Editorial Policy

No, cards aren't evil; here's why

Erica Sandberg

February 20, 2015

QHi Erica,

A buddy of mine has sworn off credit cards. He says they are evil and sent me some links to blogs that say there's no way to use them without getting in deep financial trouble. One blog even said that paying it off in full every month is still a slippery slope. I'm starting to question whether it's such a good idea to have cards. I have two, and I pay them off each month. Thoughts? Aaron

ADear Aaron,

Your friend is more than entitled to his opinions about credit cards.  Are they rooted in facts, though? No. He seems to have an emotional response to the subject and is heavily influenced by the writings of fear mongers.
Ask Erica
Here are the three main contentions that you mention, along with the realities of each.

Credit cards are evil

People may behave in devilish ways and some company policies are terrible, but cards themselves? Nah. Financial institutions' raison d'être is neither noble nor nefarious — it's to turn a profit, like any business, with a desired and popular product. That's all.

As a cardholder, the issuer provides you with a line of credit, which is the amount you can borrow each month. I'm sure you know that those charges are loans, and you have two options with which to repay: in full or in installments. Select the first way and no interest is added to the amount you spent with the card. Select the second and fees will be assessed, then added to the balance that you roll over. The downside to this: Interest compounds, so you'll be paying interest on a sum already enlarged by fees.

This system can result in expensive debt, but only if you extend the balance. So far you, Aaron, are doing great.

Using cards advantageously is impossible

Of course, the best way to handle a card is to always pay your balance off at the end of the month. Do so and you'll enjoy free loans while also getting valuable consumer protection. For example, let's say you buy a vase with the card and have it shipped, but it arrives in pieces. If the seller won't replace it or remove the charge, you can appeal to your card company, and you may not have to pay for the item.

Additionally, if your account has a rewards program, you can even make money, since you'll accumulate points transferable for cash, products or airline miles each time you charge.

Plenty of people use cards to their benefit. Then again, many don't. Because of the access to sometimes thousands of dollars, it can be easy to get into high debt. But it's the same as gaining unwanted pounds. It's hard to stick to a healthy diet when the opportunity to indulge in high-calorie junk food is always present.

So do you think you have the willpower to overcome temptation? Looks like you do.

Keeping a zero balance is problematic

I admit this one is a little befuddling. Perhaps what that unnamed blogger was referring to is that, as an active cardholder, you're getting a little too accustomed to always borrowing, that ultimately you're going to step off that cliff and fall into the big red hole of debt.

This can happen, especially if an unanticipated expense comes up. Without savings but with the ability to charge, you may overdo it. However, you can definitely take measures to ensure that you don't.

Save for emergencies and make a commitment to only charge amounts you know you can pay off. You may also want to set up automatic bill pay to stay debt-free and keep your payment pattern perfect. You'll also build a great credit history, which will help you qualify for low interest rates, cheap insurance rates, a mortgage or apartment and even some jobs.

Sound like something you can do? Great. Then there is not a problem.

Obviously, everyone is different, and these accounts are not right for all people. Only you know if you can use them so they enhance your life or ruin it. At this stage you're on the right path, and I see no reason you can't stay on it forever. By paying on time and in full each month, you are satisfying 65 percent of what the dominant credit score model, FICO, looks for in a borrower. So, enjoy the accounts, as well as the discussions you're having about them.

Nice to know I'm not the only one who finds cards to be fascinating dinner party conversation.

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