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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.
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.
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!