Credit Cards: What are your thoughts?

#1

After much debate, I decided to get my first credit card last Summer. It took some time for me to map out my approach to this decision, but I was excited to find the card that was right for me. I have heard numerous horror stories from folks who found themselves drowning in massive credit card debt, unable to fully pay off what they owed. Story after story, I almost decided to hold off and look into building credit in other ways. I sought advice from others, and had a co-worker here at Republic tell me something both simple and extremely useful: as long as I went into this treating my credit card like a debit card, and paid it off every single month in full, I would set myself up for success. This made me feel a bit better about my decision.

Here at Republic, a small group of us recently met up every Thursday for five weeks during lunch to sit in on a Dave Ramsey financial course. After each of the course videos would end, we would have an open discussion amongst ourselves about the course content. By far, the biggest topic of debate was the use of credit cards. Whether you’re familiar with Dave Ramsey or not, know this: he doesn’t believe in credit cards for a variety of reasons. This stance didn’t sit well with the majority of the group, myself included. Although his reasons are very sound, a group of us who could stack hands on responsible credit card use seemed to have some pushback.

Our in-house blog writer recently met with author and financial guru, JL Collins. We wanted to get his thoughts on a variety of financial topics, one of those being credit cards. Here is something interesting he had to say on the matter:

“There’s nothing wrong with credit cards. There’s a lot wrong with how people use them. You should never carry a balance on your credit card. You should only charge on it what you know you can pay for and pay off at the end of the month. And if you do that you will you know you’ll be shown as someone who’s responsible and who pays what they owe. The credit card company of course would much prefer that you carry the balance and paid them 18 percent or whatever. But that’s silly. And you know credit cards in this day and age also have the advantage of you can earn points with them and so they’re you know I carry credit cards and I think used responsibly, they’re a wonderful tool. But it’s it’s like any other tool you know. If you have a table saw that you use responsibly you can make beautiful things out of wood. Used irresponsibly, you can cut your fingers off. So it all depends on how you use the tool. You should be terrified by both table saws and credit cards.” - JL Collins

So, I wanted to see what the general consensus might be!
Here are a few questions I want to pose on this topic:

  1. Do you have a credit card?
  2. If yes, do you attempt to pay it off fully each month? What are some reasons other than building credit that you have the card you have (i.e. rewards :moneybag:, travel points :airplane:, etc.)?
  3. If no, what are your reasons for not having one?

Please feel free to share your insight on the art and responsibility of having a credit card, or choosing not to have one. As someone who has now had one since August of last year, I’m always seeking advice and guidance on this topic overall.

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#2

Interesting article!

In my day, it was easy to get a credit card. I had a wide variety over the years from Amex to local store credit cards. The key issue which you grasp well, is to pay it off each month. Currently I only have two real credit cards and one that came with my checking account which I never use.

If you ever find you want to change to a different card or you have too many, it’s a good idea to close your accounts in writing. Initially closing an account can have a negative affect on credit score, but it’s only temporary and not by much. Having too many credit cards also will have a negative affect - too much exposure.

Amex is a good card to have for travel (Skymiles!) and large purchases. Gone are the days with Amex when you had to pay it off every month. They now have payment plans without monthly interest rates. They have a wide variety of cards with yearly fees and ones without fees.

Next I have a rewards card for a big box store. I use it for everything else, earn rewards that I can use in their store.

The advantage to having at least one credit card is, it does build credit. Doing this makes it easier to get a loan if you want to purchase a car or home. It also can provide protections (read the fine print!) when you rent a car or you smashed your $1000 phone or a dispute with a vendor.

I do pay my credit card off monthly. In the early days to raise my credit rating I would partial pay a month and then pay it off the next month, this was back when interest rates were less than 4%. This proved responsibility and it raised my rating. I don’t suggest doing that now, the interest rates are brutal.

Just as a side note a long time ago I went on a trip and wanted to rent a car. When I went to the rental kiosk they asked for my credit card, oops, didn’t have one at the time. So I had to hand over all of the rental fee, plus extra, (deposit) in cash in advance, which came to $250. Considering I only took about $500 with me on the trip it was tight near the end of the trip. After I returned the car the deposit portion was refunded. I made it a point to get a credit card after that.

When used wisely credit cards are a great convenience. The down side is that money becomes more abstract and this can get one into trouble very easily. Let me explain, when you hold bills or coins you know exactly what you have. Credit cards are loans and exceed buying power over some bills and coins in hand in most cases. They feed a need for instant gratification, which can come to bite you when the monthly statement arrives. So, it’s wise to have a pre-set spending cap in mind at all times and keep a budget, either on paper or in your head.

So that’s my two cents worth.

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#3

I have two credit cards. I opened my first one in 2016 right after I turned 18 and I opened the second one last year. My first card was (and is) a Discover IT Student card. I get $20 a year every year my GPA is over 3.0. So far, I have racked up over $190 in Cashback. Last year, I opened an American Airlines card so I could get a cheap flight to Hawaii. It had a $95 annual fee, but I got 60,000 miles after my first purchase (enough to go to Hawaii and back round trip and then some!).

I love credit cards! I plan on opening another American Airlines card (or maybe a United card) later this year so I can travel in first class :wink: . I always make sure to pay it off. I don’t want any balance to roll over on any of my cards. The key is to pay it off and have the cards work for you-maximize the benefits!

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#4

I have moved main card ever couple years to make use of 0% APR offers and other opening Cash Back Rewards bonuses.

Currently, I find BOA (Bank of America) Rewards cards to be the best for actual cash back rewards.
You can select your 3% category, I choose Online Shopping as I use that that most, and out side of that, you get 2% back at Grocery stores and Wholesale club, and 1% everywhere else. I have the BOA Mastercard, and the WWF (World Wildlife Fund) VISA from them. The WWF card, (a small % of each purchase goes to WWF charity) is the main card I use now.

I also have a Discover Card (I also have Checking and Savings with Discover). It is ok for rewards, but I do not like how the categories are determined by them, and go in like 4 month blocks. Though, it is 5% on those set categories.

Have a Wells Fargo card, was my very first credit card I got when I was in college 10 yrs ago. It is the lowest and is fixed Interest rate. Has NO rewards though. I don’t really use it any more do to that. Unless I have no choice to put a large amount and have to pay on it over time, and do not have a 0 APR card to use.

Also have a Amazon Prime Visa Card, but I only use that on Amazon…

I did manage to pay off all my credit cards that had a balance on them ( I had too many) and it was very nice to live month to month able to pay off the one card I was using each month for a couple years there, but then I lost my job and had to live on savings, then credit for a while. I am still recovering from that and am working to pay off things.

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#5

I have 2 credit cards and pay the total on each monthly. I get rewards on both. One (a card issued by my bank) is used for everyday purchases and the other (Amazon Prime) for online purchases. Using credit cards is much more convenient for me than cash or checks.

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#6

I had my mom add me to a couple of her cards that she has had for a couple decades each and I went from no credit to extremely good credit very quickly.

I used said credit to take advantage of a number of sign on bonuses, such as cash back and 12-18 months no interest. You do have to be careful to pay them off before the promo period ends but it’s not too hard as long as you don’t have any sudden large unexpected expenses. If you do, that’s when things get rough.

Budgeting your expenses and saving up an emergency fund are great ways to get into good spending habits that will help when it comes to managing a card. If you have a budget and stick to it, it doesn’t matter how much of it goes on a card since you already know you can pay it off. Do setup some kind of reminders to make sure you pay on time or setup auto-payments. If you setup auto-payments, make sure you check your bill each month to see if anything suspicious has found its way onto your bill.

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#7

Many years ago, I started out with a card or two and wasn’t strategic with them at all. Then about 5 years ago I started looking more closely at our spending and decided on the Amex Blue Cash for gas & groceries and Citi Double Cash (2x) for everything else. I later upgraded the Blue Cash to Blue Cash Preferred once I crunched the numbers and saw that I’d earn well over the cost of the annual fee by upgrading.

Fast forward to about a year ago. I started reading articles and listening to podcasts about points & miles. I hardly ever use the cash back cards now and instead I’ve gone “all in” on the Chase Ultimate Rewards “tri-fecta”. I’m ultra-strategic about which cards I apply for, when to apply for them, and which cards to use for which purchases. I don’t go overboard adding new cards like some people, but I have more cards than a lot of people.

I think the most important rules of this “game” are to still spend within your means and to pay off every card every month. If you don’t do that, the interest charges will kill the value you get from the points. But done correctly, the points game can open up a world of travel (or cash back) for you. Literally!

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#8

You’ve received some great advice and ideas on using credit cards. The table saw analogy should be read and reread. I don’t know what context D. Ramsey encouraged no credit cards - perhaps for many people no CC is an absolute must. If person is big spender, addicted to having the latest and greatest of everything, and needs to keep up with the Jones’ and core of lifestyle is compulsive, impulsive spending then absolutely stay away from CC’s. CC’s in this situation will make you poor, consume your life with how to make those minimum payments, how to consolidate your debt, and a burden I wouldn’t wish on anyone. Sadly its common. Makes no difference how much or how little you earn.
That said - assume your lifestyle, wants, needs aren’t as outlined above - I’ll outline my CC use, which is I make the CC work for me and have so for years and years.

  • I have 2 cards - Citi that gives 2% cash back, and Amazon Prime which gives 5% on anything purchased @ Amazon.

  • I put every single thing I purchase except under $1 on the Citi card except Amazon purchases. Any recurring expenses that I’m able to put on the card like my RW bill, etc. Anything I need large down payment for on the card. Now, I have a record of exactly what I spend each month - when you see it in front of you how much you really spend, always areas you can cut back. Example before retiring I had bad habit of stopping at the convenience store for something that was way overpriced, i.e. needless spending.
    Second, I pay my CC bill in full each month and receive the 2% that I let accumulate - right now I have $987 waiting for me.

  • Paying bills with the CC eliminates expensive postage stamps. Time consuming writing out checks to pay bills, or worse forgetting to pay, or getting a late fee just not needed.

  • The Amazon prime card also has no foreign transaction fees - if travelling overseas you want to avoid those abut 3% foreign transaction fees, and who wants to carry lots of cash around.

  • Same applies to home - I prefer not to carry bunch of cash around for safety in general

  • For my CC use I’m not interested in opening card after card to take advantage of special promotions, or think about 4% back for restaurants this month, and 4% back on some other category next month - I just keep it simple - spend what I need to spend, put it on my CC and get 2% cash back that is cumulative.

I’ve rambled sorry - from a retired person who has won the game financially and has been debt free for years and years, my best advice - get your spending under control using Ramsey’s method or any other, live below your means or nothing more than not outspending what you earn, and you will become financially fit and be able to think about your investing future. KEY if you spend more than you earn you will never ever be able to get off the mouse in a wheel treadmill of stressful living consumed with debt. Spend more than you earn you must remove CC’s from your life.

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#9

Great discussion!

It was great talking to JL a couple weeks ago about this topic, especially after I had taken the Dave Ramsey course as well. In my early- to mid-20s, I got myself into hot water by overspending and living above my means in a big city - I was trying to keep up with the Joneses, but I did not have the salary of the Joneses :slight_smile:

When I was about 27, I took a hard look at my finances and my spending patterns and cut way the heck back. I paid off all my CC debt in about 15 months (which is a LONG time, but it was a LOT of debt). Now I pay my CC bill in full every month.

Despite having gotten myself into trouble (or maybe because of it?), I lean more toward JL Collins’s perspective, rather than Dave Ramsey’s. If used responsibly, CCs can be great. But, you need to be honest with yourself about whether you can follow that very big IF.

There’s a ton of great advice above. A few other tips I have:

  • As @littletoucan mentioned above, you really do need a credit card to rent a car, otherwise they will charge a HUGE deposit on your debit card, which is essentially you being out that cash until they refund you the deposit. I don’t feel super comfortable lending a car rental agency a bunch of cash!

  • I’ve found it a lot easier/more efficient to address fraud on a credit card than on a debit card. Recently, my account with an online retailer was compromised, and a number of orders were placed with a card I had linked to that account (my first mistake). Because it was a credit card, my CC company refunded me the money right away. However, a similar thing has happened to me before with a linked debit card, and while I did get that money back, I think it took about 10-15 business days.

  • Make sure you use your cards! I recently had a card closed by the financial institution because I hadn’t used it in a long time. Because I want to keep my cards open for my credit rating, I now have set up each of my less frequently used cards to automatically pay some of my ongoing monthly fees (e.g., I have Netflix on one card, my water bill on another card, etc.), and then autopay those in full directly from my checking account so I don’t forget.

Thanks for the great discussion, @swall!

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#10

My wife, bless her, helped me learn how to use credit cards wisely. We’ve got an Amazon Prime card, and we pay the balance off every month. We also realized that you can use the Amazon points to pay off the bill. So, if we don’t need anything from Amazon, the points actually save us money!

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#11

Proper use of credit cards can be like a smart source of tax-free income. First, all my cards are on autopay so there’s no late charges or interest fees plus no worries while traveling. All are cash back (sometimes called points or rewards). None have annual fees, except the Costco one which has the membership fee.

  • Amazon Chase for 5% back on Amazon and Audible purchases

  • Citi Costo for 4% back on gas, 3% back on restaurants, 2% back on Costco purchases

  • American Express Blue for 3% back on groceries

  • USAA Preferred Rewards VISA for 1.5% back on everything else.

With just two retirees in the household, the cash back last year was well over a thousand dollars. We find it worth the effort.

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#12

I came to Republic to purchase telecommunications services.

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#13

Credit cards are handy tools for building credit, managing expenses, and making a little extra cash. Over the years, I’ve made literally thousands of dollars in rewards, sign-up bonuses, etc. without paying one penny in interest charges or fees. Of course, like any tool, credit cards can be abused. I suggest you aim to pay down the total balance on all your cards twice a month. This approach offers additional protection from interest charges/fees in case you miss one payment.

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#14

I was very much interested in how Republic Wireless, as a company, viewed credit cards as one of the reasons that I love RW is because it helps us stay debt free with the amazing savings on our wireless bill. When I mentioned this as #myrwsavings on Twitter, I got a response that RW is all about the debt free life.
After reading the original post by @swall, I am glad that the company members are taking a Dave Ramsey course. I am a huge Dave Ramsey fan, and he really has a heart to help those that want to be free of the financial burden of debt.

“Credit cards or not” is a topic that I have with my friends once in a while. We have been credit card free since 2016, and our family will never go back. I used to do the same thing as a “responsible credit card owner” and pay my balance every month. I felt like I was winning. I was beating the credit card company at their own game, but the truth is that I was just playing the debt game (i.e. going into debt every month and paying it off). This is like playing near a pit of snakes and daring them to snap at you. I am sure you have heard the statistics (probably on the DR videos) that the more pain you feel, the less you will spend. As our culture spends more time online and paying at Walmart with our phone (guilty), we spend more. We don’t feel the “friction” of cash leaving out hand. I think this all feeds into the credit card issue. Swiping just isn’t a painful as paying with cash. For those that need plastic to shop online or rent a car or secure a hotel room, debit cards are the answer, but for me personally, I spend more, on average, if I am using debit vs. cash.

Let me ask you, @swall and other responsible credit card owners, if you are going to buy something on credit and then pay it off, why not have that amount in your bank account before the month and just pay cash? Why put your self at a disadvantage from the get-go?

Back to the playing near a snake pit. I think the best line I have heard on DR’s show is something like “Debt with the intent of paying it off quickly is a great plan if EVERYTHING goes according to plan. Everything NEVER goes how it is planned.” It isn’t always a “responsibility” issue that causes you not to be able to pay your credit card balance at the end of the month. Things happen. You get a flat tire. You sprain your ankle. Your kid needs glasses.

Finally, I desire to be wealthy when “I grow up.” Debt is not how one builds wealth.

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#15

I’ve used Cr Cards for almost 50 years. Except one time (moved to a new house with unexpected expenses) I have paid my cards in full each month. I have found cash back cards the best for my situation. They started with one half of one percent back many years ago, now my main card is 2% back.

Bottom line I get an interest free loan for up to 50 days to pay for purchases and 2% back on all my purchases. For that reason I hardly ever spend cash, never use a debit card and put most every purchase no matter how small or large on my 2% cash back credit card!:wink:

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#16

And you had to have a credit card to do so?

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#17

I have a super strict definition of what it takes to be a responsible credit card owner. I don’t use a credit card unless I have the money in my bank account to pay for whatever purchase I am making THAT day. Because I agree with you, whether you are going into debt for a day or a month, you are going into debt and I will avoid debt like the plague. Don’t spend money you don’t have. Period. If you won’t have the money, until next week, don’t make that purchase until next week. You probably don’t need it. There are very few things in life that you NEED. That said, why a credit card and not a debit card or cash? The rewards, they add up. I’m incredibly frugal and stingy with my finances, and if I saw a penny or a dime on the sidewalk, I’m the type that is going to pick it up. My friend and I picked up $230+ dollars in sidewalk change over the course of a few years in high school. There are very few people that would say no, if someone handed them that much money in cash all at once, but the same people might not think it’s worth the effort to pick it all up little by little over time. 1% 1.5% 2% 3-5%, usually it’s only a few cents on a purchase, but it adds up. Why would I leave hundreds of dollars on the table when I have the opportunity? All that said, I know plenty of people that don’t have the self-control or strict mindset they need for credit cards. Financial fitness is a lifestyle, and you must have that lifestyle set in place before getting a credit card. Otherwise I agree, they can be dangerous because they are not a free pass to purchase what you can’t afford even though many people see them that way. People say live within your means. Live below your means. Everyone is capable of spending far less than they think on everything.

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#18

I agree with credit cards being an awesome tool, but with any tool it needs to be used responsibly or you can hurt yourself. I remember when I was looking for my first credit card we were sitting at the kitchen table my husband, my parents and myself. I was looking at one card and I asked how much interest it charged… my dad looked at me and said what does it matter if you aren’t going to pay it. Excellent advice.
I use credit cards for a couple of reasons. 1. I don’t like to carry cash mostly due to my age and gender 2. They pay me to use them. Why use cash if the credit cards are pay you and you don’t pay them if you pay it off every month. Had a discussion with a pastor once at that time I was using a Discover card [I have found better ones since then] and I was talking about how much cash back I was receiving. He asked me, “Do you know how much interest they charge?” and honestly I had to say no because I don’t pay it. Guess my daddy’s advice has stayed with me all these years. You do have to be careful because some places will charge you a fee to use your credit card then you have to weigh that against what the credit card company is paying you.

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#19

You can always extend your Amazon purchasing power by utilizing AmazonSmile:

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#20

I understand what you are saying and I have the same inkling in my heart. I also pick up pennies on the sidewalk. I used rewards on my CCs all the time before I got rid of them. It came down to a personal decision that I didn’t want to play the game anymore. Credit cards companies spend billions on advertising and getting me to say, “Hey, you could earn 1.5% back on EVERY purchase you make even the electric bill that you are going to pay off every month anyway.”. This sounds like I am throwing money away, but for me, the couple hundred dollars a year that I saved (and I added it up over several years to see) wasn’t worth what I overspent using plastic to “get” those rewards. And the credit card company won anyway because they got me to hold the risky plastic in my wallet.

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