Why you shouldn’t use a credit card

If you spend very much time around people who are trying to get out of debt, you are likely to encounter the topic of credit cards. A lot of people will tell you that going anywhere near these forms of “magic money” is a really bad idea, while others will say that, with a little bit of self-control, you would be dumb not to use them. So, what’s the answer? Should you use a credit card? Please note, this post will be followed up by another article discussing why you should use a credit card. Think of it as a debate…

Reasons to avoid credit cards

For people trying to avoid debt, the number one reason to not use a credit card is that, by definition, it is a form of debt. When you use a credit card, you are borrowing money from the bank or card company that issued you your card. I think it stands to reason that, especially if you are struggling with credit card debt, the use of credit cards should be avoided. Period.

There was a study done a few years ago indicating that, when you use a credit card, you are more likely to spend higher amounts of money than you would if you were to spend cash*. This is especially true for fast food and vending machine purchases. From personal experience, I can attest that the temptation to spend more with a credit card certainly exists. It’s so easy to get the large drink instead of the medium when you don’t actually have to hand over the bills and coins.

Credit card companies aren’t looking out for your best interest.

That’s right, they’re actually out to make money. They want to find the perfect level of risk tolerance that allows them to have responsible, balance carrying, interest paying customers. I remember getting my first credit card. I proudly applied at my local credit union for the maximum limit they would give me: $200. I was 18, had no credit history, and had a very low income. Of course, this wasn’t a problem because I never planned to carry (and never have carried) a balance on any credit card. I would never pay one cent in interest, so it really didn’t matter to me how high my credit limit or interest rate was. In fact, it would be several years before I even requested a credit increase… to $500!

Since this time, the way that credit card companies deal with me has changed. Where I used to have to actually call my card issuer to request a credit increase, I now get letters in the mail informing me that, “due to my excellent payment history,” I have been granted an automatic increase! It about floored me the first time (meaning, it’s happened more than once) I was informed that my credit line had been increased by over $8,000 without so much as a word asking me if I wanted such a thing to happen!

Instead of credit, use debit

Most people know the difference between credit and debit cards. As you’ll recall, using a credit card means you are borrowing money from someone else to make a purchase. When you use a debit card, however, the funds come directly out of your checking account (read: you’re spending your own money). The good news for those looking to avoid debt? Debit cards are accepted at pretty much every place credit cards are. They also provide for easy electronic tracking of your expenditures.

So, there you have it. Don’t forget to check out the other side of the argument!

Do you use credit cards? Why or why not? What would you say to someone who argued that you should use credit cards?

* The study usually cited is one done by Dun and Bradstreet, which indicated that people using credit cards tended to spend 12-18% more on transactions than those who use cash. I wanted to verify this source, but I just couldn’t manage to locate it (I found it “referenced,” but never managed to find a real source). It is, however, the study that Dave Ramsey cites when discussing credit cards. Because I am convinced that Dave is rather on the trustworthy side, I’ll give his reference to the statistic a vote of confidence and call it good.

Photo by b.franchina.