Credit Cards: Friend or Foe?

Right off the bat, allow me to answer the titular question; credit cards are not your friend! 

We hear about the growing epidemic of credit card debt all the time. I recently read a statistic that said around 75% of American adults have at least one credit card. That means that 75% of American adults are in the habit of buying what they cannot afford outright. 

Yes, many people claim that they only use their credit cards for the essentials they already plan to buy in order to accumulate airline miles, points or cash back "rewards" and that they pay off the balance every month. That sounds sensible at first, but let's explore it further. 

Many credit cards have done away with annual fees...aaaand many haven't. The fees often negate any "rewards." 

Here's a public service announcement: Cash back rewards are designed to make you spend more and to increase their bottom line. 

How many times have you been shopping with every intention of only buying what you need, but then give in to the temptation to buy something else, justifying it with "it's ok, I earn points/cash back?" 

Let's say that your planned purchase was $80 and your whimsical purchase was $20, totaling $100. Now let's say that you earn 3% (on the high end) cash back on all purchases. You just spent $20 to get $3 back. I have seen and heard many iterations of this financial and mathematical faux pas. 

Credit card companies know this will happen. They pay people a lot of money to come up with ways to make you think you need more, in turn making them a lot of money. I don't generally like to support companies/products that prey on the vulnerability of the human condition. 

And as Dave Ramsey likes to frequently remind us, paying with plastic in general causes us to spend more because it doesn't register as pain in the brain, unlike paying with cash. 

Credit cards are especially detrimental to impulsive spenders because the cash back "rewards" and "just this once" justifications are anything but, so the potential to accumulate insurmountable debt is even greater. Even if you can afford the minimum payment, you will still pay far more in the long run as the interest rates are sky high. And if you have an emergency or an unexpected, costly life event on top of all of that...I rest my case. 

Debt kills your wealth. Credit cards cause debt. As the holiday season approaches, just say no! You don't need to go into debt to buy stuff for people. 

I know this because before I got my act together financially, I lived it! You can survive without a credit card, I promise! I am living proof that it can be done! And if you need help getting rid of them, I have a pair of sharp and shimmery scissors ready for the job!