6 Credit Card Lies We Believe

credit card trapsOver the course of the last generation or so, we as Americans have changed our habits and now use credit cards as one of the primary tools for purchasing.  But when you use credit cards, there are several problems you should watch out for when it comes to being a user of that “convenient” plastic.

As for me, I think credit cards are not necessary in order to get by in everyday life.  The convenience of using plastic is not beneficial enough to offset the potential problems that credit card use often brings.

In my opinion, there is not a good financial reason to use credit cards.

However, if you just have to use credit cards to get by in your daily life, here is a list of lies you are sure to tell yourself and some of the mistakes you are likely to make in your usage of credit card debt that ultimately work to keep you in perpetual bondage, just like the credit card companies like:

  • The Minimum Payments are Affordable-  “I’ll pay the minimum payment so I don’t get behind”.  As long as you can afford the minimum payment there are no problems, right?  Wrong!  If you keep paying the minimum, it actually takes decades to pay off the average family credit card debt and you end up spending close to 4 times more than if you had just paid cash.  This applies only if you quit using the card.  If you continue to use it and pay the minimum, you will be in perpetual debt for the rest of your life.
  • I’ll Never Make a Late Payment-  You’ll never make a late payment until the statement comes and you don’t have the money.  Maybe your hours at work got cut back, maybe you had some surprise expenses come up. Hey, you can just pay it with that other credit card with a later due date.  Problem solved!  Yeah right.
  • I’ll Only Use My Credit Card for Emergencies-  Just in case something happens, I’ll use it only if I have to.  That works well until it doesn’t.  When you find that perfect whatever it is you’ve been wanting, it’s on sale, and you don’t have the cash, you’ll use it “just this one time”.  Until it happens again.  Not a good way to develop financial discipline.
  • I Won’t Go Over My Credit Limit-  You’ve been up around your credit limit for awhile but you’re managing it ok.  What’s that, the car needs a major repair?  You can’t get to work to make the money to pay the credit card bill without the car.  So over the credit limit you go, adding fees, increased interest rates, and stress to your life.  Yay you!
  • I’ll Use it Just for the Rewards-  “I can play the rewards game and use that credit card to my advantage, because I’m smarter than the people at the credit card company.  I know they offer the rewards to get me to use the cards more, but I’ll game the system.  Besides, I need to earn plane tickets so I can take a vacation and destress from all the credit card debt that I have to deal with.”
  • I’ll Get a Cash Advance Just This One Time-  “I’m in a tough spot and I need cash right now!  Yes I know the credit card company charges a fee for that and they’ll even raise my interest rate, but I’ll deal with that later, like when I get my statement and wonder how I’m going to pay for all this.”

You will probably end up telling yourself most or all of these lies at some point if you use credit cards on a regular basis.  But when you start believing those lies, the end result is that you end up enslaved and in bondage to those credit card companies that encouraged those lies in the first place.

When my wife and I had credit cards, we told ourselves many of these lies and we were very convincing.  But once we came to our senses and realized that using credit always puts you at a disadvantage, we began using cash and we have never looked back!

Even if you’re the kind of person that pays off your bill completely every month, studies have shown that you still spend at least 12% more when using a card instead of cash because it’s so easy and frictionless to use.  It doesn’t feel like real money.

Seriously, credit cards are for suckers.  They are marketed to us so well, we’re convinced that we “need” them to get by in modern society.  But when it comes down to it, paying cash is always the best use of your money, and the best way to use a credit card is to not use one at all (Here are some fun alternate uses).

Have you ever told yourself any of these lies?

Tell me about it in the comments.

About Dr. Jason Cabler

17 Responses to “6 Credit Card Lies We Believe”

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  1. “I’ll Only Use My Credit Card for Emergencies” — This is the one that really trips up a lot of folks I’m afraid. Many think of a credit card with a $10,000 credit limit the same as a $10,000 cash emergency fund. “Why do I need to save up $10k when I can borrow it if I really have to in an emergency?” Said differently, psychologically, a credit card can have the perverse effect of relieving the pressure one should feel for preparing properly for emergency expenses. Relying on credit of course often makes the emergency expenditure two, three, or five times more costly over time than it should have been–if paid in cash–because of interest and fees.

  2. You said it well. A credit card is NOT a good emergency fund. It leaves you with a false sense of security just like using credit to live your life gives you a false sense of prosperity. Great comment Kurt!

  3. JoeTaxpayer says:

    Jason, I understand for many, even most, the cards are a temptation. Like alcohol to the alcoholic. I do use a decent rewards card 2% to my daughter’s 529 account. I pay in full every month.
    You mention the studies that show 12% higher spending on cards vs cash. Do you have any of these to share? It’s not so much that I don’t believe this to be true, it’s that I’ve never seen one that proved the point to me. I’ve collected papers (I think I’m up to 5) which all appear to be contrived studies used college students and small purchases. Does a kid with a gift card to the school cafeteria really extrapolate to an adult with a $4000 per month budget?
    I think if a comprehensive study were possible the data would prove that the behavior of the group who were ‘pay-in-full’ was markedly different from the debt carriers.
    When I look at my annual credit card summary, it’s remarkable to see which items were discretionary. Nearly 95% were things that were planned, budgeted, and would have been bought with a check.
    My $20 impulse buys at Costco or the supermarket result in a home cooked meal that just saved me a $50-70 restaurant bill.

    • JoeTaxpayer,
      The 12% that I mention is a result of the type of study you mentioned with college kids. I recently found another link to a study from Citibank that came to a similar conclusion, but I haven’t been able to find it again.

      I do think the average credit card user does tend to spend more when they use credit. Of course the “pay in full” crowd are not the average credit card user, although even they can have an emergency or a bad month that can keep them from paying in full for a month or two, getting them behind on their payments. This is one way people end up in credit trouble, they aren’t being stupid per se, they just ended up in a bind due to a lack of foresight.

      I think you are definitely an outlier by being in the habit of paying in full every month. Every study has it’s participants that are outside the norm, so congrats on not being “normal”! Abnormal is a good thing to be in this case.

      Thanks for the comment!

  4. I have to admit that, during the time when we had three credit cards, we also fell on those “just this one time” and “I can pay only the minimum this month as long as I do it before my due date.” We had to learn the lesson the hard way. We have already closed two of our cards and we see to it that the balance of the remaining card is paid off before the end of the month.

    • That’s great that you’ve gotten rid of the two cards and you’re being more responsible with the last one, congratulations. Now here’s a challenge for you:

      Get rid of the last one.

      Make a get out of debt plan and get an emergency fund in place. Then work that plan until you are completely out of debt. You don’t need that card, period! I know the thought of not having one feels extremely weird, but I can tell you from experience that it’s a great thing to do that frees you from the bondage over your life and your wallet that comes along with debt.

      Any one can do it. you just have to decide you are done and you’ll never go back.

      Are you up for the challenge?

  5. spiffi says:

    I have had at least one credit card since I was 19 and currently have more than one.

    I have never carried a balance in nearly 20 years. I believe I have made 3 late payments in my life, and each time it was a scheduling issue where I missed the deadline due to losing track of the date – not because I was unable to afford the payment – in each case I called the credit card company and due to my excellent payment history, the waived the late fee and I immediately paid the balance in full.

    Credit cards are a useful tool – I can purchase thousands of dollars of equipment for my company, travel on business and not have to be out of pocket personally – my company reimburses me before the bill is due and I pay off the balance (and collect the rewards).

    Certainly many people abuse credit cards – but they aren’t inherently good or bad – they’re just another financial tool.

  6. You are definitely an exception to the rule. For every person I talk to who uses credit cards without any problems, I talk to 20 who have had problems with them at some point.

    It’s definitely not the credit cards that are the problem, it’s the human swiping it. I’ve found that it’s just much easier to live without them and remain debt free. You can’t spend more than you make when you use cash.

  7. My husband and I have used our credit cards since we got together in college and have never carried a balance ever. I do not think they are evil if used like cash. Just don’t swipe it unless you have the cash already in the bank to pay the bill and you already budgeted for the expense. Not that hard and you can earn 1-5% cash back on things you would buy anyway. So, no, I do not think credit cards are awful. I just think alot of people use them incorrectly.

  8. I have found that in my life they are just not necessary. I use cash only and having a credit card would be just one more account to deal with and a temptation to use when I don’t have the cash for something.

    I think most people also rely on credit cards as a substitution for a well funded emergency fund, which can end up in disaster, or at least in the emergency being a ball and chain for months or years before it’s paid off.

    Unfortunately, many people use credit cards as a crutch, causing them to spend more than they make instead of taking the time to practice good money management.

  9. Kris says:

    Yep, the lies work. Too bad getting credit is so easy .Got my first card while still in college. Didn’t know any better at the time. Looking bad, that was stupid of me to accept. But being in college with an AMEX, that was cool! Smart marketing on their part, with low risk since I was a senior, but they hook us in early, don’t they!

    • Yeah, they market those things to you really well. When they have an entire marketing team that works on your psychology to lure you in, it’s easy to fall into the trap. You have to realize what you may be getting into before you do it.

  10. JMK says:

    There are definitely two groups of people when it comes to credit cards. Those who use them as part of their cash flow and could easily fall into any of the costly scenarios you outlined. Probably safer just to remove the temptation and not have a card. Then there are those who use the card strictly for the benefits, only buying planned items for which the cash is already sitting in the bank.

    Our family of 4 just returned from Europe this weekend.
    Cost of flights if I’d bought them 4 x $1250 = $5000 (plus tax).
    Cost because I got them with with points earned with my card, just the tax. Saving $5k just for making all our normal purchases on the card, yes please!
    The cost of the cruise, hotel, meals, admission fees etc while away all went on the card and were either prepaid before we left or paid the day after we landed home. Done. All those items have already earned mileage toward next summer’s flights back to Europe. I’m going to buy our planned groceries and gas every week anyway, why not get the benefit? We also have all our monthly bills charging to the card – insurance, internet, phone, cell, alarm monitoring etc. If only I could get the mortgage and property taxes charged to the card I’d be a very happy camper. To keep the VISA account transactions aligned with my spreadsheet, I find it easiest to pay off the card every week. The cash for everything was there anyway, it just means a smaller list of items to review and pay off each time and you never miss the due date. I don’t actually know when my VISA bill is due because it’s irrelevant to me. It’s always paid off before the statement arrives.

    Our car is going in for brake work this week. The funds are sitting in the bank, but why on earth would I pay cash for that when I can put it on the card and then go home and make an online payment to Visa (before it even show up on the account). Yes please, I’d like those ~500 flight miles toward our next trip.

  11. Stephanie says:

    I’m one of those weirdos who spends less when I use a card, be it credit or debit. It’s soooo much easier for me to spend cash, I think because once I take it out of the ATM and record the withdrawal, I’m done thinking about it. I record the withdrawal in my checkbook and my spreadsheet and I spend the money on whatever I want. When I use a card, I think reeeeally hard, not just about whether I truly need what I’m buying, but whether I want to remember to record that expenditure, and (if it’s a credit, as opposed to debit, card) if I want to have to account for the future outflow of cash for the remainder of the billing period.

    As a result, I almost exclusively use my credit card for online purchases, although I will occasionally use it for a big purchase I know I’ll pay of at the end of the month in order to rack up those points. I’ve paid a little bit in finance charges over the years (once in a great while I’ll carry a couple hundred dollars from one month to the next), but I’ve earned waaaay more in rewards. Definitely worth it to me. I guess responsible credit card use is one of the advantages of being hopelessly obsessive-compulsive about finances? 😉

  12. lauren says:

    I, too, must be a weirdo– I use my (only) credit card solely for the Cashback rewards. I actually go a step further than paying off the entire balance every month– Most of the time I pay it off within a few days after making a charge, so I can see the debit reflected in my bank account know EXACTLY how much I’m spending rather than seeing a mysterious number at the end of the month and wondering where it all went. It works for me 🙂

    • Yes, you are a weirdo. It’s good to be weird. Most people don’t have the discipline it takes to do that and end up in credit card debt. That’s what the credit card companies count on. They know that a certain number of people (the majority) will carry a balance from month to month, and that’s how they make their money. They think you’re weird too, and they don’t like customers like you because they can’t make any money off of you. You should be proud to NOT be a friend of credit card companies!

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