Today USA Today ran a familiar story about various people who are choosing not to use credit cards. I’ve seen similar stories in The Los Angeles Times, Money Magazine, and various blogs. The quotes are similar – we didn’t want to be slaves to debt, we spend more with credit cards, bank are evil. Personally, I don’t understand this fear of credit cards, but what I found even more interesting were the comments on the article. Whoo boy – the lines are really staunchly drawn there. Today I look at the “credit cards are evil” argument.
The “Credit Cards Are Evil” Camp
The “Credit Cards are Evil” camp believes that no one can use a credit card responsibly, that everyone will overspend if they have a card, and that a credit card is a sure way to financial ruin because those larcenous banks charge interest. One commenter repeatedly insisted that even if you pay your balance in full every month, you’re still being ripped off because of merchant fees.
So let’s look at these claims:
No one can use a card responsibly.
Well, some people can. Some people aren’t really tempted to buy stuff or make impulse purchases no matter how many credit cards they have in their wallet. Some people can make a budget and stick to it, and include full credit card payments in those budgets.
Everyone spends more with credit.
It’s true, there are some studies that show that people will spend more if they use plastic rather than credit. But it’s not all people, it’s some people. If I need to buy a pair of shoes, it will cost the same whether I use cash or credit. But I’m not a person who likes shopping or is tempted to buy something just to buy something. If I were, I’d be just as likely to spend the cash in my wallet as I would be to use the credit card.
Larcenous banks charge interest.
I can understand the frustration with credit card interest, but at the same time, we all know that we’ll have to pay interest if we don’t pay off the balance in full. I don’t understand people who say “I didn’t realize how long it would take me to pay it off.” It’s simple math. The bank isn’t tricking you into making a minimum payment – the full amount due is right there at the top of the bill – you make a choice not to make the full payment with the full knowledge that you will be charged interest. Yes – the banks are guilty of excessive fees and sometimes usurious interest rates, but we can’t blame them entirely when we knowingly enter into a contract with them and then don’t make the full payment. Being angry with the credit card companies for charging you interest when you don’t pay in full is like being angry with Krispy Kreme because you gained weight from living on an all-doughnut diet.
Merchant fees are ripping us off.
Merchants pay 2-3% of the transaction to the banks. In order to cover this 2-3%, they have to raise prices. But the increase is already there. Prices wouldn’t come down if everyone on the planet stopped using credit because the merchants know we’re willing to pay 2-3% more for the item. You also don’t get a 2-3% discount for using cash while everyone else uses credit.
Of course, credit cards are evil to some people, for precisely the reasons above. It comes down to temperament – some people love to shop or hate to budget. If you’re either one of those, then credit cards may be dangerous for you, because they do require careful management. It’s very easy to slip down that slope when you have the option of paying it later.
Tomorrow I’ll look at the arguments on the other side of the fence: the “credit cards are tools” camp. Full disclosure: I live on that side of the fence. Find out why tomorrow.