Our Opinion of Credit Cards
People have very different feelings about credit cards. Some people do not believe in them while others love to take advantage of their rewards. Jake and I have pretty different views of credits cards so see below for our opinions!
I am actually a fan of credit cards but would only recommend them if you can afford to pay them off each month. There are a lot of great rewards that come with them such as miles, cashback, points, etc. My thinking is if I’m going to spend money anyway, I might as well get some perk for it. I have CapitalOne’s Venture One card and accumulate miles, that I can buy flights with, every time I purchase something.
Here are some other things that I like about credit cards:
Improve Credit Score
If you pay off your credit card each month, your score will go up.This allows you to get loans without having to have a co-signor, receive lower interest rates, and get great deals through your credit card company.
Protects your bank accounts
If you get your credit card stolen, the money in your bank account(s) will not be touched. While it’s obviously upsetting to have this info stolen, credit card companies are very good about resolving fraudulent activity and reimbursing you for the money spent. In addition, it’s very easy to freeze or cancel a credit card as opposed to a check. And you don’t have to worry about opening a new bank account.
The biggest key to budgeting is being able to track your spending. If you are making electronic purchases via credit card, that process becomes a lot easier than if you were to use cash or check.
If you have a credit card to a specific store, you can receive more discounts than non-cardholders. This is a big plus if you spend a lot of money at the same store.
Cover emergency expenses
As we’ve talked about in some of our other posts, it’s important to have an emergency fund. Well, sometimes when an emergency strikes you don’t have access to these funds. Having a credit card allows you to cover this emergency for the time being which you can then pay back with your fund.
I would say I am definitely not a fan of credit cards. Quite frankly, I think they are a scam designed to steal as much money from you as possible. Here’s a couple reasons why I’ve come to that conclusion:
Compounding Interest Rates
The average interest rate on credit cards in 2017 is 15%. If you somehow miss a credit card payment, which is actually a lot easier than you think, you will now be required to pay an additional 15% for that month’s debt. Missing another payment will compound that interest, meaning you will pay 15% more than the previous bill (which was 15% higher than the original). Many people do not understand how compounding interest works and credit card companies like it that way.
Let’s say you bought a couple pizzas for a party and forgot about it. Here’s what it would cost you just from 3 months of compounding interest:
- Pizza cost:$25
- First late payment bill:$25 * 1.15 = $28.75
- Second bill:$28.75 * 1.15 = $33.06
- Third bill:$33.06 * 1.15 = $38.02
That’s right. By the time you realized you had a late payment, those two pizzas have just cost you about the same price as 3 or even 4 pizzas! If you were to continually miss your payments for an entire year those pizzas would have cost an astounding $133.76, more than 5 times the original cost.
Late Payments Have Huge Penalties
On top of compounding interest rates, a late payment will cause even more headaches. Credit card companies will penalize you by charging a late fee which is pretty lame given you are already paying that interest. The really awful thing is they are also going to increase your overall interest rate! That 15% may jump all the way up to 29% which will really screw you up. Ever wonder how people wind up drowning in credit card debt? It’s because of those exact reasons.
Benefits at the Expense of Others
If I were to own a credit card, which I don’t, and use it for the sake of earning points and cash back or whatever minimal benefit credit card companies offer I would feel morally wrong. The reason these companies are able to offer those things at all is because of the poor people who were tricked into thinking that credit cards are great tools for buying what you can’t really afford. It’s their money that is paying for my 2% cash back. I would have felt like I was taking it straight from their wallets.
I personally find the whole idea of credit cards distasteful but I do not look down on people who use them as a financial tool. As Maia mentioned, there are definitely good reasons for owning a credit card. It is after all one of the easiest ways to build a good credit score which is almost a requirement in this day and age. However, I definitely recommend taking the time to understand how credit cards work and how you can avoid their dastardly traps!
As an added bonus here’s an article I found explaining some of those credit card traps: 7 Secrets Credit Card Companies Don’t Want You to Know