Some money experts want you to believe credit cards are evil, but that's not always the case. Here's a balanced look at the pros and cons of credit cards.

Are Credit Cards Always Evil? Let’s Discuss the Pros and Cons of Using Credit Cards.

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Hey Thriftaholics! Welcome back.

So, today I wanted to tackle an issue that’s a bit controversial in the personal finance world – credit cards.

If you’re not a huge money nerd like me, you may not be aware of this heated discussion. But, trust me, there is a whole segment of the population that thinks credit cards are inherently evil. Like, you should never ever never ever ever use them. Like ever.

Obviously, we’re not those people.

When to Avoid Credit Cards

With that said, I can definitely see their point. There’s certainly a case to be made that credit cards are bad for your financial health.

Abusing credit cards can do real, long-lasting damage to your finances. There’s no denying that fact. In the worst situations, it could take years (even decades) to get back on track. So, if you’re somebody who falls into one of the following categories, you should probably avoid using credit cards all-together:

You’re addicted to spending. – If you’ve struggled with credit card debt in the past, it’s usually best to avoid them like the plague. Just like any other addiction, you don’t want to unnecessarily tempt yourself into falling off the wagon. Spending sprees can be triggered by the easy credit afforded by credit cards. If you’re not careful, using credit cards irresponsibly can get you into some serious financial trouble in a big hurry.

You tend to overspend. – Overspending with credit cards can be a huge problem. If you regularly find yourself purchasing more than you would have otherwise purchased with cash, it is probably time to step away from the cards.

You’re struggling to get by. – Are you living paycheck to paycheck? If so, you should seriously think about cutting up your cards and avoiding them all together. Using credit cards could be contributing to an overspending problem. Worse, you may be tempted to borrow money for purchases you can’t really afford. I used to play the balance shuffle game, using one card to pay off another. It’s super dangerous, and I’m just thankful I didn’t dig myself in too deep. Instead of doing this yourself, try this instead.

Credit Card Benefits

On the flip side, credit cards provide some pretty great benefits that cash and debit cards don’t. There are plenty of reasons to consider using them, but here are some of the most important benefits:

Points, miles, and cash back – For us, this is obviously the biggest benefit. By earning sign up bonuses and rewards on our regular spending, credit card rewards have helped us travel the world for pennies on the dollar. And if you’re going to be spending anyway, why not earn points and rewards for it?

Fraud protection – Did you know that you’re only liable for up to $50 in fraudulent transactions on your credit card, provided you report the incident in a timely manner? It’s true. With a debit card, you could be on the hook for every last penny, depending on how long it takes you to report the fraud. In my mind, that’s definitely a +1 for credit cards.

Easy to track spending – Personally, I think spending with a credit card makes it easier to track your spending. Not only can you find everything you spent in your online account, it’s also organized neatly by category.

Improve your credit score – Look, I don’t like how people hold the credit score up as a sign of financial health, but I’m also a realist. Most people need access to credit at some point in their lives, especially when it comes to buying a house (or car…). So, it behooves you to build a good credit history before you need it.

Travel for Pennies on the Dollar! – Many travel rewards cards (and their signup bonuses) help you travel the world for pennies on the dollar. Compare our favorite rewards cards here!

Tips for Using Credit Cards Responsibly

While credit cards clearly aren’t right for everybody, ultimately, credit cards can are a great lifestyle design tool. They can help you protect you from fraudsters, plus you can earn free travel. Of course, this is all provided that you use them responsibly.

Our goal isn’t just to help you build good money habits. We also want to help you find ways to use your money more efficiently. Credit cards (and credit card rewards) can definitely help you do that, provided you follow a few basic rules.

  • Don’t carry a balance. – This is the most important thing you can do to make the most of your credit cards. If you intend to stay on solid financial footing, simply pay off your balance each and every month. Never ever ever carry a balance. You may want to pay it off multiple times a month, like we do, just to stay ahead.
  • Exercise discipline. – Treat your credit card spending the same as you would if you were spending with cash. Don’t buy more than you should, and be sure that you have the cash in the bank to back up each purchase.
  • Track your credit card balance. – Throughout the month, be sure to track both your balance and your spending. If you’re already using a budget, this should be a piece of cake. In fact, it should actually make your budgeting easier.
  • Know your limits. – When deciding whether to use credit cards, you need to know your personal limits. If you know that you have a spending problem, stay away. Don’t trust yourself with getting into debt? Use a debit card instead. Know who you are and what is best for your situation; then, act accordingly.

Earn Rewards, Avoid Debt – Looking to take advantage of credit card rewards but want to avoid debt? Debitize can help. This simple app essentially turns your credit card into a debit card, helping you avoid spending money you don’t have. Sound cool? Learn more about Debitize here.

Final Thoughts

Some money experts want you to believe credit cards are evil, but that's not always the case. Here's a balanced look at the pros and cons of credit cards.In the end, whether or not you believe in using credit cards is a personal choice. It’s on you to decide what is best for your situation. Just know that credit cards aren’t as much of a black and white issue as many would have you believe.

If you’re addicted to spending, or don’t have the discipline to use them correctly, credit cards can be a dangerous game. In that instance, I’d encourage you to stay away from them completely. It’s better to lose some side benefits than lose your financial health.

However, if you can handle your cards responsibly, follow a budget, and are willing to track your spending, credit cards (and their rewards) could pay off in spades. Using our cards in responsibly has helped us explore the world in ways we never could have done without their help. If that’s something you want, get your financial house in order first. Then, start deciding how the cards may be able to help you.

The choice is yours.

What do you think? Are credit cards always evil? Let me know in the comments below!

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13 Comments

  1. I agree that credit cards are not evil by themselves. People have free will and use them in whatever manner thy choose. Some people should not use them when they lack the discipline and/or resources to pay them off in full every month. But with the cash back feature, on our cards, we get up to 3$ depending on the category of spending. We would not get that with a cash or debit card purchase. Plus, if stolen, the thief can only spend up to the limits of the card rather tan clean out our checking account as would be possible with a debit card.

    1. For some people, using credit cards is a terrible idea. For others, the benefits may outweigh the cons. As you mentioned, you do have more protection with a credit card than a debit card as well. Even if a fraudster maxes out the card, you’re only liable for $50. Not the case with a debit card.

  2. Hey Greg. Very interesting piece, and I like that you lay out both sides.

    One thing that is often missed in the PF community is research indicating that we, the responsible, always-pay-our-bills-in-full, users, are actually the ones who are most likely to spend more due to the rewards offered with a credit card:

    http://www.donebyforty.com/2013/10/do-credit-cards-actually-increase.html

    This unique issue is very rarely discussed on personal finance blogs, which is a shame because we’re precisely the people most susceptible to the effect.

    Now, rewards may indeed still outweigh the extra spending. But that’s probably only the case in large sign-up bonuses. Those fooling around with 1 or 2% cash back likely come out behind.

    1. I totally agree that people tend to spend more with a credit card, especially with rewards cards. It’s been proven. Again, I think it all comes back to your spending mindset. If you treat the cards like cash, you’ll usually be fine. If you think “Well, at least I’m getting rewards for it,” you’re playing a losing game. You’ve got to stick to your monthly budget or it doesn’t work. It’s tricky, and not everybody can do it.

      I also agree about the cash back cards. I only use my cash back cards when I’m getting a special bonus and I was going to buy something anyway – ie: 5% cash back on groceries or gas.

  3. I use credit cards, but don’t suggest them to people who are in a ton of debt or don’t know how to spend their money wisely!

  4. For many people, I always recommend to get on a budget, track their spending, and get things organized for the first three months or so. After that, then they can look into credit cards and reward programs.

    It’s funny though, growing up, I was always told credit cards were evil and shouldn’t be used that much. I reluctantly got my first credit card after realizing I didn’t have much of a credit history. It was a no-frills cash back card. I put a few small bills on it, set it up to auto pay in full every month and forgot about it. A few months later, I got a notice that I had $25 in cash back. $25 bucks! It was small but getting that $25 was what sparked my interest in rewards.

    I was recently able to use miles to get a flight from Texas to Australia for $28!

    1. Yep, I’m with you. IMO, until you’ve learned how to handle the money you have, credit cards are very risky. Oh, and nice work on the flight!!! That’s awesome.

  5. Very nicely done. I too like how you laid out the points on both sides. Done By Forty did make a good point. It is very easy to over-spend even if you do pay it off each month by telling yourself you are getting cash back. Colin is also right. Back when I was in my twenties I learned about the importance of having a good credit history vs. having no history at all. DH and I just refinanced our mortgage and are thankful that we had good credit scores. Whole process was done in a couple of weeks. Of course we refinanced with bank that held our original mortgage so I am sure that made a big difference too.

    1. There are a lot of things I don’t like about the whole “credit score” issue, but there’s no denying that you really need good credit in so many different situations. Using credit cards wisely can definitely help you improve that.

  6. Great article! Personally I love my credit cards. I use them for the rewards and it is like free money!

    1. Agreed. We use them all the time, as long as people are being careful. Unfortunately, I know plenty of people who spend extra money chasing rewards. Spending extra to earn rewards doesn’t help one bit 🙂

  7. John Hughes says:

    Good article. Credit card companies are evil though. Consider this:

    Why is the onus on consumers to maintain a credit score? Why is there no legal requirement for credit cards companies to manage the debts and card use of their customers – i.e. not let them run up high balances without evidence of ability to repay? Other sources of credit have that requirement. The answer is because customers who get into problem debt by using their card are highly profitable. So, by definition, credit card companies REQUIRE people to get into problem debt in order to make bigger profits. They also actively target the young – many of whom are prime candidates for overspending and who often are not educated in the consequences of debt.

    The people who you’ve said shouldn’t have credit cards are exactly the people who use them – those who are tight on budget, or who are not good at managing their money. Furthermore those people get sucked in by offers and then hit with high interest. Credit card companies know fine well what they’re doing and have been allowed to get away with it for years. Personally, I think they should be banned in their current form. Credit card debt is not credit for a house or a car and it attracts high interest so anybody who needs credit and cannot get it elsewhere, for whatever reason, should not have a credit card. Credit card companies are parasites. I would be extremely interested to see figures on what percentage of credit card active users are ‘responsible’ in the way you describe – paying off their balances on time, not over spending, etc.

    Regarding fraud protection – why isn’t this available on your debit card? I mean, seriously – why? Because bank shave credit card divisions that make high profits if people attract interest on high value purchases. Why can you get cash off a credit card? You’ve guessed it – because the interest rate is higher, and typically that money gets paid off AFTER lower interest purchase transactions.

    Regarding rewards – why? Because credit card companies know that a percentage of balances won’t be paid off in time, attracting high interest – MORE than paying for the rewards that the very disciplined people earn.

    Sorry – long post, but credit card companies are a blight on society.

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