How Those Evil Credit Cards Can Be Good for You

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.

  1. 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.
  2. 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:

  1. 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.
  2. 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.
  3. 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.

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Brian
Brian
13 years ago

I dunno, maybe I’m in the minority here, but my debit card has all of these features.

brad
brad
13 years ago

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… Read more »

Dough Roller
Dough Roller
13 years ago

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… Read more »

Kit
Kit
13 years ago

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,… Read more »

matty boy
matty boy
13 years ago

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.

plonkee
plonkee
13 years ago

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.

MillionDollarJourney.com
MillionDollarJourney.com
13 years ago

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.

Jason
Jason
13 years ago

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.

SoldierGrrrl
SoldierGrrrl
13 years ago

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.

William Mize
William Mize
13 years ago

Not really seeing the controversy here.
Common sense, good advice.
Well played.

alphabetty
alphabetty
13 years ago

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… Read more »

jetfxr27
jetfxr27
13 years ago

Bottom line,

You do get some conveniences with credit cards.
However they do not out way the inconveniences.

1.Overspending

Jason
Jason
13 years ago

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… Read more »

MoneyDork.com
MoneyDork.com
13 years ago

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

Joe
Joe
13 years ago

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,… Read more »

Jose
Jose
13 years ago

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

shawn
shawn
13 years ago

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.

cmarie14
cmarie14
13 years ago

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!

joshuat
joshuat
13 years ago

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… Read more »

Jon
Jon
13 years ago

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… Read more »

Andrei
Andrei
13 years ago

Totally_agree_with_the_article

dong
dong
13 years ago

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.

Dickey47
Dickey47
13 years ago

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.

Sam
Sam
13 years ago

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… Read more »

Justin
Justin
13 years ago

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… Read more »

magic
magic
13 years ago

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?

Sandy J
Sandy J
13 years ago

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… Read more »

Nick in Iraq
Nick in Iraq
13 years ago

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… Read more »

Jeremy Hall
Jeremy Hall
13 years ago

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… Read more »

Money
Money
13 years ago

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

Sistah Ant
Sistah Ant
13 years ago

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… Read more »

Naomi
Naomi
13 years ago

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… Read more »

Ron
Ron
13 years ago

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… Read more »

Amber Yount
Amber Yount
13 years ago

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… Read more »

Jethro
Jethro
13 years ago

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… Read more »

KM
KM
13 years ago

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… Read more »

docah
docah
13 years ago

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.

emily
emily
13 years ago

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!!!

Jethro
Jethro
13 years ago

@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.

creamcitian
creamcitian
13 years ago

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.

Amber Yount
Amber Yount
13 years ago

@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…

Ron
Ron
13 years ago

@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.

VinTek
VinTek
13 years ago

@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… Read more »

Kris77
Kris77
13 years ago

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.

Justin McHenry
Justin McHenry
13 years ago

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… Read more »

JenK
JenK
13 years ago

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.… Read more »

VinTek
VinTek
13 years ago

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.

Justin
Justin
13 years ago

@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… Read more »

JenK
JenK
13 years ago

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.

Justin
Justin
13 years ago

@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.

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