It’s been just over two years since I got my first credit card. I now have three and I’m never looking back. Ah, credit cards. How do I love thee? Let me count the ways:
· Credit cards track my spending. The problem with withdrawing money from an ATM and paying for everything in cash is that you often struggle to remember exactly where your money went. With credit cards, I can review the statements every month and reconcile each line item to my Quicken records to make sure even a few bucks here and there are properly accounted for. I couldn’t do that with cash.
· Credit cards boost my credit score. As a college graduate with no student loan, no car repayments, and no mortgage, credit cards have helped me ‘get into the system’ and build a strong credit profile. By using them wisely, I’ve already qualified for lower rates that I can take advantage of when I eventually buy a house. If it weren’t for credit cards, I’d pretty much be off the financial grid.
· Credit cards give me awesome rewards. Each of my credit cards rewards me in a very useful way. One gives me up to 33% off food. Another lets me earn interest on any positive balance at a rate banks would only offer if I locked in a far higher amount for a far longer time. But my favourite is a 90% discount on my monthly membership to an amazing gym. This includes free wireless internet, not to mention unlimited classes like yoga and FUN’k off (don’t ask), for just $7 a month! When’s the last time cash treated you so well?
At this point, you might be feeling uncomfortable. Heck, you might be downright appalled. But please put down the pitchfork and step away from the comments. Allow me to offer some clarification before you write me off as yet another 25-year old on the road to disaster and destitution:
· I am NOT advocating excess spending. Most people avoid credit cards because they’re too much of a temptation to overspend. Given that the key to wealth is to spend less than you earn, this makes perfect sense. Credit cards should NEVER be used to spend money on things you can’t afford. In other words, NEVER buy on credit what you can’t already buy using cash. Period. I’ve never been a particularly extravagant person, which is why I actually like the fact that I’ve had the same pair of All Stars for about five years. My credit cards are only used for things I can already afford (mostly things I have to buy anyway), which is why the charges only amount to around 25% of my income every month. Nothing gets charged that cannot be paid.
· I am NOT advocating getting into debt. Another reason people avoid using credit cards is because they fear debt. This makes sense too. Debt. It’s a horrible word that conjures up images of shackles and a burdened life. But not all debt needs to be portrayed so negatively. One of the key things I learned at Rich Dad Coaching (and wrote about in The Beauty of Debt) is the distinction between good debt and bad dad. Good debt, like that used by Robert Kiyosaki to buy investment properties or that used by Bill Bartmann to become one of the 25 richest people in America, puts money in your pocket. Yes, credit card debt is bad debt, but it won’t cost you a cent as long as you ALWAYS pay the balance off in full (and can negotiate waived annual fees). This means your cash can stay in the bank longer (earning interest as it does so) and only be used to pay off the debt when the due date arrives. In some cases, that can be as far as 55 days away. Score!
· I am NOT advocating getting credit cards purely for rewards. Too many people have been tempted by the promise of low rates and other amazing benefits only to find that they were temporary offers at best. Before settling on a card, make sure you do proper research and read the fine print. Since interest rates only matter if you have existing debt that you’re trying to consolidate, you have total freedom to find a card that works for your situation. Your best bet is to find one that rewards you for purchases at stores you already use all the time and/or rewards you with benefits you can actually take advantage of. Perhaps you’ll get lucky and score a free European trip!
In conclusion, I hope it’s clear that credit cards are not the homewreckers everyone paints them out to be. If you already have a good dose of financial discipline (control your expenses by spending less than you earn) and use them with wise self-control (pay off the FULL balance every single month), they can be a really great part of your overall plan. But if you don’t and won’t, then burn this post immediately (figuratively, of course) and stick to what you know.
What do you think? Have any of you had good success with credit cards to help me build my case? Would you share your story in the comments, pretty please?
I am a big advocate for credit cards to build credit! I am curious, what cards do you use? I’m especially interested in the one that gives you up to 33% off groceries!
I was going to write a burning comment. But the last few sentences of your post redeems you. But this idea to use credit cards to build your ability to borrow even more, goes against common sense. Fact is no got rich using credit card points. Considering the amount of people in credit card debt shows that you are unique.
You’re entitled to your opinion of course but you can track your spending by using debit cards and in terms of building your credit score you can do that with just paying your monthly bills on time, cell phone, utilities, etc. It’s worked a charm for me so far. But whatever works for you is fine, I would just stay away from credit cards as a personal preference.
All credit cards have done in my opinion is expose our severe lack of self control and magnify it, but maybe that’s just my weakness.
Just wait until you mess up or more likely they mess up your account and you have struggle on the phone for hours over your interest rate, false charges, account errors, etc. I used credit cards until I had to deal with Discover, now I use CASH and a Debit Card. You can’t win at their game, the only choice is not to play
Build credit? all this statement really means is “I love debt!” You can build enough credit to buy a home (or car if you really want to) using methods others have outlined here e.g. using debit cards and paying your bills in full on time. Fact: ~60% of Americans DON’T pay off credit cards in full each month
I’ve been responsible most of my life. Using it correctly allows me to do all that you mentioned plus take care of other people, like send them off on vacation free using points or buying them things with points. Yes the responsible ones end up taking care of others.
In today’s world of online banking one can check account balances and keep up with debit card spending with the click of a mouse. In addition, monthly bank account statements are a great way to keep up with where your money goes (or has gone, as it were). Twenty-four / seven online access keeps your financial information available whenever you need it and, with many bank debit / check cards, cash-back is built in. There is no interest, of course, and no temptation to spend beyond your means. I have credit cards, as well, but have found debit / check cards to be the answer for me. No sense feeding the beats.
I used a credit card to buy all items in a plumbing store to re-do my bathroom, ie: tub, ADA low flow toilet, sink, all the knobs and handles. Two weeks later, the day after I received the bill, I went by to see when I could pick up the items for my contractor. The plumbing store had never ordered the special order items. I made it very clear all items were needed, mentioned the contractor by name, immediately called the card company to have a stop put on payment to the plumbing store until I could be assured the items were in and delivered. Key point is to keep in communication with the card company. Also, the only charges on the card were for the plumbing store.
can you please let us know what cards you are using? It seems a bit obnoxious just to list the benefits without identifying the cards.
Hi there, great article, mature and sensible prose. If any reader’s of this article live in the Uk, (I live in N.Ireland, part of the UK) you might want to check out Martins Money website – Creator and Website designed by Martin Lewis, aka of the BBC television programs and author. Much of his advice is transferable across the world. Loved your article, keep up the great advice and writing. G :-)
Good points, but something that I’ve noticed is that having credit cards (and using them) can change how you spend money. I was a lot more liberal with my spending when I had them, because I didn’t have to worry about paying the consequence of my spending until 30 days after the fact.
I only use a debit card, and I just save enough to get whatever I want. I love it though.
Hi everyone,
Thanks for the comments. Like I said, this is not a post
promoting overspending and/or getting into debt. Also, this advice isn’t
relevant to all people and should be completely disregarded by some (possibly the
60% of Americans Jim refers to).
However, my intention was simply to show that labelling
credit cards or debt as ‘bad’ for all people all the time doesn’t make sense. If
you already have financial discipline and will use them properly, they can be
great.
@dc9005a770955a8a7204d9e594170beb:disqus – You’re right that no one ever got rich using
credit card points, but isn’t it still nice to get rewarded for things you’d do
anyway?
@9c40f2525cc60c30dd784e7c6b5d67c2:disqus and @scientifics:disqus – I’m actually based in South Africa
so the cards I use are only relevant here. But I think there is far more choice
in America. Read this for more:
http://www.getrichslowly.org/blog/2008/09/09/credit-card-basics-how-to-choose-a-credit-card/
@openid-36303:disqus and @JamieODonoghue:disqus – I’m not sure if the
situation is different in America, but I’ve found that paying credit card
balances in full has a more positive impact on your credit profile/score than just
paying bills on time.
-Eugene
I completely agree! It requires a good amount of self discipline, though. I would also add that you do need to have decent credit to get access to the more reputable cards. My two favorites are from American Express and Capital One. I earn travel rewards that are easy to redeem and pay no annual fees. I also have a monthly budget and only purchase what I can afford to pay in full each month. I review my statements before paying the balance and have never had a significant issue. By notifying the company within 30 days, any fraudulent charges were removed (that only happened twice I think). You have to know your limitations, be honest with yourself, and do what works best for you. Credit cards are not for everyone but I’m with you Eugene – I am also NEVER cutting up my credit cards.
I agree with your opinions, but I have always avoid using credit cards in little/local commerces because they charge the shops with a fee and I prefer to respect the profits of the local commerce. I guess the commerces figure this out when they set the prices, but my choice is giving them a little bit more ant not the bank, if I can.
In big stores or malls, I use credit cards for the reasons you describe. I don’t care if Zara’s profit is less.
Of course this is a personal and ethical reason and has nothing to do with yours, which I completely respect.
Sorry for my english
[...] (Źródło: Why I?ll NEVER Cut Up My Credit Cards) [...]
I agree with the author. Credit cards alone are not bad. They become bad when people use them to pay for things that they cannot afford. Credit cards are a great way for young people to build credit and learn to be financially responsible.
Those who are opposed to credit cards as a rule seem to be against them because of the large number of people who go into enormous debt. What they should be against is people being financially irresponsible.
There are also a lot of people who abuse alcohol. Should everybody abstain from drinking alcohol? I think the answer in both cases is “No.” However, people should learn to be responsible. Those who cannot be responsible are the ones who should not have credit cards. But I don’t think it should be a general rule.
I agree with the author. Credit cards alone are not bad. They become
bad when people use them to pay for things that they cannot afford.
Credit cards are a great way for young people to build credit and learn
to be financially responsible.
Those who are opposed to
credit cards as a rule seem to be against them because of the large
number of people who go into enormous debt. What they should be against
is people being financially irresponsible.
There are also a
lot of people who abuse alcohol. Should everybody abstain from
drinking alcohol? I think the answer in both cases is “No.” However,
people should learn to be responsible. Those who cannot be responsible
are the ones who should not have credit cards. But I don’t think it
should be a general rule.
I personally don’t use or recommend credit cards, but I commend you on finding ways to use them wisely. If you manage to continue such responsible use of the cards someday when you desperately want/need something that you can’t afford to pay off immediately; I’ll give you even more props. Life has a way of changing your opinions as the years go by. I wish you all the best.
Nea
http://self-improvement-saga.com/
Unfortunately you are too inexperienced at the game. Just wait till you find you are not in real control.( & I am not talking about debt or spending ). Wait till when the ‘game/ rules change in mid stream. I would suggest you will be apending your post within a year or two and actually eating some of your vocations. This is from a guy with over 40 years credit card history & 700+ cs.
Good debt…¿¿¿
Money equals Debt. Americas Debt finaces war. Ignorance is bliss, especially when you are so addicted to money. Thanks for advocating “the system.”
This article is proof of how naive and dumbstruck modern day society has become. We are lured into a trap, by well-thought out contraptions and clever commodities. In this trap, the only way to survive is to consume.
Credit cards were created for one purpose only. To weave your personal economy into the fabric of a system that makes only a small promille rich – the ones who own the debt. If you didn’t know it already, money is created out of debt. There can be no money without debt. That’s how the monetary system is built and how it’s going to continue to work unless we do something about it.
No matter how you twist and turn it, everyone who isn’t lending out huge amounts of money or financial assets are in debt. This is a fact. The day you don’t have to work for your money, is the day you no longer are in debt.
Watch Chris Martensons crash course and prepare yourself for what’s coming … http://www.chrismartenson.com/crashcourse
If we were self-disciplined and had self-control, you wouldn’t need a credit card. You’d just save the money. It’s fairly obvious that you’re 25 and without kids as you tout your ability to control your spending. You’ve probably also never had a severe illness or debilitating surgery. The reason the credit card companies make the sucker bet with their enticements is for people like you who think they are 1. Bulletproof 2. In possession of some inner ability known only previously to have been possessed by Christ in His ability to resist temptation and 3. Only one lost job, major illness, or bad investment away from ruining their life. The banks are licking their chops for people like you.
You brought religious beliefs into it, which renders your opinion worthless.
What David was saying is totally valid. Whether or not you believe Christ resisted temptation is irrelevant to the fact that Christ is a commonly used standard in our culture for perfection.
thats the most stupid thing i’ve heard. Who died and made you god…
Hi again,
Anyone interested in learning more should read the bonus chapter from I Will Teach You To Be Rich:
http://www.iwillteachyoutoberich.com/newsletter-signup/
Ramit also mentions that credit cards, when used wisely, can be a really great idea!
-Eugene
I have to agree, used with care, credit accounts are a really useful tool in getting rich slowly. One of the simplest method of building a credit history is paying two small credit cards in full, on time, for about 2 years. If you pay a monthly bill, you can just set up a monthly payment. Doing this while saving a large down payment can really pay off. (I would certainly do it again.)
[...] to the next one. Once you’ve repeated the process and paid off all your high interest debt, learn how to use credit cards wisely so you don’t mess it all up. Most importantly, don’t close the account as this will affect your [...]
1. INTERAC can track your spending.
2. There are other ways of improving your credit score. Paying utility/ hydro bills, bank balances, pre-paid credit cards.
3-6: The rewards given by Credit Cards are generally offset by the increased spending you’re tempted to do. I understand that you only aim to spend in accordance to the ‘money you have in the bank’, but even so, spending inevitably increases. In general, CC rewards are not congruent with the money you spend to acquire those rewards.
You’re far better off killing the credit card, saving $3,000 in a year, rather than spending $30,000 of questionable items over a 5 year period and thereby earning enough points to win that free trip. Again, this is not even about buying frivolous items. Even items you think you ‘need’ can easily be dismissed as not being required once you’re forced to pay via cash or debit.
Hey Eugene,
You have valid points there for using credit cards compared to cash. I personally feel that it is much better to track things with cash than with credit card. I also think that there is a stronger tendency to overspent with credit cards than with cash. I guess it differs between people on which payment method they prefer. I do agree with you that you have got to be discipline when paying with your credit card.
I totally agree with this article. About five years ago I was firmly against the idea of credit cards, thinking they were a scam to suck people into spending money they don’t have.
However, a friend of mine referred me to some fee-free cards and explained about the 55-day interest free period. For the last five years I’ve been putting all of my (and my wife’s) living expenses on the credit card. It’s fantastic! By deferring living expenses by a month, that money instead earns a reasonable interest sitting in my bank account. Every month I clear the balance of the credit card and never pay a cent extra to the credit card company.
In fact, with the rewards program (I’ve got a free iPod nano and a pretty good digital camera out of it so far, and I’ve currently got a stack of points which could get me something else similar), it’s like I’m being paid to have the card. Bizzarre!
Additionally, very soon after applying for the credit card they inexplicably upgraded me to platinum status with free travel insurance (!). That alone has saved me over a thousand dollars.
Initally, I was most excited about being able to accurately track my spending. However, I calculate that the net monetary benefit to me is about $500 in interest earnt, $900 in free consumer electronics, and $1200 in travel insurance. Fantastic!
I love this article! I personally have 7 credit cards and a credit score of 756. I’m not a compulsive spender, but I’m a rewards freak. I put everything on credit so I can get rewards. Why not when its free? Also if you cut up your credit cards, its a pain in the butt to get new ones ;) You’ll eventually call the credit card company to get a new one, so cutting them up is pointless. For the compulsive spender, you need to cancel the account.. not just cut up the card.
Well according to me if you have a credit card you are not going to short of cash anytime.
Thanks for sharing this informative post with us.I would like to read your more updates.Keep them coming.
Whether or not you believe Christ resisted temptation is irrelevant to the fact that Christ is a commonly used standard in our culture for perfection. I use CASH and a Debit Card. You can’t win at their game, the only choice is not to play