Why I Do NOT Recommend Credit Cards

Today’s topic is why I do NOT recommend credit cards. I’ve noticed a lot of personal finance bloggers touting the benefits to credit cards. Sure — the rewards, status, and perks are all great — but I’ve seen too many people fall into the high interest rate trap.

Back in the day, people used to barter for goods. If you didn’t have goods on you and needed something, it wouldn’t be uncommon for someone to write down an, “I.O.U.” Some of the oldest uncovered writings include many of these types of messages.

Fast forward a few millennia and we now have a new form of money. No longer do we use paper that is backed by gold or goods. We don’t even use physical money anymore. We’re left holding a piece of plastic that interacts with numbers on a screen.

Studies have shown there’s a reason why people who shop only using cash ultimately spend less than those who use credit cards.

There is a physiological reaction when we exchange physical money in receipt of a product or goods.

In other words, avoiding credit cards is super frugal.

So, why are so many personal finance bloggers raving about credit cards?

The one benefit we’ve experienced is the ability to hold a balance at 0% interest for multiple months. I swear, it feels like playing with fire, so I look forward to paying off the last of our recent engagement expenses.

Granted, we could use much of our emergency fund to nearly wipe out the credit card debt, but we still have 0% interest for a while. Our approach is to pay it off piece by piece so we can still shore up cash in case of an emergency.

But, overall, we do not recommend credit cards because sometimes emergencies can stock on top of one another, and before long, you’re holding a balance that’s accruing double digit interest.

If I recommended credit cards, then sure, maybe 95% of people will use them wisely and receive some monetary benefits in the process. But, I wouldn’t feel right knowing 5% of people ended up worse off.

Sometimes, inactivity is the most effective course.

So, unless things drastically change, we expect our use of credit cards to go down in an overall effort to reduce our overall spend. In order for 2017 to top our 2016 results of tripling our savings rate, we’ll need to further optimize our budget. That means honing in on the wealth building strategies that are working, and eliminating bad habits that slow us down on our path to financial independence.

What’s your relationship to credit cards?


P.S. For the audio version of my take on credit cards, check out the credit card episode of Millennial Money Minutes:

13 comments… add one
  • Ricard Torres @ Escaping to Freedom Jan 18, 2017, 6:05 am

    I’m with you here Matt! I’ve met many people who see credit as money they can use – then they end up drowning in debt and struggle to get out of it, even if it’s “only” a couple of thousands. That’s why I’ve never had a credit card – I just don’t want to be tempted into this trap.

    The point about the psychological effect of paying with something physical is also something I’ve experienced myself. I spend way less if I am aware of where my money is being spent. That’s part of the reason why I manually input all my expenses rather than track them automatically using something like Mint.

  • Colin @ rebelwithaplan Jan 18, 2017, 6:52 am

    I still think people should get credit cards. If they feel temptation with it, then put a few small monthly expenses on it (Netflix subscription, dropbox,etc) then put the card in a drawer and don’t look at it. Set up an auto-transfer from your bank to your credit card to pay the full (small) balance every month. Simple (ish)! Just make sure you get a credit card with no annual fee.

  • Emily @ JohnJaneDoe Jan 18, 2017, 6:54 am

    Always good to raise the counter-argument. We do use credit cards, but we use them like debit cards (no charges we can’t cover with money in the bank) for the purchase protection and for the rewards. And most of the financial bloggers I see preach the same.

    But it is a slippery slope. I did misuse them when I was younger and had to work long and hard to get where I am today, with credit, with consumer debt, and with personal responsibility and attitudes toward credit cards.

  • Full Time Finance Jan 18, 2017, 7:37 am

    Count me in the camp who thinks you should have a card. First used right it raises your credit score. That matters for everything from rent to insurance. I do agree using them regularly should be a decision based on your level of financial control. As someone else said if you can’t handle them put a reoccurring charge on one and park the card in a drawer.

  • Jon @ Be Net Worthy Jan 18, 2017, 8:10 am

    I’m actually looking to get MORE credit cards this year to maximize the rebates. There aren’t a lot of ways to get tax free money and credit card bonuses are so lucrative. Who wouldn’t want an extra $2,000 or $3,000 tax free this year?

    Now, if you can’t pay them off each month or have spending issues, then that’s another matter…

  • Mrs. Picky Pincher Jan 18, 2017, 8:45 am

    Oooh, I like that you have a different opinion! It’s refreshing. 🙂

    I do know people who use the 0% interest on their cards, but I personally think that’s a terrible idea. It’s the bank’s way of encouraging you to carry a balance each month.

    I’ve had an interesting relationship with credit cards. When I finally made my own money in the adult world, I put everything on my 0% interest rewards credit card and spent like there was no tomorrow. But I quickly realized I spent more money than I had.

    I paid off the credit card and stopped using it entirely. I switched to a cash-only envelope system for 6 months until I learned restraint with my money. It wasn’t until Mr. Picky Pincher and I got married that I picked up a credit card again.

    I’m a PF blogger who believes in credit cards, but I know they’re not right for everyone. I only think you should use a rewards credit card when you can, unquestionably, pay off the entire balance at the end of the month. It’s the same as using your checking account, but the entire amount comes out at once instead of over time. We only do this with a rewards credit card; otherwise it wouldn’t make any sense. We then use the accrued rewards each year to pay for the holidays. This year our budget impact for Christmas was a lowly $50 compared to last year’s $800.

    But I do agree that many people aren’t responsible with credit cards and have zero business using them. Rewards credit cards only make sense if you’ve eliminated your credit card debt, pay them off every month, and only use them for things you were going to buy anyway.

  • FinanceSuperhero Jan 18, 2017, 1:47 pm

    Credit cards sometimes make me feel like a hypocrite. I don’t recommend that people run out and rack up debt irresponsibly, but they cause many people to do exactly that. Similarly, I don’t encourage others to go out and overindulge in alcohol, but I’ve seen it happen far too many times.

    On their own merit, credit cards are neither bad nor good, in my opinion. It is the user which ultimately determines whether they are bad or good.

    We use our credit cards sparingly and strategically – usually just to float an unexpected expense for an extra billing period to avoid drawing on savings or altering or cash flow plan in a given month.

    But a PF blogger touting credit cards and pushing their use has always rubbed me the wrong way, especially since they are likely doing so just to earn affiliate income. I mean no offense to those bloggers, but that kind of affiliate promotion just doesn’t align with the goals of my site. As you said, using credit cards is a lot like playing with fire – it’s safe only if you know what you’re doing!

  • [email protected] Jan 19, 2017, 5:06 am

    Credit cards can be a good tool – or they can be destructive. You have to know which camp you fall in and act accordingly.

    Some people can max out cards for points/rewards, pay it in full every month, and enjoy the rewards without paying a penny in interest.

    Some people can have a few expenses auto-drafted onto the card, automatically pay it in full every month, and leave it in a drawer

    But many others just can’t manage the card. It doesn’t feel “real” enough to them. They spend money and justify it to themselves as needed, or they would have spent it anyway, or they have a low rate so it doesn’t count. The average household in debt has over $16k in credit card debt, totaling almost $750 billion, and pays almost $1300 a year in interest. 40% of households have credit card debt – so for every three people with no debt, there are two people with debt. Those are some scary numbers.

  • Ryan Jan 19, 2017, 12:18 pm

    Great topic for discussion. I haven’t owned a credit in over 5 years now! I’ve always preached against them and have actually even sort of looked down on those that use them. Just recently though I have thought about all the monthly expenses that we have that we could be getting some rewards for. Like you said, it is very much like playing with fire. I would not recommend them to anyone that is not well disciplined and very organized with their finances. Great to see a different view point on this though as compared to most PF bloggers I see.

  • Paul Andrews Jan 19, 2017, 3:21 pm

    BLASPHEMY!!!! 😉 No, I love it when bloggers are willing to put a stake in the ground and defend it. I’d like to think that people are robots and you can just tell them what the right thing is to do, but of course people have feelings/behaviors/emotions that screw up tons of decision making. You’re right, it’s definitely harder to hand over cash then just swipe the magic plastic, but I want to live in a world where people use credit responsibly (and to get as many airmiles as possible). There’s also advantages to getting a credit card as early as possible so you can start building credit. As long as you don’t consistently get burned while playing with that fire… 😉 Great post!

  • Lisa Jan 23, 2017, 12:23 pm

    I completely agree with you! I don’t feel comfortable recommending credit cards to others. Sure, the rewards are great. But temptation to overspend is just around the corner.

  • Steven Goodwin @ MyFamilyOnABudget Feb 15, 2017, 3:14 pm

    I’m with you 100% on this one! One of the best decisions we made was getting rid of our credit cards. It forces us to think about our purchases more and “feel” them since we are spending our hard earned and saved money! We used to use credit cards for the “rewards” but they never really justified the spending habits and I tend to get tunnel vision and would buy into the “gamification” effect of them trying to earn the highest amount of rewards possible! I honestly feel that it does help us save money since we don’t have an instant way to purchase things without a credit card, thus making us spend less.

    • Distilled Dollar Feb 15, 2017, 6:23 pm

      Gamification is well said! I want to at least experiment in our own household one day and try cash only. I have a feeling we’ll be extremely surprised by the results!

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