Credit Card Debate - The Other Side
Well I've kept my mouth closed for long enough and figured that it was time to chime in. Initially when James started to discuss his opinions on credit cards I listened and figured it was best to let him rant and rave, even if I don't entirely agree.
Now that the whole world has come back in favor of the almighty visa, I figured that it would be good to give my two cents worth.
1) Credit Cards to improve your FICO. On the one side I can see the argument that the system is flawed to encourage the use of credit cards, particularly for those with bad credit. That being said, life is all about figuring out how to play the game. Since using a credit card appropriately can improve your score, then I advocate you use this in your favor by charging wisely. Please note that this doesn't necessarily mean that you need to charge your whole life on a card. Merely putting a bit on auto pay and then auto paying the bill will do the trick to help your rating. This is a good step for those just starting out or trying to improve their credit.
2) Credit Card Rewards. I'm afraid that this is definitely an area that James & I disagree. Particularly now that I get so many points from traveling for business, there are some real incentives to using a card to charge just about everything you can. I remind James of the fact that this is allowing us to pay for our next trip out to the west coast, which would have otherwise cost us around $800 and was instead a tenner for both of us. Even if there is a fluke once a year you are still better off with the incentives, particulary because I am earning interest on this money before my bill is due.
3) Credit Card v. Debit v. Cash. While I can understand the fact that there are certainly studies out there that demonstrate that people are likely to spend more money with plastic, I don't believe that for your wise consumer (yes, those smart folks we are talking about) it makes that much of a difference if it is a debit versus credit card. If you know how to manage money, you won't spend over what you have in the bank. If you can't balance your finances then you are also going to run into issues with overdraft charges and late fees. Either way, poor financial habits will kill you.
I will say, there are a couple of things that folks who are learning how to use credit cards wisely should do:
1) Balance your accounts carefully, as you should anyway. While I've never been one to balance my physical checkbook (especially now that I have eChecks) I do check my accounts online frequently and pay attention to my balance and expenses.
2) Automate things. Put it on your calendar, set an auto-pay system where you know the money will come out with out issue or error, do whatever it takes to make it easy and flawless.
3) Watch your spending. As with all spending in life, don't buy something simply because you get more miles from it. Just because something is on sale, doesn't mean it looks good on you, or that you need it. I know that this principle applies in general, but I think it is important not to fall into the trap of spending more just to get the points.
4) Watch the fees. Since most credit card offers will give you a good incentive to start with, and then want to charge you a fee after a year, make sure to avoid the fee. Mark you calendar to call them up eleven months later to either get them to waive the fee for staying with them (tell them you've got another offer), or cancel the card and start another with a better offer. You credit score only notes how many checks you've had in a year, so one or two won't make a negative difference. Keep in mind that you can often keep the same miles program but switch cards to get the introductory offer. That way I can keep the majority of my miles with United, but not get charged an annual fee. Please note that this means you are still keeping one credit card for history sake over time, but you have one that rotates. For those of you who want the points but don't want to use a credit card, you can look into offers that are linked to your debit card (I think I'll find one of these for James...)
I guess that's about all for my tired brain tonight. Thanks to all of our reader's comments. I appreciate any comments with further suggestions on how to use cards wisely, if I've missed any good tips.
Cheers,
Miel
7 comments:
Amen Miel :)
I think its important to limit credit cards to a few because its so easy to lose track of what you're spending!
Sorry for any confusion on the section of avoiding fees by not paying annual fees. I would advocate only using one card at a time as well. Otherwise the due dates and other details are harder to manage.
For instance, I recently switched from a rewards card with cash back to my United card. For some this might not make sense, but since I have Premier status due to all of my work travel, I earn points at a much faster rate on United than I would by cash back. We also travel enough, given that our families live on the west coast, that it helps to have the awards travel pay for this.
Once I have almost had my card for a year, I will call to talk my way out of a fee. If I can't do so, then I will cancel and get another United card from another bank with the bonus miles. Hope this is making sense.
Enjoy!
Miel
I think this is a much more reasonable view.
I personally don't plan to get rid of my charge card any time soon - an AMEX gold, although you have to pay for it, is very worth it if you use it a lot. My husband and I together have accumulated nearly 100,000 points on ours, which will be used in large part to pay for our trip to Ireland later this year. There are also some other nice perks - I was able to get decent tickets to this year's US Open men's quarterfinal since Amex offers a presale to its gold and platinum-level cardmembers.
Financial responsibility, and knowing how to use the cards so you and not the CC company comes out ahead, is what is key. Sure, you could not use them at all and call that "smart" because you're totally assured of not racking up any debt, but that's the extreme, and ultimately kind of lazy, way out and really isn't optimal for you in the end. It's kind of like advocating total abstinence as a method of birth control. :)
Consider also that credit cards will PROTECT you. The better ones have at least 1) automatic travel insurance (so you don't need to buy expensive rental car insurance), 2) consumer protection if your purchase is flawed or never arrives at all.
My card companies PROTECT me. What does your cash do for you? NOTHING.
Kristin, Kudos to you for getting some perks out of using your cards. You're in the minority if you're coming out ahead of the credit card companies, who are making billions on others who aren't so sharp. But I must address a couple of your misguided comments. Just because we choose to use cash (or a debit card, which essentially is the same thing - we're spending money that we've already earned) doesn't mean we're lazy. To me, it means we choose not to spend our valuable free time constantly checking our rewards balances, making sure we made our required monthly purchase so a card's APR doesn't skyrocket, frequently calling the CC companies to try for a reduced APR or switching to cards with a lower rate. That's what I consider "extreme". Also, since when is abstinence NOT a valid birth control option?
Anonymous, my debit card has the Visa logo on it. That means I'm entitled to the same "protections" you speak of.
" me, it means we choose not to spend our valuable free time constantly checking our rewards balances, making sure we made our required monthly purchase so a card's APR doesn't skyrocket, frequently calling the CC companies to try for a reduced APR or switching to cards with a lower rate."
I don't believe people who pay their balances in full every month do the things you mention. It is silly to constantly check reward balances. Every bill lists one's balance, and unless you spend a lot, and most of us who pay in full don't, the amount doesn't change that much month-to-month. If you pay your balances in full, you don't care much about your interest rate either since you never intend to pay it. So what is the point of constantly looking for a better rate if you don't pay it? The only exception are "credit card daredevils" who specifically use 0% cards for arbitrage purposes: i.e. taking a loan at 0%, putting it on an interest-bearing savings account and paying it back before 0% expires to pocket the interest. By the way these people who take advantage of 0% offers are counted as part of 58% of people who carry balances not 42% of people who pay in full.
I've never cared what my interest rate is as I've never paid it and don't intend to, so there is no reason to make a "required monthly purchase". This is actually something I've never heard of. Is it even true? I've also used the same card for many years. I am to busy at work to do the things you list.
At any rate, you are absolutely correct in making a choice that is right for you. You are wrong about the fraud protection though. While you are absolutely right in making a choice that is right for you, you should be aware that debit cards don't carry the same fraud protection as credit cards regardless of the logo. Please investigate it, especially if you travel as this is where you are most vulnerable, IMHO. Also, if you complain to a credit card about a fraudalent charge, the disputed amount is in "limbo" during the investigation; whereas with debit cards, it is taken from your checking and not returned until the investigation is complete. Given large enough amount and bad timing and it may present a problem.
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