Thursday, October 22, 2015

Money Crashers: Advantages & Disadvantages of Credit Cards

My latest post on Money Crashers was more or less inspired by an argument I got into last summer—rather foolishly, I suppose—with one of the Credit Haters.

If you regularly visit any sort of blog or forum dealing with personal finance, you're probably familiar with these folks. They're the ones who, every time the word "credit" comes up in any article, post a hundred or so comments to the effect that using credit in any form is bad, bad, bad, bad, bad. Dave Ramsay very prominently—and vehemently—subscribes to this view, and so do his legions of loyal disciples.

Anyway, another financial guru of the Dave Ramsay school is Dr. (he's very particular about the "Dr.") Jason Cabler, who has a blog on the Dollar Stretcher website. Last August, he put up a post about the "21 Things You Can Do Today to Set Up Your Finances for Massive Success." Item #1 on that list was "Go Naked With Credit," meaning get rid of all your credit cards right now, this instant, because "You spend more overall when you use them, and carrying a balance (like the majority of card holders do) incurs interest and fees that increase your cost of living."

Now, I happen to disagree with this, because first of all, I never ever EVER carry a balance, and second, I am seriously skeptical about the claims that simply paying with plastic causes me to spend more. In my experience, I don't usually decide how I'm going to pay for my purchases until after I get to the checkout, so I don't see how using the card could be influencing the amount I spend before I've even decided to do it. (It's all very well to point to studies that show "most people" spend more when they use credit cards, but what really matters to me is whether I do, personally.)

But I probably wouldn't have bothered to argue the point with him if it hadn't been for item #15 on the same list: "Own a Home." I pointed out in a comment that there was a bit of a contradiction between those two pieces of advice, because unless you can manage to save up (or otherwise come by) several hundred thousand dollars in a lump sum, you aren't going to be able to get a house without a mortgage, and you aren't going to be able to get a mortgage without a credit rating, and you aren't going to be able to get a credit rating by refusing to use credit for anything ever. And while I was at it, I also ventured to remark that I didn't quite get why, if he thinks you automatically pay more with plastic, he considered debit cards acceptable.

The good "doctor" responded, "Actually, I don't have a huge problem with taking out a SENSIBLE mortgage," and went on to argue that (a) it's perfectly possible to do this without a credit rating, and (b) people do so spend more with credit cards than they do with debit cards. My rebuttal to that comment was so long that I had to break it up into three separate comments to get around the character limit the forum imposes, and somewhere in the middle of the third comment I started thinking, "Maybe I really need to do a whole post on this."

So here that post is: a comprehensive examination of all the arguments people make both for and against credit card use. I've done my best to include the other side's rebuttals to those arguments when possible, and also the rebuttals to those rebuttals, if they exist. I doubt Dr. Cabler will ever read it, but at least I've said my piece.

Here's the full article: Advantages & Disadvantages of Credit Cards – Do They Help or Hurt You?
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