for us. (See above).
@CatWhisperer: Sure. I’d argue that any rewards program can be thought of as a dividend on the consumption of goods and services. At some level in the human psyche, this simply has to put greater consumption at tension with less consumption.
Of course, when you use a card solely to pay for what you’d buy anyway, i.e. a 5% gas rewards card to only buy gas, you shouldn’t see any increase in consumption.
Amber @62 - I don’t wait for a paper statement to keep tabs on the checking account. We only keep a $1000 cushion in our checking, so when a $700 debit was run twice it was a worry. Ew!
$17K limit on the Visa, no limit on the AmEx, no balance carried on either - not as much of a worry.
I guess I’m just feeling burned, nay, even a wee bit panicky, on debit cards. Ignore me.
@JenK Paper statement? Who uses paper statements anymore? I don’t even get any. I have up-to-the swipe access online. Plain and simple. I also don’t keep such a low amount in my account, just in case something like that happens. AND what would I be paying $700 for anyways? A one time purchase? Its very unlikely they’ll swipe the card twice without knowing it. It doesn’t take a genius to work a card machine. Most people “know” when they’ve screwed up.
#48 Justin wrote:
“not all of us are privileged enough to be allowed to use USAA.”
Justin, that “privilege” was earned through service. USAA elgibility is tied to affiliation with the U.S. Armed Forces - either past or present. Also, children of military members are elgible. I’ve never seen this officially stated, but have often suspected that USAA does that in part to recognize that military families also serve and sacrifice.
At one time in the not-too-distant past, non-military individuals were able to bank with USAA, but were not elgible for things like insurance. I don’t know why that changed, but it did and the elgibility reverted to must have military affiliation.
Details are here — https://www.usaa.com/inet/ent_utils/McStaticPages?key=become_member_eligibility
If anybody does qualify for USAA membership and is not currently a member, I would STRONGLY recommend that you change that. Their customer service is world class.
Prairie
Hee - and here I was wondering if a $1000 cushion would be seen as bragging!
The paper statement is my just my cue to balance the checkbook. But yes, errors we usually catch online within a day.
Bottom line for me is using credit cards is using somebody else’s money, using a debit card is using your own money. I’d rather use my own.
USAA membership is limited so it’s not really a fair comparison given that most people here can’t access their products anyway. You don’t have to be a member of the military, close relatives of members can also join. My membership has come down through the generations back to when USAA began, it used to be limited just to officers by the way. Honestly USAA is not what it used to be and I’ve stopped using their services as has my family. Their auto insurance rates for me are higher, auto loan rates are higher, they wouldn’t insure my house but didn’t matter cause state farm would for the same price, and their rewards program for C Cards is a joke. I switched to a Chase card for our normal spending and will get back about $500 this year, I spent WAY WAY more last year and only got back $150 from USAA. But yeah, if you can’t resist the siren call of a credit card stay away. Used wisely though they can net you some cash.
I’m using credit cards to help me get out of a $10,000 debt on my line of credit (resulting from a house purchase, associated closing costs and other new housing expenses, and a pending divorce). I’ve been charged between 7% and 8% interest on that line of credit, plus an insurance payment every month based on the current balance. This is not a great deal.
I moved the entire line of credit balance to my Visa account using one of their cheques that would charge me 2.99% interest on cash transfers until October 2007, so I’m saving a few hundred bucks there.
I’m paying off the Visa balance as much as possible each month. Late September, I’ll transfer the remaining balance back to my line of credit, then I’ll immediately pass it back to Visa using a cheque that will charge me 3.99% interest until December 2007. I expect yet another set of Visa cheques with relatively low interest rates will be made available to me before January, so I’ll play the shell game for a few more months until I get the damn thing paid off by the end of 2008.
Yes, this requires some attention and mental work, but for the *short term*, it’s worth the effort to get myself out of the debt hole faster. Once I get approved to carry my mortgage by myself, I’ll switch my Visa to a no-fee version and get rid of my old Mastercards (yes, two of them, from my old profligate days).
My husband talked me into getting a Mastercard with Air Miles, and it hasn’t been worth it. I found the merchandise available through the program was mostly crap, and I don’t appreciate the privilege of paying $35 a year for the use of the card.
@ CatWhisper
I could say something mean like, “Does this mean you haven’t tried to read the contract?”, But I’ll defer to the post I sent up just a moment ago.
Actually no it does NOT mean that I haven’t read the contract (and by contract I can only assume you mean credit card contract). I read EVERYTHING, literally, EVERYTHING. I understand every single rule, regulation, and nuance of my credit card. But not that it matters, since you didn’t ask such a “mean” question.
Yes, the 6 seconds is exactly right. Unless we are 100% infallable, I hereby submit that human nature will erase our rewards for us.
First, no, humans are not 100% infallable, why? Because nothing in nature (including beyond this planet) is 100% efficient. It’s physics.
But you know what else erases the rewards in life? Death. So should we just avoid anything fun, useless, rewarding, etc. because we’re going to die anyway? I mean, if that’s how you feel, then that’s fine, but you’re living a sad sad life if you choose not to live your life simply because “shit happens.”
It’s one thing to say that you just plain don’t like the idea of using credit cards, but it’s another to doubt the intelligence and reasoning of those who do use credit cards.
I submit that the fact that I have a credit card has never had an impact on a decision to buy something, or to spend more than I would have.
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@Dan: I submit that the fact that I have a credit card has never had an impact on a decision to buy something, or to spend more than I would have.
How can that be so? Everybody knows that nobody has any self control and they can’t avoid overspending with a credit card. Wah Wah wah.
@Amber
Amber, I’m not sure that your answer really addresses my questions. Let me quote your answers, tell you what I’m getting from it, and you can let me know if I’m off-track.
“USAA offers FREE checks for life, FREE deposit@home with a scanner (you don’t have to drive to any banks to deposit your checks!!!) FREE bill pay, interest, rewards, FREE ATM reimbursements, plus you can combine your rewards with your USAA credit card”
Okay, I get it. USAA is a great place to do your banking. But I don’t qualify for a USAA account and it doesn’t really make a case for not using credit cards. So these statements are somewhat irrelevant on 2 levels. BTW, I get all of these particular features with my credit union.
“My rewards card offers .5% cash back on everything you buy, with no limit.”
Did I read that right? Half a percent? Even with no limit, you’d have to spend $60K to get to the $300 limit I get on my Chase card. I get 5% (as in 5.0%, not .5%) on gas, auto repair/maintenance, supermarket and drugstore purchases; 1% on everything else. I get 3% on travel, 2% on dining out and 1% on everything else on my AmEx card. With those high returns, I get hundreds of dollars back every year, just buying stuff that I would normally buy anyway. Certainly that’s worth a couple of extra billing statements a month, at least for me.
“As far as the dispute stuff, ebay and paypal offer that free, if you buy from a reputable retailer they too offer that free (had something with Amazon once”
I take that as a roundabout way of saying “no”, your debit card doesn’t offer dispute resolution, because you didn’t address your card at all.
“I have never heard of credit cards paying dudectables or extending warrantys,”
Well I guess you have now. As for the original question, I guess that too means “no, your debit card doesn’t extend warranties or pay deductables.”
“but that’s still not enough to make me use one. Most warrenties are crap anyways past the original warrenty.”
That’s you. Others might find value in such a feature. The cards which offer to extend the terms of the original warranty, not add a 3rd party warranty. This has worked in my favor on a couple electronics devices I’ve purchased. They crapped out after the original warranty expired, and the card paid for the cost of repair. Cards that offer this kind warranty extension typically double the warranty period, up to one year. A warranty is like insurance. You hope never to have to use it, but you’re glad it’s there when you need it.
So in summary, you started off by telling me how wonderful USAA is (and I happen to agree, but I don’t qualify and it isn’t relevant), you get vastly inferior rewards with your debit card, you ducked the question about dispute resolution, you ducked the question about paying deductibles (and to be clear, that’s just on rental cars), and you not only ducked the question about extending warranties but decided to add a sour grapes statements (if I can’t have it, then I don’t want it) for good measure. It’s fine if you don’t want to use a credit card if it doesn’t fit your lifestyle. Nobody is trying to convert you. But your arguments against anyone else using one are really weak.
@VinTek- I wasn’t ducking the questions. I merely stated that the things your so proud of of your credit card having, that they are already offered by the merchants, so why would I need double protection? Paypal already offers dispute resolution, so whats the point of having it on my debit or credit card? As for the warranty thing, I’m not going to carry around a credit card, just so I can sleep better at night that my TV’s warranty is extended another year. Do you even know the percentage of people who use those extended warranties? Not very high. It’s like me walking around boasting that my credit card protects me from alien invasions. Maybe it makes you sleep better at night, but they have to give me something better than that. And so I only get .5% points…do you know how much money I go through? It adds up quickly. As for credit rewards, I have 2 credit cards, one with a $10,000 limit and the other with a $16,000 limit. both are maxxed out thanks to a business emergency. Both have rewards. I spent $10,000 on one and guess what I got for a “reward”? A $50 damn gift card. whoopty do. I spend $10k I get $50….are you telling me that its really worth that $50???? I mean if your so “awesome” at finances why can’t you just treat yourself to that $50 out of your “savings”, rather than rack up $10,000 just for $50? Please rationalize that. Actually I would have made (or saved) even MORE moeny by not spending that $10,000 at all after payments and interest. Yeah you may use your credit card for things you would have purchased anyways. But statistics says your likely to spend a lot MORE than you originally would have, and MOST people who put balances on their card do NOT pay it off before interest hits. If you do, good for you. I’m just saying the measly rewards are not worth another bill to pay, just trying to make you think. And my point with USAA, they’re not the only bank who offers these kinds of things. (Except i do believe they’re the only ones who offer deposit@home, but I could be wrong) You should shop around for a bank, just like any other investment or purchase. But hell if it makes you sleep better at night, continuing using your credit card, and your credit company will continue praying that you, as infallible as your financial plans may be, will fall prey as 99.999% of credit card users do at some point or another to buy that brand spanking shiny new plasma TV for $8,000. It’s statistics. It’s how they make their $$$$.
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@Amber: Paypal already offers dispute resolution, so whats the point of having it on my debit or credit card?
Paypal sort of offers dispute resolution. If the offending person has zero dollars in their paypal account you get no money back. Assuming paypal rules in your favour, and chances are hight that they won’t. Even when the seller ships an empty box, they just have to tell eBay/Paypal they sent the item. If you submit a dispute with the credit card company, which I have done in this exact instance, the credit card company refunds the money, Paypal refunds the money to the CC company and the seller in this case owed Paypal.
Had I not used a credit card for that transaction I would have lost the $80+ that I had originally paid.
As for your 99.999% claim. That’s pure bunk. Plasma TVs also are a lot cheaper than 8,000 dollars these days.
As has been stated, a couple of times, a full third of credit card users pay in full every month. It’s very easy to do in this electronic day and age to automate the payment in full.
@Amber-
“I merely stated that the things your so proud of of your credit card having”
I’m not proud of my credit card. It’s just a tool. I have a hammer too, but I’m not proud of it. Actually, I’m kind of proud on knowing how to use my hammer well. I guess the same thing goes for the credit card.
“that they are already offered by the merchants, so why would I need double protection?”
It’s not double protection. Warranties end when they end, with retailer offering an extended warranty (an inferior one, as you point out) at additional cost. Cards offer an extension of the original warranty terms.
“Paypal already offers dispute resolution, so whats the point of having it on my debit or credit card?”
And the vast majority of retailers do not accept PayPal. Credit and debit cards are almost universally accepted. What’s better: dispute resolution everywhere or only at a few select places?
“As for the warranty thing, I’m not going to carry around a credit card, just so I can sleep better at night that my TV’s warranty is extended another year.”
Really? You think it’s so you can sleep better? I carry one around because it does everything your debit card does – and more.
“Do you even know the percentage of people who use those extended warranties? Not very high.”
I’d guess that it’s not a whole lot different from the percentage of people who need to use the homeowners insurance on their houses. You do have insurance for your home, don’t you? Besides, even if you don’t use it, why not take it if it’s free? As stated, I’ve had to use that extended warranty a couple of times. Now that’s not much over the years of buying stuff, but it’s better than a poke in the eye with a sharp stick, especially since the extension was free. There’s no downside there, only upside (if you have self-discipline).
“It’s like me walking around boasting that my credit card protects me from alien invasions. Maybe it makes you sleep better at night, but they have to give me something better than that.”
They do. They give you money.
“And so I only get .5% points…do you know how much money I go through? It adds up quickly.”
I have no idea how much money you go through, but I’ll bet it would add up twice as quickly at 1% than at 0.5%. It’s called math.
“As for credit rewards, I have 2 credit cards, one with a $10,000 limit and the other with a $16,000 limit. both are maxxed out thanks to a business emergency.”
So you’re saying that they do have uses?
“Both have rewards. I spent $10,000 on one and guess what I got for a “reward”? A $50 damn gift card.”
To paraphrase your own words, maybe you should shop for a new card.
“whoopty do. I spend $10k I get $50….are you telling me that its really worth that $50????”
No. I’m telling you that if you had no choice but to spend the $10K anyway (and a business emergency sounds like you have no choice), a $50 return is better than nothing. Are you telling me that it’s better to have nothing, even though you had to use the card regardless?
“I mean if your so “awesome” at finances why can’t you just treat yourself to that $50 out of your “savings”, rather than rack up $10,000 just for $50? Please rationalize that.”
I don’t have to. You’re the one who racked up $10K, not me. The few hundred dollars I get out of my cards is in addition to my savings, not in place of savings. You seem think that a person has to choose one or the other. It’s like you’re not even considering the possibility that you could have both. This is unrealistic, since I do get both savings and extra money.
“Actually I would have made (or saved) even MORE moeny by not spending that $10,000 at all after payments and interest.”
No kidding. But you didn’t have a choice, did you? Of course, I could paraphrase your own words back at you: “why can’t you just treat yourself to that $10,000 out of your ’savings’, rather than rack up $10,000 just for $50?” You so easily question the motivations of others without seeing that those questions are equally applicable toward yourself.
Also, since I pay off the card in full every month, neither payments nor interest is relevant here. See my earlier post and you’ll see that about 38% of the cardholders out there do this.
“Yeah you may use your credit card for things you would have purchased anyways. But statistics says your likely to spend a lot MORE than you originally would have, and MOST people who put balances on their card do NOT pay it off before interest hits.”
Well that’s the key, isn’t it? To help people learn to spend responsibly – with or without a credit card.
“But hell if it makes you sleep better at night, continuing using your credit card, and your credit company will continue praying that you, as infallible as your financial plans may be, will fall prey as 99.999% of credit card users do at some point”
That’s hyperbole. 62% of cardholders making payments is a long way from 99.999%.
“It’s statistics. It’s how they make their $$$$.”
No. They make their money from people from 62% of their cardholders. They know that they’re barely going to break even with 38% of their cardholders. Why not be part of that 38% if you have the will? It’s not like being part of a 0.001% minority as you suggest.
@Justin: The Paypal thing is untrue. They refund the money regardless if the other person has a balance or not, then they go after the other person to repay the funds. I sell often on ebay and have come across this many times. I have only ever been screwed once, but it was my fault anyways, and nothing paypal could do. And no amount of credit cards would help me in that situation either.
The 99.9999% claim was just me being funny. But the statistics DO show that most people DONT pay off their balances, and MOST people spend MORE with a credit then they would have with cash or debits. Why do you think McDoanlds finally put in a CC machine? Also some food stores are now offering incentives to using your credit card (free food and such) Just because they hope you’ll spend more. You can do a search and find the actual statistics. More people don’t pay off their balances, then the people who do.
Also if you deal with a reputable seller on ebay (Ummm ratings?) you should never come across the “empty box” situation..actually I never heard of that until now, but fear of negative feedbacks would keep anyone form doing it, plus I know I mainly deal with power sellers and people with ratins well over the 1,000s, so I know they don’t ripe someone off, then make a new account. If people would just THINK (not directing this to you) they WOUDLNT get ripped off EVER. Most of these scams are so obviously scams that it makes me laugh to think that they’re people stupid enough to believe them. I mean, common sense people, why would somebody from Nigeria want to give you $1.00,000,000,000,000 in exchange for your $500??????? But thats a different story
BTW if you go into Best Buy, Check out their Sony I think its over a 60″? Price tag is somewhere in the high $7,000.
I bought my 50″ DLP 1080p Samsung for only $1400 because it was open box…way better picture IMO
@Amber: The Paypal thing IS true. And yes, I do check ratings. I have experienced a loss because a deadbeat seller didn’t have any funds in their account. The steps necessary to get a refund, i.e. filing a police report etc. etc. in their location were prohibitive.
The most expensive plasma TV on Best Buy’s website is a Panasonic 58″ at 4800.
VinTek, thanks for injecting a welcome note of rationality into this debate.
If I could perhaps make a suggestion?
I don’t know if US card lenders do this but here in the UK we can set up a direct transfer to automatically pay off the bill in full every month. No interest, no charges, all I need to do is make sure I have enough in the bank to pay the bill when it becomes due.
From the sound of it, a lot of US cardholders either send checks or use online bill pay. Why bother if your bank will do it for you instead?
Paying the bill off in full very month makes me more disciplined in my spending - I know that as I *have* to pay it off next payday, I will only charge what I have.
I can understand some peoples’ reluctance to use them, but really, if you use them properly they will be your servants and not your masters.
[...] For responsible consumers: How Those Evil Credit Cards Can Be Good For You [...]
Jim,
Thank you for the kind words. They are appreciated.
As for your suggestion, I think that it’s very sound and could work for the many of the most disciplined of consumers.
The reason I don’t implement that suggestion myself is that I carefully scrutinize the items on the bill after the closing period to ensure that there are no errand charges and also to ensure that the rewards are tallied correctly. At that point, if the bill passes the inspection, I simply schedule payment on the due date. Since I have to access the account to do an audit anyway, it’s not a burden to schedule each payment on a monthly basis. To have an automatic payment would tempt me to be more lax in scrutinizing my bill in a timely manner.
Automatic payment might work best for those who check their charges on a daily or weekly basis, since there is already an assurance that the charges are authorized and correct. But since my wife and I share our cards, it is more convenient for us to reconcile our purchases in a single monthly session than to continually ask each other about charges that we don’t recognize. Also, there would still be the issue of ensuring that the rewards balances were correctly credited after the closing date of the billing period.
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