Why Are Credit Cards Bad?

For years of my life I swallowed that large Dave Ramsey pill. I’m not going to lie, I learned how to budget, build up an emergency fund, started saving for retirement, and we began slowly working our way out of debt.

Are credit cards bad header

His practical, common sense advice worked wonders for my broke and desperate lifestyle, and those results led me to believe that anything that came out of his mouth was golden. Despite having great tips on getting out of debt and giving people principles and the foundation that will lead to wealth, I eventually realized that not everything he said is true.

One of the biggest axes he tries to grind is the notion that credit cards are bad. He blasts credit card companies on the air, begs people to cancel and cut up their credit cards despite the fact that canceling a card can hurt your credit, and encourages people to never use them again in their life.

With such a strong opinions on the matter from Dave and other debt-free advocates, many people wonder, are credit cards really that bad?

Credit Cards Aren’t Bad, People Are

Saying that credit cards or credit card companies are bad is like saying that guns, the mortgage industry, and fast food restaurants are bad.

In the reality of all of these examples, those things aren’t bad…it’s the people that use them and the events that spur from them that make them evil. I own a gun, a few of them in fact, and that thing can sit in it’s case all year long and never hurt a soul. It doesn’t even have the ability to look at you wrong and hurt your feelings!

The mortgage industry got a terrible name in light of the 2008 housing debacle, but was it really all their fault? Not in my opinion! Sure, they can share some of the blame for being greedy, but ultimately it’s up to the consumer to make a decision that’s right for them and figure out how much house they can realistically afford.

Fast food restaurants are the bane of many peoples’ existence and are a major contributor to diabetes, people that are overweight, and the rising death totals for their ever-loving customers. But is it really the fast food industries fault for creating a product and a business model that thrives? Is it their fault that people live busy lives, don’t take the time to cook meals on their own, and don’t educate themselves on how to eat properly? I think not.

Just as with these other examples, credit cards aren’t bad either. It’s the ignorant people that use them: the families that don’t know how to live below their means, the ones that rely on debt as a means to get by each month, and the people that don’t pay off the monthly card balance that create the stigma that credit cards are somehow bad. I’m not trying to bash anybody here as I was one that abused credit cards for many years, got behind on my payments, and had to deal with collectors and repercussions that come when you borrow more than you can afford.

Credit Cards are a Great Tool

Here at the WSL household we sport a cash-based system for most of our monthly living expenses such as groceries, hygiene products, eating out, and a few other categories. However, we own 4 credit cards.

Granted, we don’t use them as often as some people do, but we aren’t crazy enough to think that credit cards are bad and therefore spurn all of the great rewards that credit cards offer. I currently have one card that gives me 5% back on particular categories each quarter, and you can be certain I’ll be using that card if I’ll be spending money within any of those categories. For instance, this quarter the 5% rewards were for gas and restaurant purchases; well, I will be spending somewhere around $1,000 on dinner seminars later this month and I’d be crazy to pass up the $50 free dollars they’re going to give me.

Another credit card I recently applied for offered $400 in cash back if you’re able to spend $3,000 over a 3-month period. Thank you Chase, I appreciate your generosity. The money was spent within the first few weeks on some large purchases that I had to make and now we’ll be buying a new washer thanks to those kind folks.

Furthermore, I’ve had many people sign up for balance transfer cards as a way to pay down their debt more quickly. How can transferring your balance on a credit card be bad when they’re offering 0% for 15 or 18 months while your current rate sits at 12% or 20%? Even with the 3% balance transfer fee, you’re coming out 9% ahead!

They’re Not for Everyone

Despite saying all of this, I also know that a lot of people out there shouldn’t touch a credit card. If you’re struggling to pay your monthly bills, don’t have an emergency fund, or have a shopping addiction, then a credit card may mean bad news for you. People who pay with credit spend 16-18% more than those paying with cash. So, even if you have a credit card, pay off the balance each month, and think you’re working the system, there is still a chance the credit card companies are one-upping you.

Do you think credit cards are bad? Do you use them for every purchase you make or only when they’re offering great bonuses like the 5% cash back categories?

Picture by FreeDigitalPhotos.

About the Author

By , on Aug 30, 2012
Andy Tenton
Andy is a 30-something New Yorker who turned his financial life around. He took charge of his finances, got out of debt, and is now working his way toward financial success. He is the publisher of WorkSaveLive.com.

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{41 Comments}

  1. Credit cards, when used wisely are on the most beneficial tools in a family’s arsenal. Where else can you get a free 30-day loan, an open line of credit, establish your credit history and earn money back all in the same financial product.

    There are definitely risks, but they are excellent financial products for the disciplined.

  2. I don’t think credit cards are bad at all. I think having them without knowing how to use them properly is very dangerous and gets you into debt easily. But that’s your personal decision. Sure, the credit cards run promotions to encourage you to spend and carry a revolving balance. But you never have to so if you can be responsible with a card, take full advantage. But just remember not to justify overspending because of the rewards you get (and then pay interest and fees for). I know I was guilty of that!

  3. Andy Hough says:

    There was a time in my life that I had to get rid of all my credit cards because I couldn’t handle them. Now, I can use them responsibly and like to think that the rewards I earn are very slow payback of all the interest I paid in the past.

  4. We use credit cards to pay as many bills as we can to get rewards. I almost never have to buy clothes because of the reward points. I also have a card that give you 3% off gas, not a ton, but every bit helps. We haven’t always been responsible, but we’ll never purchase anything we don’t have money to pay for.

    • Andy says:

      3% off of gas is a great deal. We spend $400/month on gas so that 3% back would equate to $144 in annual savings. That’s not too shabby!

  5. My wife and I do all our purchasing on a credit card. I really don’t think it’s possible that we are spending more by using the card, because we have such a tight budget. We pay off the card every month, and I can input the line items from my bill into my budgeting spreadsheet and see how we are matching up. Plus the rewards…it’s just an all-around win for us. I agree, though, people with shopping addictions would be a subset of people who probably should keep it cash.

  6. I don’t think credit cards are bad when used correctly. If you are not educated on the proper use of them, it’s easy to spend up to your credit limit and just pay a little each month. Once you understand the things improper use does to your finances, you can use credit cards to your advantage.

    • Andy says:

      Along the lines of replied to Wayne’s comment: the problem is that MOST people are not educated on how to use them properly. I was really trying to write the post to those people to show that there are good that can come out of credit cards…as long as they’re used wisely.

  7. CF says:

    I still use my credit cards for purchases like mystery shops, prescriptions, clothing and haircuts – basically things that i’ve already saved money for or will get reimbursed for. No reason not to get points!

    I did get into a lot of credit card trouble when I was younger, but its been smooth sailing for the last little while!

    • Andy says:

      I haven’t used a credit card substantially in over 6 years. I’m not sure why it took me so long to allow myself to use one again, but you’re right…I can no longer avoid the points and free money they give you.

  8. I’ve had several cards over the years all have helped me in various ways. I never thought of them of being bad or evil but I agree, some people are just not great with credit cards.

    • Andy says:

      For a long time I really thought credit cards were bad, but thanks to the PF community I was able to get over my ignorance and succumb to the reality of fact/numbers.

  9. Michelle says:

    I do know that credit cards aren’t all evil, but since we are trying to get out of debt and aren’t yet able to pay them off in full at the end of each month, the perks that some places offer wouldn’t be a good idea for us! I am not against reintroducing them into the routine when we are in a financially sound place and can keep up with paying them off in full once again.

    • Andy says:

      Michelle, I completely agree that you shouldn’t be using the cards if you’re currently in credit card debt. As our only debts are student loans I think we’re in a little different scenario. Thanks for pointing this out because it’s a great lesson for the readers: don’t take advantage of the rewards/cash back if you have existing debt. If anything, transfer your card balance to a 0% APY card.

  10. I have never thought credit cards were bad—but I have also never been in debt either. (Well, except my tiny school loan but I don’t count that.)

    Between my husband and I, we have, over the past few years, acquired tons of cash back rewards from Discover. We have never paid Discover a dime in interest, yet we have managed to get probably around $1,000 back, for free. We usually do their program where you can get a gift card—you use $40 of your cash back to get a $50 card, or something similar. Now when we move into our new place, we will have over $500 in cash back rewards to put toward anything we want and in our case, we’ll be buying stuff from the home improvement stores.

    When are they bad? If you lack self-control. We have a budget and stick to it. Once in a while we go over but otherwise it’s easy to do. You are right—it’s all about the person.

    • Andy says:

      Thanks for the great example. I’m pretty anal about paying my credit card every few weeks to ensure that I don’t accumulate any interest. One of my cards (the one giving me $400 back) has an annual fee AFTER the first year and I already have a reminder marked in 3 different locations to cancel the card before that date comes. No chance they’re getting any money from me. :)

  11. I was right there with you, believe everything Dave Ramsey said. i still enjoy him as a motivational speaker, and he really helped us get on a budget, pay down debt and really turn our finanical life around. But I agree with you, things are amoral, people are not. It’s what they do with those things that is bad.

    I do occasionally make bad decisions with my credit card as the tool, but my card wasn’t looking at me like “hey, c’mon, everyon’es doing it. Just swipe me, it’s feel awesome!”

    • Andy says:

      LOL. Glad you don’t have a crazy little voice in your head.

      I agree that Dave is one of the best speakers/entertainers that I’ve ever seen. He’s truly gifted.

  12. Thoughtful post Andy–I mostly agree. A credit card, a Big Mac, the mortgage industry aren’t, in a vacuum, good or bad. They just are. That said though, in today’s extremely complicated world, I don’t believe consumers can reasonably be expected to research every last detail of every consumption opportunity. Instead, they must necessarily depend on the information presented to them (and I don’t mean in the fine print in a 4-page credit card agreement) by the company selling the product. When that info is incomplete, inaccurate, deceptive, or misleading, that IS bad. “Caveat emptor” shouldn’t mean I have to earn degrees in nutrition, finance, or automotive engineering or else it’s my fault if I get burned.

    • Andy says:

      I would agree with that but on the whole I think most Americans are lazy and don’t try to educate themselves in the least bit. There are certainly some that do and it’s proven that financial education has a direct correlation with behavior. Therefore, if you want to do wise things financially, then you need to learn. Nobody can do that for you and it’s REALLY hard to find people out there that truly have the heart of a teacher (whether it’s with credit cards, mortgages, investment products, annuities, big macs, etc.).

  13. Modest Money says:

    Ahhh nice to hear a Ramsey fan acknowledging that credit cards aren’t the spawn of Satan. I’m a firm believer that credit cards are an extremely beneficial tool and people just need to learn to use them responsibly. I think by blaming the credit cards, people are avoiding taking responsibility for their own mistakes. I use my credit card for as many of my purchases as a I can. That way I avoid my debit card limits, get cash back rewards and receive additional purchase protection. Plus I don’t have to waste time going to the ATM so much.

    • Andy says:

      I get 1% cash back on my PerkStreet debit card, so unless the CC I’m using offers a higher percentage than that, I still opt for the debit card. Saying that, most of our personal spending is done with cash. I don’t know if we’ll ever transition to using credit cards for all of our purchases.

  14. I agree that credit cards can be a great tool. I have made over $1,000 this year off of them and haven’t paid a penny of interest or fees. Just be careful and know yourself. If they don’t work for you don’t have them.

    • Andy says:

      Wow man…$1000 is a lot of free money to get back from those evil credit card companies. :) I think I’ll get back somewhere around $600-700 this year and if I add my PerkStreet rewards from earlier this year (back when they were giving 5% to newbies and 2% if you had a balance of above $5000) I’d be closer to $800/900.

  15. King says:

    I have the Chase Freedom as well. My company sent me out on two conventions this month and I ate at restaurants like crazy. (I’m getting reimbursed anyway). And the cash back goes straight to my pocket. Feels great. We use only one credit card as a family because we value simplicity.

    I love Dave Ramsey and I think his “no credit card” approach works great for so many people. It is a behavior issue, not a math issue after all. People who don’t even have a budget should have no business talking about “reward percentages” and “building credit.” It becomes a distraction and potentially an excuse to whine about their situation.

    • Andy says:

      Great points, King! I agree with you wholeheartedly!

      I will say if you think you might spend more than $3,000 over the next 3 months you should consider the Chase Shappire card and get that $400 bonus they’re offering. If you’re traveling that much here in the next few months you might be able to hit it fairly easily along with some personal spending.

  16. Best line: Credit cards aren’t bad, people are. I totally agree. I take advantage of credit card rewards every month, but I pay my balance off in full.

  17. We use credit cards for everything possible, but that’s only after I spent 3 years using only debit (my one credit card went virtually unswiped) until I knew I could trust myself to stop before my bank balance went to zero. We just continue to treat it like debit and pay off by the end of the month the purchases we made that month.

    I guess the only issue I have with them is the likely increase in prices generally due to their fees. But there’s not a reason to not use them in situations where the cash and credit price are the same.

    • Andy says:

      I also didn’t allow myself to use a credit card for years but now believe I have the discipline to use them wisely and there is no chance I’ll be going into debt…so they definitely can be used to my advantage.

      I rarely see discounts offered for spending cash but I’m sure I’d take advantage of that if more places offered it up.

  18. AverageJoe says:

    Well put, Andy. The credit card isn’t the problem, you are. The trick is to determine for yourself whether you can handle it or not. In some cases, you should be strong enough to know you need help because for some people, asking them to be stronger is like filling the alcoholic’s room with liquor.

    • Andy says:

      That’s a great analogy Joe! It’s like people with shopping problems SHOULD NEVER step inside of a store. There is no reason to tempt yourself.

  19. I love my credit cards! A free grand or two every year just for using a more convenient payment method. Plus the money is auto-deposited into an investment account so I don’t just burn through the savings. Although I am using the rewards to trade stocks as a hobby, so maybe I will burn through all those savings but at least there’s potential to make money. At the very least it’s funding a hobby for free.

    I think as long as people know whether they can handle the responsibility of credit card, like you mentioned above, then they are not a bad thing at all.

    • Andy says:

      I like the thought of depositing the money into an investment account! If we didn’t have debt or some things we’d like to purchase, I’d consider that. All in due time!

  20. We use them for convenience as well as an easy way to track our spending. We pay them off about once a week to keep track of spending in our various categories and it works great. We never pay interest and I am obsessed with credit card rewards~! Right now I am using Chase Freedom (5% back on restaurants and gas…..just in time for our vacation!) and my Chase Freedom Sapphire which had a $400 sign up bonus!

    • Andy says:

      Holly, those were absolutely the cards I was referring to as well! I’m stoked that I got them and I’m pretty excited to see the points rack up!

  21. I think credit cards can be great…IF you use them to your advantage. Carry a balance, and you are losing. Don’t have an emergency fund, then you better cut up the cards. However, if you use them right, you can get loads of free money and rewards.

  22. Daisy says:

    I love my credit card! I get rewards from it and never forget to pay it off in full so I don’t have to pay interest on it. Plus, it’s convenient.

  23. Andy says:

    Well this wasn’t supposed to go live today! :) haha. I scheduled it to publish after I wrote it up earlier this week, then changed my mind but forgot to cancel the scheduled date.

    Whoops!

    Hope you don’t mind two credit card posts back-to-back. :) Sorry!

  24. Michelle says:

    I agree. I think if you can use credit cards to your advantage, then how could they possibly be bad?

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