We are in the midst of a backlash, people going from using their credit card recklessly to rejecting card use completely. Often, Dave Ramsey and his quote “there is no responsible use of credit cards” is cited as a source of inspiration to this cause. This week, in an insightful explanation of why he rejects credit cards, Man vs Debt’s Baker posted an article “I’ll Show You Where You Can Stick Your Rewards.” In a comparison to his choice to be a vegetarian, Baker explains that he chooses not to play the game, that he finds avoidance of credit cards the reward in itself.
For the most part, I understand that the credit card industry has not been good to the consumer. They had no issue selling their customers the rope they’d use to hang themselves. But how realistic is it to claim a disassociation from the system? Baker admits to needing to use his debit card. That card carries the same logo as a credit card by the same issuer. How can it really be an effective stand against a company to avoid one product, yet use another? Another finance blogger “is starting to see clearly how credit card ‘rewards’ are duping many people to set their morals aside for a few measly dollars.” I’m curious to see his upcoming full post expanding on this concept.
Back to the analogies for a moment. I understand there are multiple reasons to be vegetarian. Ranging from improved health, poor treatment of animals, to global warming issues and sustainability, I see some serious reasons to make this choice. I also understand that alcohol has ruined countless lives both directly and indirectly. I could choose to boycott alcohol or simply make the decision that I’ll drink responsibly.
For me, the tradeoff isn’t worth it. I’ve not paid a cent in credit card interest in over 15 years. The only interest I have is on my mortgage and home equity line. (With the HELOC at 2.5% I decided to draw some to pay the 5.25% mortgage, and will pay the HELOC over the next 6 months or so.) We currently use 3 cards. One offers 5% back at office supply stores and gas, the second, airline miles, and the third, 2% into a 529 account for my 11 year old. For what it’s worth, the 2% cash back card has already deposited nearly $8000 into that 529 account. Yes, if you do the math, it says that we run a lot of money through the cards. My wife and I both have reimbursed business expenses we charge to the reward cards. To my way of thinking, by using a debit card instead aren’t I only leaving money on the table, fattening the profits of the companies we are complaining about? If merchants want to take a stand and refuse to take credit cards, that’s fine by me, I’ll carry more cash with me. But, given the choice between having to walk into a gas station to wait on line to pay cash or to just run my card through and know I’ll see a $2 credit on my bill, I’ll stick with the card.
There’s evidence that people using credit cards spend more. I am always skeptical of how such conclusions are reached. Years ago there was a study that drew a correlation between coffee and cancer. I told my wife that I would bet that the study would quickly be proven wrong, that there was a false correlation. I was proven correct when it was discovered that coffee drinkers had a higher rate of smoking than not coffee drinkers, and of course that was the cancer link. I don’t know how the card-spending study was done, but I do know this – we save approximately 20% of our gross income. More, if you count additional payments to the mortgage which is on track to be paid a year before college starts. And more still if you count the annual deposits we make to a savings account to be used for college. When I read Flexo’s Is It Possible to Save Too Much Money, I’m thinking the answer is ‘yes’ and if I’m not there, I’m damn close.
One question before I close – if instead of a 529 account, I said the card was an affinity card that sent the cash directly to a worthy charity, does that change anything? What if I have a college budget, and the cash card frees up $800/yr to add to my charity budget? Truth is, we don’t have that. Over the years we’ve simply learned to have the retirement savings pulled right out of our paychecks, and to spend at a level so there’s always money to pay the bills. For me, it’s about balance and not walking away from free money.