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Why I Use a Credit Card (And How To Leverage Yours)

The following is a guest post from Mike, the author behind Personal Finance Beat, a blog that covers and links to a host of personal finance and money management topics. You can follow him on Twitter at @PFBeat.

I Use a Credit Card

I use a credit card to pay for almost everything I buy. If my landlord would allow it, I would even pay my rent with a credit card. I take out $200 a month in cash just in case I need it, but everything else goes on my American Express Blue Cash card.  Using a credit card helps to keep me organized, it’s safer than using cash or a debit card, and it offers cash back rewards that is essentially free money in your pocket.

These benefits, of course, are contingent upon one crucial thing: you must pay off your balance — in full — every month. If you can’t be disciplined enough to pay off your balance in full every month, then you probably shouldn’t have a credit card. But this is a system that works for me. Obviously, not everyone agrees with this approach.

Dave Ramsey’s View

Take Dave Ramsey, for example. Dave offers a lot of great personal finance advice, but I could not possibly disagree with him more when it comes to using credit cards:

Myth: Aren’t there positive uses of a credit card? Like rebates and airline miles?

Truth: Responsible use of a credit card does not exist. Credit card debt is a major problem in America.

There is no positive side to credit card use. You will spend more if you use credit cards. Even by paying the bills on time, you are not beating the system! [...] Personal finance is 80% behavior. You need to cut out habits that make you spend more. You do not build wealth with credit cards. Use common sense. When you play with a multi-billion dollar industry and you think you’re going to win at their game, you are naive. You cannot beat the credit card companies.

Where We Differ

Let’s take a look at some of Dave’s argument and see where we differ: Responsible use of a credit card does not exist.

This is ridiculous and only true of people that are irresponsible with their money and spending. If you cannot control your spending, then of course having a credit card is a bad idea, because it makes it a lot easier to go into debt. No argument there.

But the problem in those instances lies with their overspending, not the credit card itself. For people that are responsible with their money, a credit card simply acts as an effective tool for managing their money. You can be responsible using a credit card if you know what you’re spending your money on and why you’re spending it. I do it every day.

There is no positive side to credit card use.

More nonsense. As I explained above, the benefits I see for using a credit card are threefold:

Staying Organized

I keep a budget and track my spending every month using Mint.  There, my transactions are automatically uploaded and categorized for me every time I make a purchase using my card.  I know, for example, that I spent exactly $212 on groceries last month.  That’s because when I go grocery shopping, I pay for my items with my credit card, and by the time I get home, that transaction has already populated for me in Mint, automatically.

And the same goes for nearly every single thing I buy.  Swipe my card, and the transaction magically uploads to Mint, where I can sort and review what I’m spending my money on.  Now, theoretically, you can manually enter transactions into Mint for cash purchases.  And I do this myself when I have to pay for something in cash, but it’s only a handful of times per month.  Can you imagine having to manually input the data for every single purchase you make if you’re paying in all cash?  Chances are, you’d never do it.  And if you’re not tracking spending, how can you know where your money is going and what areas you could cut back on?

Security

This is more of a credit card vs. debit card discussion, but it applies to cash as well. Debit cards offer less protection than credit cards (and cash essentially offers zero protection if you were to lose your money). If someone steals my debit card and withdraws money from my checking I account, I may get all of that back (depending on my protection limit), but in the meantime, that is actual, real money that I no longer have access to. My checking account will have less money in it.

On the other hand, if someone steals my credit card and charges a bunch of things to it, not only is my protection limit higher, but no actual money has been withdrawn from any of my accounts. They haven’t stolen my money; they’ve stolen the credit card company’s money. And if your wallet is stolen and you have $200 cash in it, what protection do you have for recovering that money?  You have none, because you are paying for everything in cash.

Rewards

I know some people who are pretty fanatical about their rewards and the benefits they offer, but this is more of a secondary feature for me in the sense that it’s nice to have, but not something that would make me choose one credit card over another. (I understand that some people would disagree.)  I have the “cash back” rewards for my Amex card, and last year this netted me about $525 total – that’s real, American greenbacks — definitely a nice perk to cash in at the end of the year.

Now, getting back to Dave’s argument:

Personal finance is 80% behavior. You need to cut out habits that make you spend more.

This I actually agree with.  And like I said, if your spending behavior is destructive, then you shouldn’t have a credit card. But people can change their behavior. People are capable of growing and getting better and learning how to spend their money responsibly.  And when you get to that point, when you’re responsible and when you’re an adult, there’s really no reason you shouldn’t use a credit card.

You cannot beat the credit card companies.

Well, I am living proof that you can.  Not only did I not pay a dime toward interest or fees last year to American Express, but they paid me $525 for the privilege of using their card, while also offering me the benefit of keeping my budget organized, and providing fraud protection that simply does not exist by paying for everything in cash.

Bottom line: Whether or not you think a credit card is right for you is only a decision that you can make. My personal belief, however, is that if you’re responsible with your money, then the benefits of having a card far outweigh the risks.

 

Crystal’s Comments:  Mr. BFS and I are fans of our credit cards too.  We use a PenFed Visa for gasoline and a Discover More card for everything else that we can possibly charge.  I’ve been doing this since 2001, carry my balance off in full every month, and earn 1-5% cash back on nearly everything.  As long as you don’t spend more than you would any other way, I don’t see credit cards as a problem at all.  They should be avoided like the plague if you feel more spendy with them than without them though.

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19 comments to Why I Use a Credit Card (And How To Leverage Yours)

  • You are right, but until I finish my debt snowball credit cards are a big no-no for me. I think my behavior has changed enough so that I could use them wisely, but I am scared to go back! Great post, though!

  • Completely agree. We use credit cards as much as possible. For us, it’s cash that’s too easy to lose track of and spend too quickly without knowing where it went.

  • We use credit cards to our advantage and find them helpful. I love the rewards!

  • Great layout of these arguments and I totally agree. It isn’t our nature to overspend, but combining that with a budget means it doesn’t matter what our mode of payment is – we will spend the same.

  • Christian L.

    Mike,
    Kudos to you for being responsible enough to handle a credit card the way you do. Sadly, I don’t think the consumer population will ever be as responsible as you. Some consumers really need to see their money come and go. I certainly prefer seeing my cash change hands as it makes me carefully think about each purchase.

    But when it comes to this personal finance stuff, I find it best to go with what works. So keep it up.

    -Christian L. @ Smart Military Money

  • @Tony — Oh I definitely agree, if you are still in debt payback mode, then you should stay away for now!

    @Mrs. Pop — Yep, it is so hard keeping track of my spending if I’m using all cash. I tell myself that I could manually input all cash purchases into Mint, but I know I wouldn’t do it. Using a credit card automates that process for me!

    @Michelle — Yeah, the rewards are great. I admit not doing enough research into which card provides the best cash back program, but I’m pretty happy with Amex.

    @Emily — Thanks!

    @Christain — I can totally understand that side of the coin. As you note, it really is “personal” finance, so whatever works best for you!

  • I am totally on board with this. When I was in a lot of credit card debt, I decided to stop using credit cards completely. When I finished paying them off, I changed my behavior and decided to use my credit card for each and every purchase that I would normally make. Now, I keep no balance and earn cash back. Why not get money back for making your regular purchases? It is the same thing as “guns don’t kill people, people kill people”. Credit cards don’t spend money, you spend money. It is all about changing your behavior.

  • retired

    Completely agree. Even when we were broke we used credit cards and paid them off in full because they offered security, easy tracking, no need to keep a running balance, and cash back. The credit cards charge the vendors, thus discounting prices. Small business owners take a bite and some states are now allowing them to charge more if you use a credit card. So make sure you do not order or live in one of those states, as the amount they can charge is more than the amount the Credit Card companies generally charge them.
    If we all use credit cards and get cash back, then the banks will eventually stop offering cash back and benefits as they will have a monopoly. It has happened in the past. Use them responsibly while they are a good tool. Be vigilant and quit using them when they become another expense or debt. Credit Card debt or even keeping a fairly constant balance on credit cards does not reflect well on credit reports supposedly. Actually a bank loan person told me that is why my hubby’s score was better than mine. I charge all of our utilities, groceries, and gas on mine; so his look immaculate, lol.
    Someone needs to write another article about buying things you want when you don’t have the room. I guess I need to Craigslist some things or donate again, sigh. There is a lot of cost to overspending. Credit card debt is a big one, but taking up space and time (maintenance) should be considered as well. When you retire, space and time are even more important, believe it or not. Thirty years of collecting “memories” and hobbies can be a burden in itself.
    Hope everyone uses their resources wisely this week! Another excellent post! Guess I will go visit Personal Finance Beat…

  • I think keeping organise is the most important aspect to consider!!!

  • I agree with you, but it may not be right for everyone. There are many, if not most people use credit cards too easily. Using cash makes you think about your purchases more. I always used credit cards because of the rewards and pay the entire bill every month.

  • I made near $1,000 from credit cards last year. Definitely not right for people who can’t pay them off in full every month but disciplined people can make some money for sure.

  • Agreed! How awesome would it be if we could pay our mortgages with our credit card?! We also put everything we possibly can on credit card, and pay it off in full every month. We’re rack up the rewards with our Capital One Aspire card, and can cash the points in for anything travel-related… including vacations, hotels, car rentals etc. Since we love to travel, this card is right up our alley!

  • I made a few hundred dollars from credit cards last year without paying any interest. You can come out ahead on credit cards if you are disciplined.

    Crystal, you should upgrade your Discover More card to the Discover IT card. The new card has all the same features as the More card but it starts at 1% cash back while the More card starts at just 0.25% cash back. I was able to upgrade mine in about 5 minutes with online chat.

  • Great post! I could not agree more with you that Dave Ramsey is talking nonsense without having done his research on credit cards. Thanks Mike.

  • [...] Mike from Personal Finance Beat compared at Budgeting in the Fun Stuff his attitude toward credit cards to that of Dave Ramsey. [...]

  • [...] @ Budgeting in the Fun Stuff writes Why I Use a Credit Card (And How To Leverage Yours) – If you can’t be disciplined enough to pay off your balance in full every month, then [...]

  • [...] presents Why I Use a Credit Card And How To Leverage Yours posted at Budgeting in the Fun [...]

  • [...] @ Budgeting in the Fun Stuff writes Why I Use a Credit Card (And How To Leverage Yours) – If you can’t be disciplined enough to pay off your balance in full every month, then [...]