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Evil Credit Cards

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.

Joe

  • Baker October 8, 2009, 8:33 am

    I thought this was an insightful piece.

    In regard to your comments on my decision, I don’t think that the inability to avoid debit cards altogether is in itself reason to use credit cards. In other words, the inability to avoid a lesser evil isn’t reason to support a greater one (in any topic).

    Credit and Debit profit (roughly) close to the same in the fees category. Neither are perfect. Where they differ (and why credit cards offer better rewards) is that the credit card have a HUGE profit cent in charging interest.

    The majority of this interest is generated by a select few that are in a cyclical and destructive habit. It’s their fault, but the companies go out of their way to support it.

    The offering of rewards from profits made in this way is why I choose not to participate. I don’t want to be part of the problem in any way shape or form. 2% is not enough for me to compromise.

    In a perfect world we would have more options (and they are growing) in terms of online bill paying, bank transfers, etc… We try to spend cash where we can, but have a couple thing that force us to keep debit for now. 🙂

    Lastly, it’s only “free” money to you. Nothing’s “free.” For me, the source of free matters.

    Good stuff!

  • JOE October 8, 2009, 9:26 am

    I understand and respect your view. You feel it’s a corrupt system, and choose to opt out of it. I feel it’s a corrupt system, and extract from it what I can. Admittedly, mine is the morally questionable position, I see that as well. I view it as pocketing some of the fee the merchant is charged and passes on to me anyway in the form of higher cost regardless of whether I pay cash or debit/credit. Absent those fees, I doubt the 2% rewards would exist.
    Baker, you are a Good person, with a capital G. The world would be a better place if more people thought as deeply as you do.

  • Credit Card Chaser October 9, 2009, 9:43 pm

    I would take issue with Baker’s underlying assumption that it is almost always the credit card company’s fault when people misuse credit cards (although there are certainly things that need to change in the credit card industry: making card holder agreements easier to understand, greater transparency, etc.) but in the majority of situations it is plain and simple up to the card holder to take responsibility for their actions.

    It seems a little bit ridiculous to take this kind of position – almost like one saying that they have decided not to get a mortgage and they are now against all banks because there are some people that misuse their mortgages, home equity lines of credit, etc. I take that back the more and more I think about this – It actually is a LOT ridiculous 🙂

    I agree with you in that for me to NOT use my cash back credit card would be simply a waste of money on my part – something that I am not interested in doing.

  • Four Pillars October 9, 2009, 9:56 pm

    Excellent stuff – this is one of the best posts I’ve read on the “how evil are they” topic of credit cards.

  • Broke MBA October 9, 2009, 10:29 pm

    Joe,

    Good stuff. I also make use of a credit card, although not to the extent that you do. I pay the bill in full each month when it’s used, which isn’t very often. The convenience factor is why I continue to keep mine.

    I really liked your analogy about the merits of the coffee and cancer study and it does make me wonder…. Some people lack self control at best, or have more serious issues at worst. This is true regardless of their vice.

    It is painful to see lives ruined due to lack of self control, regardless if it is due to debt and credit cards or drugs and alcohol. But I’m not sure I can buy into the fact that credit cards are evil. Because like alcohol, when used responsibly, they really can provide something worthwhile to the consumer. In your case, it’s rewards. In my case, it’s convenience.

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