CREDIT CARDS: GOOD CENTS OR BAD CENTS?
The pressure on American’s to consume bombards from us from every media venue out there. From television, the Internet, newspapers, magazines and radio – they are all supported by ad dollars and those ads must produce customers in order to justify the costs. There is no mechanism encourages to the general public to conserve, spend judiciously or to shop wisely. So with that introduction, I am sure you can guess where I stand on credit cards.
Credit cards are inherently bad. You do not need them to build a credit history. Credit should be used for major purchases such as cars and homes. Getting overextended with credit cards can lead you into a black hole from which you may never escape. Even if you are able to stop the downward spiral that credit cards can create, you are at best throwing good money after bad by paying, every month, a percentage of your outstanding balance. Did you also know that the vendors that sell their services to retailers charge them more when you use your credit card than when you use a debit card? So in addition to the interest you are forking out, it also drives up the price of the goods you bought in the first place.
Debit cards, on the other hand, are in reality just a replacement for the old-fashioned paper checks. They are convenient and less trouble than checks and checkbooks. And to carry that train of thought one step further, checks are just a paper form of cash. So, other than the fact that the retailer pays for the privilege of accepting your debit card (albeit less than when accepting your credit card) and again, drives up the price of goods, I can see no reason to object to using them.
Here is one exception. This does not work for most people. However, you can “work” the system if you have a rewards card. We have run EVERYTHING we could through our credit card, but we paid (usually, but the goal was always) the balance in full at the end of each month. In this situation you are not burdened with interest charges. In theory we will end up on the plus side of the equation, as free airline tickets and other goodies are obtainable with these incentive programs. Many people have chosen to do this, only to find that the credit card is so easy to use that they slowly start building up a balance. It takes incredible discipline and we have vacillated in and out of debt a few times. Never very far, but the effort to keep our spending on track was more than we felt the rewards were worth, so we have converted back to all cash. It can also work if you are resistant to the buy and consume mentality. If you are a dedicated environmentalist, have little desire for material things or your morals dictate that you leave this earth having left the smallest footprint possible, then you may well be a candidate for this scheme. But heed this warning: once that balance begins to balloon, the original plan is corrupted and that black hole I spoke about earlier begins to open up.
In general, credit cards create a huge net loss for most families and in some cases can spell financial ruin. I advise you too avoid them and live within your means.