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People love their credit cards. Why? They aren’t valuable, can’t be traded or sold, and cost people money and often their freedom. I’ve been separated from my credit cards for over seven years and can tell you that I don’t miss them a bit. Now that I’m coaching people through their debt problems I get to hear all the same lies I used to say that justified my reason for keeping the plastic crutches.
Here are the most common lies we tell ourselves to keep our credit cards:
“I only use my card for things I’m already going to buy”
I am going to quote something you’ve already heard but don’t think applies to you: People who spend with plastic spend more money – some studies say 12 – 18% more. To add more insult to injury, a study from two MIT professors showed people with credit cards were willing to pay twice as much for Celtics tickets as a group with cash.
I will concede that there are people who really do spend the exact same amount on credit as they would with cash. But I ask you, why deal with a middleman in Massachusetts, a big bank, when these people with absolute self-control over their spending could manage their debit card just as well ?
Tell the truth, we have all overspent when using plastic. Go to cash because OPM will never feel as powerful as the money in your investment accounts.
“I only use this card for the points”
While there is a slight benefit to this excuse, it is not a good reason to keep using credit cards. People really do believe they are getting ahead financially when they get cash back from Discover Card. What they don’t realize is they have been paying 2-3% more for all the items they have bought, everywhere.
The average credit card swipe fee is between 1.93% for gasoline and 3.03% for restaurants. Merchants aren’t just going to sit idly by and soak up the expense, they are going to raise the price of their stuff or shrink the size of the product so they can hit their profit margins. This isn’t dishonest or shifty; it’s what keeps their doors open and the new products rolling out.
Unfortunately this affects everybody, even cash buyers since most retailers don’t offer cash discounts. Using credit cards are costing you and your neighbor money, no matter what your cash-back offer is.
“My credit card interest rate is blah blah blah”
The moment somebody tells you about their great low interest rate you can bet they are in debt. Why? Because people who pay their credit cards off every month don’t get charged interest. This is justification for their overspending, and it is hazardous to their wealth.
Don’t feel sorry for them – help them out. Tell them that debit cards have even lower interest rates, zero percent, and are accepted in more places than American Express.
“Debit cards aren’t safe, but my credit cards are”
Why are the only technological advancements being shared publicly about new iPhone features and changes to Facebook’s Privacy Settings? We have men on the International Space Station 24-7 for Heaven’s sake! You can’t tell me that fraud protection hasn’t improved and the same tools for credit transactions don’t apply to debit. I think those issues were solved back during the Y2K upgrades.
Debit cards have the exact same Zero Liability Protection as credit cards, Visa says so on their website.
Don’t believe it’s true? My wife and I both had our personal debit cards and my small business debit card compromised within a 15-month period. In each situation the banks contacted us within hours of the fraudulent activity and reversed the charges. However, a relative had her credit card compromised. The company told her to contact the business where the charges originated and fight with them. That’s stupid!
THE VERY INDUSTRY THAT TOUTS THEIR ZERO LIABILITY POLICY WILL PROTECT YOU FROM FRAUD DIDN’T STAND BEHIND THEIR PROMISE!
Our banks wanted to keep our business; her credit card company didn’t give a squat about her. Who’s safer now Citi?
“My credit score will suffer if I go to all cash”
Nobody is telling you to damage your credit score. Guess what? Cutting up your credit cards and closing the accounts will not cause you to have a bad credit score. Those who preach using debt as a tool and that you need to “build your credit score” are sending the exact same message as I am in regards to behaviors that will cause you to have a good score: Pay your bills and debts on time. That’s it. You will have a good credit score if you simply do those two things – regardless of the number of credit cards you have!
I would submit to you that the credit scoring system, headed by Fair Isaacs Corporation, is a one-sided measurement of debt. Don’t believe me? Take a look at your credit reports and see if there is anything missing. Look closer. Did you notice your rent, cell phone bills, and the money you send to Comcast every month aren’t on there? They aren’t listed because they are not debts. How can a system that is supposed to prove you are credit worthy not include some of the most common monthly bills? Fair Isaac isn’t really fair, are they?
The result is a student that paid his way through college and received his car as a graduation gift is now being told he’s not credit worthy. It’s a good thing there is a company out there called eCredable that can prove our credit worthiness and has the law to back them up. For more read the Equal Credit Opportunity Act Regulation B.
I’m not asking you to go to all cash. What I am saying is we have to stop lying to ourselves that credit cards are good for our finances. Support your local bank by using their debit card and keep swipe fees away from the big banks. Your small business owner will thank you and your community will be stronger because of it.
What are some of the excuses you hear your friends say that make them keep their credit cards?
Yeah, I’m only going to use my credit card to buy the things I was going to buy anyway, and then send one payment off to them and pay it all off….until the bill comes and I can keep all my money except for the minimum payment. Yuk. No thanks on that temptation…..
Thanks Travis. Plastic without boundaries is a beautiful temptress, isn’t she?
Hey, just heard my voice at the beginning of your show! I had to listen… You make me happy I haven’t used credit cards in years. Thanks so much for your show. Just so much value! I’m hooked.
Thanks Paul. You belong to a weird group of folks who chose not to use the credit cards and instead pay for the items they buy.
Cash, check, debit, even bitcoin can pay for things without the plastic crutches (credit cards). Welcome to the club!
So if I don’t use my credit card, and I’m still paying 2%-3% more for the items I buy even if I use cash, why not use the credit card and get the points? And do you really believe if we all stopped using credit cards, you would see prices for all goods suddenly drop 2-3%?? HA! I bet there is a lot more pressure on prices to cover shop lifting and employee theft than 2-3%. Imagine if we all stopped shoplifting and used cash…we would pay at least 5% less for everything, right?
I rarely ever see any place that offers a discount for paying with cash. Some gas stations, maybe, but not any that are local to me. We bought some furniture recently, and when asked if they would discount the price if we paid with cash, was swiftly told “NO!”. And when you pull up to the pump, do you really want to have to go inside, waste time standing in line, be tempted by something on a shelf, buy that “something”, just to pay with cash? The no-yearly-fee, paid in full each month, card I use for gasoline gives me 5% back. I’d be stupid for leaving that money (~$150 a year) on the table.
Our local, small, neighborhood grocery store does tack on 2% if you use a cc, so we use cash when shopping there. But that’s a small portion of our spending.
For us, it makes complete sense to use the reward card, pay if off in full each month, and use the points.
Mel, I know it’s a pipe dream to think we’d all stop using credit cards. Of course there are other things tacked onto the price that have nothing to do with profit (as you mentioned: shoplifting and employee theft).
Consider who is paying for your 5% cash back credit card. It’s the 7 in 10 people who are living paycheck to paycheck! That is why I can not participate in funding the monster (credit card companies who have no branches in my area).
Have you calculated your credit card rebates as a percentage of your annual income? I would bet it’s not even 1%, yet we are perfectly OK for signing up for an 18.99% credit card and swear we will never pay interest.
I can’t support an industry that is sucking the wealth away from Americans. I hope you can understand my position as I understand it is not yours.
Thanks for you comment.
May I make a suggestion? We all know the reward cards are not going to go away any time soon, and we know that nearly all retailers are not going to give you a discount for paying with cash, and we know even if all reward usage stopped, retailers still aren’t going to drop their prices. We also know you have a desire to help those living paycheck-to-paycheck. So I suggest you use a reward card, get the rewards, and donate them to charity. Some cards will let you do this directly.
Let’s say the citizens of this great country use a reward card whenever they purchase bird seed. I’m just talking bird seed. This money isn’t being used to feed hungry humans, its going to feed birds (and squirrels). Laugh. The yearly market for this is somewhere around $1,450,000,000, in the USA alone (yes, $1.45 BILLION). Let’s assume half of that is bought with a reward card that gives back 1%. That’s $7,250,000 that, theoretically, could be donated to soup kitchens.
So yes, I guess I am saying that you choosing not to use a reward card means you aren’t doing as much as you could to help the less fortunate (I assume you make charitable donations of some type).
What do you mean by your statement “(credit card companies who have no branches in my area).”? That sounds to me like you’re saying if they have a branch in your area, you have no problem using their reward card.
That’s a great suggestion. We buy birdseed, so we would be supporting that idea. Love it!
It doesn’t solve the problem of having millions of dollars being sucked out of the economy by big banks who have no representation except for pre-approved offers in our mailboxes.
If we did/do have to pay swipe fees then I would want the money to go to my local bank or credit union, not to a company that has no presence in my city/county.
Good info ~
As someone who just went back to a credit card I have thought some of these things….but my main reason for getting a credit card is not on this list. It is easier to rent a car and book hotels on a credit card. Most hotels hold money for incidentals I don’t use….some hotels will turn these off and waive the fee…others won’t. I don’t want them to take the money off a debit card, because they take more and hold it longer. I don’t want my funds tied up like that.
Getting a rental without a credit card requires a large deposit and proof of income and address….its a hassle! I have a business travel card that makes travel for my job a breeze. When I travel for personal reasons I would like the same conveniences.
I also did get the card to build some positive credit. Never heard of eCredable so I’ll have to check that out.
I completely agree with your view. It is more convenient to use a credit card. Why? The industry who is trying to make money by selling you money made it easy.
Visa and MasterCard would make it easy to pay for things with BitCoin if they could find a way to make money from it (or BitCoin). They don’t make electronics or sell hamburgers, they sell the convenience of electronic payments. I’m OK with that part because I enjoy buying things with my debit card. It’s the interest charges for debt that bother me. Of course, the cardmember is the one that signed up for that trip so they are giving their customers what they want.
Thanks for the comment MomCents. I look forward to reading more of your FinStat updates. Let me know if I can help – even from the sidelines as a get-out-of-debt cheerleader.
You made a good point and your encouragement goes a long way!
“People who spend with plastic spend more money.” Steve, do you know what the stats are with regards to people who spend with debit cards? They are plastic too. In response to Travis’ last post (about Target’s RedCard, and the possibility of linking it to your debit account instead of you credit account), Michelle used the same quote about “plastic” to advise against debit cards as well as credit cards. Both Michelle and I are interested in knowing if the stats for spending with debit “plastic” are different from the stats for spending with credit “plastic”. Any chance you know?
I don’t have stats on that but I will say that people will spend more with debit cards than with
plasticcash – including ME! Yes, it’s true.If you think about it: What keeps anyone from overspending? Limits.
Cash: You are physically limited by the amount in your possession. There is no chance to overspend here – you either have it or you don’t.
Credit: The only limit is the one set by your creditor – who is more than happy to raise that limit “enough to hang yourself” as John Riley from Crown Financial Ministries says.
Debit: You are limited by how much is in your bank account. Unfortunately, this allows people to overspend their categories if they aren’t paying attention. That’s why I love YNAB’s mobile app so much: I can be at Kohl’s and see how much $ of our $,$$$ available balance is left to buy clothes BEFORE making the purchase.
To answer your inquiry if spending with debit “plastic” are different from spending with credit “plastic”: The answer is YES, because debit card users know they are spending real money – money that could be tied to the next mortgage payment or groceries.
But it’s not as different as spending with cash.
Thanks for asking. Do you mind if I share this on an upcoming episode?
Of course you can share this on an upcoming episode!
(I was confused by this: “I will say that people will spend more with debit cards than with plastic.”)
Oops. I’ll go back and edit that. Thanks.