Are Credit Cards Bad?

If you've ever read anything about credit cards, you're well aware that there can be a stigma around them. You've probably even felt inspired watching Dave Ramsey cut a few cards to pieces. But what's all the beef really about, anyway? Sure, credit card debt is bad, but is it still unethical to use them if you pay them off every month?

The main arguments against responsible credit card usage (by which I mean paying your balance off in full every month and never ever paying a dime of interest in credit card debt) are as follows:

1. The risk of getting into credit card debt, even if you swear you won't, is too great and not worth walking the line on. 
2. Credit cards cause you to spend more money than you would otherwise. By offering cash back / rewards, credit cards make you feel like you're getting a good deal & make spending more seem exciting, when in reality you're losing money on the whole. 
3. Credit cards feed into materialism / consumerism (buy more, get more) and encourage financial irresponsibility (buy now and pay later, use for emergencies). 
4. Credit card companies make their money by getting people swamped over their heads into credit card debt. So, even if you don't have any debt, those credit card perks you enjoy are actually a result of others' debt. Thus, indirectly, you're encouraging credit card debt and making financial freedom more difficult for others to achieve. 
5. Credit card companies systematically take advantage of the uneducated and underprivileged, who may not be aware of the dangers of credit card usage or have the financial stability to warrant owning a credit card in the first place. Thus, by using credit cards, you're enabling companies to continue this abuse.

Ready to cut your cards up? Not so fast. 

Let's look a little closer at these arguments and see if all this negativity is really warranted.

Practically, only you can truly know whether you’ll lose money and/or get into debt using credit cards. If you’re not sure where you land, the best way to test yourself is to think about how you respond to coupons. When that 10% or 20% off coupon to your favorite place magically floats into your inbox, do you use it without thinking twice? Or do you check your budget (not your bank account), see if you have room in your allocated spending money, and go from there?

If you’re in the first group, Dave Ramsey is probably right. The lure of credit card rewards (which are basically like one, big, never-ending coupon) are in all likelihood causing you to spend - and lose - way more money than you would if you just cut up that card.

At the end of the day though, regardless of whether you’re naturally a spender or saver, if you can make a budget and stick to it (hint: you can!), limiting your discretionary spending to predetermined levels, there is no inherent risk in using a credit card. For example, my wife and I each give ourselves $100 bucks a month to spend on whatever we want. So, if coupons and credit card rewards let me get $150 worth of stuff for that $100, awesome. I like that. But no matter what, I’m only going to spend $100 bucks.  

The moral / ethical case against credit cards is a more interesting one. Personally, I think a lot of the animosity towards credit card companies is totally misguided.

Take the materialism / consumerism debate, for example. Do credit cards encourage you to spend more money? Of course they do. It’s called marketing, and every company in the world does it. Consumerism touches every sector of society - and I don't hear Ramsey calling everyone to smash their TV's, burn their books, turn off their radios, or boycott financial conferences! After all, Dave Ramsey makes his money from selling products to people stuck in debt! … Interesting to think about, isn’t it? … I’m not about to go picketing outside of Ramsey Solutions; all I’m saying is let's not make the credit card companies out to be the bad guys or shift all the blame on them.

Simply put, businesses make money when people buy & use their product, and if no one does, the business goes bankrupt and people lose jobs. So yes, every business wants you to spend more money, but it’s not like the whole world is this big pit of evil money-suckers. I mean, if you poured your heart and soul into a product that you knew was awesome, you knew would improve people’s lives, and you knew was better than the competitors’ offerings, wouldn’t you want people to know about it? Wouldn’t you want to fairly represent your product’s awesomeness to people and capture its story in a compelling way? Of course you would, and it’d be an injustice not to! If you have a solution to a problem I’m having, or a product that’s going to benefit me, I want to know about it. Whether I spend my money to buy your product is my decision; I’m not a victim to your pretty pictures or eloquent product descriptions. In the same way, no credit card is making me spend a dime more than I decide to.

That said, how DO credit card companies make their money? Are they really ruining peoples’ lives with debt, and feasting on the underprivileged?

First off, let’s be clear - no credit card company wants to give someone a card that can’t afford it. When people can’t pay, people go bankrupt. And when people go bankrupt, the company doesn’t get paid. So, no, credit card companies don’t make all their money feasting on poor people. After all, poor people are poor...not too much money to be made there, ya know? On the other hand, financial companies do give hundreds of millions of dollars every year towards empowering and educating impoverished communities, so that’s a thing.

Still, for whatever reason, most credit card users (who generally are middle or upper class with very stable incomes) do decide to use a little debt. Not a ton - not ruining their lives - just a little here and there. Stuff like getting a new mattress now instead of waiting until next year, or skimping on the emergency fund and needing to use the card for the car repairs. Why people do this, I have no clue. But hey, there’s a lot I don’t understand about people. And if people prefer to pay more than market value for things in order to have them sooner rather than later, then you can bet that people are going to find a way to make that happen. Credit card companies are simply meeting the demands of our society - by the people, for the people, if you will. They are not creating the demand any more than the next guy. The real issue is that we have such a materialistic craving in the first place, which if you truly want to eliminate, you’d do far better cutting out tv, netflix, and social media than cutting up your credit card.

Plus, credit card companies are plenty profitable with or without card holders taking on debt. Any time you make any purchase with a credit card, the business has to give a percentage of whatever you paid to that card company (that’s a lot of money). There are also various fees associated with cards, like paying late, or an annual fee for the privilege to use the card. Credit cards also sell your information to other card companies that want you to apply for theirs.

So do I feel bad about using credit cards? No way. Credit card companies help connect the world, increase global commerce, generate billions of dollars in revenue, employ millions of people, contribute over a billion every year into societal development, help banks & lenders make good decisions, and they give me free money every day. And not just money - tax-free money! In the eyes of the U.S. government, credit card rewards are considered discounts, not income, and when you make well over a thousand dollars every year with credit cards like I do, that’s pretty sweet.​

See What Credit Cards I Use