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There are two methodologies regarding credit cards. One is, “Credit cards are bad and you should never get them”. While compared to, “Credit cards are great if they are used correctly“.

At age 18, I got my first credit card. At age 21, I swore off credit cards. Reason being is that I was burned by them when my mom forgot to make payment (I gave her the cash). I hated credit cards so much I didn’t get another one until I was 25.

Over the years I started to learn more about credit cards and have been using them to take advantage of my financial situations instead of being the cause of my finances.

Today, I want to dive deeper into why most people think, “Credit cards are Bad”. Along with their bad reputation and to provide clarity behind those thoughts.

Reason 1: Lack of Understanding of Credit Cards

In my experience, most people who don’t have credit cards or have a debt with credit cards don’t fully understand the concept of them. This isn’t a bad thing. If you don’t have a credit card, you might tell yourself or hear from others, “you don’t want to be in debt”, or “you’ll owe more money in interest so don’t bother”.

If you already have a credit card some common phrases I hear are, “Do I pay interest right away for my card?”, “What’s the difference between balance payments and current balance?”.

The reality is that when most people get a credit card, they don’t take credit cards seriously and aren’t aware of the actual purpose. Credit cards (to me at least) are a way for you to better utilize your finances and to extend your money in cases of emergencies.

Reason 2: They Expedite Poor Spending Habits

Credit cards make it very convenient for you to make purchases, pay bills, and do day-to-day transactions. To me, that’s awesome! However, if you already have poor spending habits, all this does is prevents you from seeing the impact of your spend until the end of each month.

“Out of sight, out of mind” is the mantra that is frequently used. For beginners (often college students or young adults or “broke” households), spending habits were never developed. This often does snowball into spending more than being made.

The reality is that with simple track spending and budgeting (such as Mint) and having basic knowledge of finance can dramatically prevent major debt from happening. I often recommend for credit card beginners is to treat their CC as if it were their debit card.

I plan to create an ‘everyman guide to credit cards’ to better teach everyone about CC down the road. The last thing I want is to create an article with no action.

Reason 3: Credit Cards “Trick” You Into Spending More

This is fairly attributed to poor spending habits. But when credit cards offer “rewards” for spending money or even “cash back”, it becomes a lot easier to justify spending. Even worse, justify they are making money.

“Oh, this X-box 360 is $200 and I get 5% cash back, I get $10 back!”.
“I decided to treat myself, now I qualify to get $20 in rewards”.

^^^In my opinion, this is not a trick, this is more of an incentive to use a credit card. That’s all it should be.

Most cards offer some sort of cash back. Like I mentioned before if you treat your credit card like a debit card, you will get all of the benefits of the credit card without any of the negatives.

Reason 4: Fees and Interest Rates Are High

If you are living paycheck to paycheck, having any sort of unwanted fee is could be the difference in making financial decisions. From having late fees or paying extra interest on a credit card, it can leave a bad taste in someone’s mouth.

The reality is that credit cards actually have the lowest penalty in human error and are probably the best option if you are in a pinch.

Oh no, I’m CRAZY! Or am I?

Yup, RIP my blog. I’m going against a majority of financial advisors here. However, most people with poor credit or poor financial knowledge choose shittier alternatives that cost them more money long term compared to credit cards.

  • If you have bad credit, getting loans from a bank will leave give you interest rates nearly the same as credit cards. And that’s if you qualify. Oh, and you’re credit score will take a hit when they run a credit report.
  • Another example is that payday loans are often used for quick cash. Some payday loan companies charge 400% APR (that’s 20x more than credit cards). Yet “credit cards are bad”, okay.
    Payday Loans Are Terrible

    If you do payday loans over credit, STOP!

  • Rent-To-Own is popular for people with no credit or doesn’t want to use a credit card. Considering you are often paying 2 to 3 times more than just using a credit card, you might want to reconsider.
  • Banks often charge $30-$35 per overdraft charge.  Even the more financially savvy people can make the mistake of not putting enough in their checking account and can owe hundreds of dollars in a matter of days. Credit cards charge ~$30 for a late fee. Both suck, but in my experience, it’s a lot easier for me to call my credit card company and get the fee waived vs fighting the bank.
Overdraft Fees

Fees by Bank (Source: Google via Nerdwallet)

Reason 5: It’s A Poor Foundation of Good Spending

Credit card spending should not be the first introduction to someone’s financial life (or second). Thus, creating unrealistic expectations on how money should be used and distorts the value of a dollar.

In some cases, “getting student loans” is the first introduction into finance for college students. Then getting the ability to spend money without much consequence does lead to having terrible habits.

This is why I always suggest that everyone needs to get a bank account as a starting point. NOTE: This might be basic to most of you, this isn’t common knowledge to millions of Americans.

From there you can start using your debit card and use Mint or other spend tracking software to develop an understanding of cash flow and finance. You will start better understanding the value of a dollar and get a feel for your spending.

Clarity

At the end of the day, my goal is to help improve your financial standing. I’ve started out as a dirty basement kid but I cannot just sit by and chastize financial options that are viable when the time is ready. I can only help provide both arguments and help find the best path that is right for you.

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