December 2016
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Are Credit Cards Inherently Bad?

Not necessarily.

Some view credit cards as debt. I agree that debt is bad. But credit cards are only debt if you don’t pay the balance every month. If you ever are unable to pay you balance, or if you intentionally run up your balance thinking you’ll pay it off some day, read no further. Credit cards are evil for you and you should not have them.

If you’re still with me, let’s look at credit cards more closely. They are a financial tool. They give you access to your money with some advantageous features.

Fraud Protection

The credit card company watches for questionable transactions and notifies you when they see something of interest. I’ve had this happen a couple of times. I got a call and a text alert. We quickly determined what the fraudulent transactions were and the company sent us a new card the next day. We weren’t out any money. The only hassle was updating the card number with online accounts where it was stored. Now I keep a list of those accounts in case it happens again.

Debit cards supposedly have the same protections as credit cards, but there is a subtle but important difference. When a fraudulent transaction occurs with a credit card, you don’t ever have to pay for it. On the other hand, with a debit card the money is already gone from your account. Once the fraud is documented, the bank will put the money back in your account but it might take a few days. What if your mortgage payment happens to be scheduled at the same time and there are insufficient funds in your account when it hits. Disaster!

Rewards Points

Another advantage is rewards points. Some say this is a curse because you’ll tend to spend more to get the points. I agree it is bad if you think that way. Buying something you don’t need just to get the cash back or airline miles is a sure way to get yourself into trouble. On the other hand, using a rewards card for something you would buy anyway is ok. That’s the key – it has to be something you would pay for even if you were paying cash.

I researched which of our utility bills could be paid by credit card. That is definitely something you will pay regardless of the method. I checked each recurring bill to see which ones would allow payment by credit card and what fees if any were applicable. It turns out that our electric and gas bills both have fees around 3% for using a credit card. It would be pretty stupid to pay a 3% fee to get 1% cash back. Our bills from the cable and phone companies both take credit cards with no fee. Our car insurance company is the same. So I pay these bills with the credit card.

Our credit card has a 5% rewards bonus for certain categories each quarter. One quarter it was restaurants. Would it be smart to go out to eat because you get 5% cash back? No! The number of times we ate out that quarter was ZERO. This past quarter Costco was on the 5% cash back list. I didn’t go buy a bunch of junk there, but I did stock up on items like toilet paper that we buy anyway.

Ease of Payments

Another feature I like is the ease of making payments to the credit card online using ACH (automated clearing house) transactions. I can log into my credit card account and make a payment in about 2 minutes. The money is removed from the bank account almost immediately, or on a scheduled date. Either way I’m in control of when this is done. I typically make several payments every month. Any time a large bill is paid like the car insurance or the balance reaches a certain level, I log in and pay it. By doing this, our credit card behaves very much like a debit card. This takes discipline, but as I’ve said before you should not use a credit card if you don’t have discipline.

So Are Credit Cards Inherently Bad?

Hopefully by now you get the idea. I don’t think a credit card is always bad. It is a tool, like a chainsaw. Used properly, a chainsaw is a very useful tool. Used improperly, it is dangerous. A credit card is merely a plastic representation of money. That is no more or no less real than a dollar bill, which is merely a paper representation of the same thing.

I’m not suggesting you go into debt. Make no mistake – DEBT IS BAD. In that regard, I agree with Dave Ramsey. It’s all about developing discipline and control in your decision making. As I said before, if you ever find yourself with a credit card balance you can’t pay off, get rid of the credit card. You are using it improperly. Go see Dave’s web site – he’s the expert at helping people get out of debt.

Just be careful. Every time you pull out the credit card, think of it like a chainsaw.

Resources for this post:
Dave Ramsey’s Web Site:

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2 comments to Are Credit Cards Inherently Bad?

  • Ken

    Being a former small business owner, be aware that reward credit cards means the business owner has to pay a higher percentage of the purchase for the transaction. For larger companies its not that big a deal, but for small businesses such as mom and pop places those fees can add up.

    • Jack Mitchell

      Agreed 100%. For example, we buy our beef from a local farm that raises their cattle on grass. They take credit cards, but we still pay them with cash to keep their costs down. My logic in the post is more appropriate for larger companies where the costs of credit cards are factored into everyone’s prices.

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