Credit Cards are Indeed an Indulgence

by David Ning · 18 comments

The reward points, the 30 day free loan, and the perks are just excuses to keep that piece of plastic. No matter how much control you have, credit cards are a convenience that you pay for.

I used to think that credit cards are disastrous for the irresponsible but benefit the disciplined. I saw those reward points as free money since we could get free merchandise and even cash back. I was wrong, and have been for more than a decade since I was first approved for these little money suckers.

Some of you may disagree, and I probably would have too if I read the same point being made a couple years back. If this is you, consider the following scenarios before you pull out your card next time.

  • The Cash Only Restaurant – Have you seen these around your area? I was at a restaurant the other day that only accepted cash. I didn’t remember until I sat down, and we only had $8 in our wallets. Instead of going to find an ATM machine, we ordered the cheapest dishes on the menu. We were still full, but the owner probably never knew he lost some business.
  • How Did Anyone Buy Anything – I wasn’t lucky enough to be around before the invention of credit cards, but how did anyone buy anything expensive? I remember a decade ago when there were stories of Chinese people buying condos in Hong Kong and paying in full with a suitcase of cash (I’m not kidding. Just imagine a suitcase with stacks and stacks of $100 dollar bills inside). Is it a similar situation when people buy any big ticket item before the credit card era? Some people may use checks, but what about those that don’t like the lack of security? Without credit cards, I would always have to carry a big stack of bills if I ever wanted to buy anything. The thought of being robbed would probably deter me away from wanting to buy, and it could be a good thing.
  • Even Pay Yourself First Won’t Work – When I receive income, I usually stick them into my savings accounts immediately. Add to the fact that I hate taking money out and I have a nice little savings machine over here. But with credit cards, I never have to withdraw money to make a purchase. Instead, I use the card and pay for it with my future earnings because the bill isn’t due until then. I won’t be saving as much money next month, but hey, who’s counting?

I’m sure there are tons of other scenarios where credit cards have made us spend more. Can you think of any?

Credit Cards are Just Like Any Other Luxuries

I’m not trying to start a war with credit cards. Far from it, since I think credit cards helped consumers much like electric shavers helped men. They are convenient, saves times, but they just cost money.

If you think about it, credit cards are a luxury item much like any other. You pay for a Louis Vuitton hand bag because you love wearing it and the praises that you get from your peers. You pay more to replace your computer because you get more enjoyment and productivity out of a faster and brand new machine, and you spend more with a credit card for the convenience and power that it presents you.

Credit cards cost money, but it doesn’t mean that they are bad. Keep your card, but just make sure you know that you are paying for the privileges one way or another. Even 0% balance transfer credit cards may not make sense.

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{ 18 comments… read them below or add one }

Financial Samurai October 20, 2009 at 5:08 am

David – Thanks for your article. As I get to know the PF community more, I’m curious to know your thoughts on bloggers who write about the evils of credit cards, and the very next week highlight great credit card deals and balance transfers?

I’m struggling with this issue myself, as I’m getting affiliates e-mailing me asking to highlight their product. But, if I’m writing about the dangers of credit cards, for example, is it right to then pimp out a special credit card deal for money?

One has to change their mindset of credit card usage, and not just do a band aid balance transfer.

It’s like one big campaign these vendors pitch, and suddenly everybody is pushing X brokerage house, or X credit card etc. Doesn’t seem right. Curious to hear your thoughts.

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MoneyNing October 20, 2009 at 9:08 am

I think the whole “highlighting/affiliate” products complication becomes a non-issue if you write about how you HONESTLY feel about everything. Naturally, you will like certain products while you don’t like others. As long as you actually looked into the product and write about your experiences with it, I don’t think there are any moral issues even if you talk about a credit card. Remember that just because you talk about it doesn’t necessarily mean you endorse it or use it yourself. It simply means that you wrote about it.

I just wrote in this post that credit cards cost money and the reasons why. Yet, I have several cards, and I still feel that most people should have one because it’s ultra inconvenient without one, not to mention that someone who has NO credit cards probably don’t have enough credit account history to obtain the highest possible credit score they could have.

So does that mean it’s wrong for me to tell you all that? Of course not right? And if you agree that my line of thinking is right, that we should all have credit cards, then why shouldn’t I help you find the best credit card out there that has the best cash back rate?

I think part of the problem is that we, as readers, automatically assume bad intentions and get put off when a blogger writes about these products, when the real problem is that we actually don’t trust that blogger to begin with and the affiliate post became an outlet for us to voice our concerns.

Going back to your situation though, if you are hesitate a product, then don’t write about it. If you actually write about your experiences with it and whether you would use it yourself, then I really don’t see a problem telling everyone about it.

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Financial Samurai October 20, 2009 at 12:48 pm

Howdie David – Thanks for your reply. What you say is spot on. What I do notice are WAVES of endorsements by the PF community, which is statistically signficant in that it unlikely suddenly 15 big bloggers out there all write about X broker trading independently for example.

More often than not, it is X broker contact bloggers to pay them X amount if they can write a nice review. So you’re right, when I see this wave of endorsements, I don’t trust the product, and start trusting the publisher less. … that is, unless they actually have their skin in the game and are using the product wholeheartedly.

Lending Club is a big example. So many publishers highlight this company, yet they either have nothing invested, or have like $500 bucks. Come on, that’s not skin in the game guys. If you really believe in the product, put in a greater % of your income/savings.

The reason why I read your blog regularly David is because 1) you have original content, 2) aren’t constantly flogging readers with “$50 bonus if you sign up for this”, and 3) are responsive.

Hence, I trust you to recommend the right things, so keep up the good work.

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Daniel @ Sweating The Big Stuff October 20, 2009 at 6:26 am

I think there’s a difference between stating the dangers of credit cards, which really serves as a remind to be a little more aware, and saying that credit cards are evil.

Most people see them as an important tool, that when used correctly, can be a big help instead of a financial burden. Different cards work for different people (some prefer cash rewards, while others like miles), so I think advertising certain cards are more about letting readers know their options rather than trying to make a quick buck

I definitely understand the need for bloggers to make money and it’s a thin line between promoting something you believe in and taking a payday at the expense of the readers. I think that as long as you believe what you’re writing, you shouldn’t feel guilty. If you feel like you’re selling your soul to the devil, well then there’s probably something wrong. It’s nice to see that you care enough to ask the right questions.

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Credit Card Chaser October 20, 2009 at 5:02 pm

“I think there’s a difference between stating the dangers of credit cards, which really serves as a remind to be a little more aware, and saying that credit cards are evil.”

Exactly right. It’s important to not get too carried away and throw personal responsibility totally out of the window. Otherwise we might as well just say that all banks, mortgages, auto loans, etc. etc. are evil when in fact they are just tools that can be used properly or improperly.

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Lee October 20, 2009 at 8:27 am

“Instead, I use the card and pay for it with my future earnings because the bill isn’t due until then.” – there is the fault in the thinking right there. You don’t budget your present spending out of future income. You budget it out of what you have NOW.

If I spend £300 on my credit card, it goes in THIS MONTHS budgeted expenditure. Sure I might not actually hand over the payment until I get my NEXT paycheck, but I’m never paying arrears with this method. The bill is always known in advance and budgeted for before it hits the mat.

Credit cards are great. They offer free money. You just need to be disciplined in their usage. Is it worth the effort? That’s a personal thing. ;)

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MoneyNing October 20, 2009 at 9:18 am

I think the difference of budgeting for it now and for later has to do with how we manage our finances.

The way I do it is that I transfer EVERYTHING I have into savings, investments and retirement accounts instead of making a budget. I almost don’t have any expenses since I find more joy reading my account balances, but if I budget it that way, I will feel deprived seeing $0 for entertainment and $0 for splurges etc etc. Alternatively, if I budget $100 for entertainment and $100 for splurges, I will have $200 less saved every month since I will use it.

Without a budget, my personal “accounting” is through cash flow and naturally, the credit card payment will come from the income that I get the same month.

For most people, what I do is recipe for disaster because it’s hard to be disciplined this way but it works for me.

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Lee October 20, 2009 at 9:58 am

I can understand that method as well. I don’t think it would work for me (good on you if you can do it, of course). I prefer setting out things on paper.

Is it then fair to say that it isn’t the credit card that is the issue per se, but the method used to derive the payment? :)

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MoneyNing October 20, 2009 at 10:12 am

I think you can make the argument that the method is causing me to spend more as well, but in reality, I’m sure it’s both.

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Thicken My Wallet October 20, 2009 at 9:11 am

Like many other things, people are not buying the services for the credit card per se anymore. They want the points or affiliate programs, cash back and whatnot and spending tends to go up as a result.

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marci October 20, 2009 at 4:03 pm

Cash, check, money order, or certitied check…we got by just fine without cards ‘way back then.’ :)

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Credit Card Chaser October 20, 2009 at 5:03 pm

But you are also participating in something right now (reading blogs posts online and leaving comments) that likely would not be possible without the ease of paying for things online via a credit card :)

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MoneyNing October 20, 2009 at 5:17 pm

Actually, marci can buy a computer and pay for Internet access just fine with checks or cash, which would allow her to comment and post online.

In fact, I can run an online business without credit cards if I really wanted to, so I can definitely read blogs without one.

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Mark Wolfinger October 20, 2009 at 6:48 pm

I don’t get it. Sure, the undisciplined cannot afford to own credit cards.

I buy only what I want to buy – nothing on impulse. I don’t have to worry about having enough cash on me. I pay the bills in full every month.

How is this costing me anything? I even pay the credit card bill online and avoid using postage stamps.

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MoneyNing October 20, 2009 at 10:28 pm

You may buy only what you want to buy, but when you only have cash, there may be times when you don’t have, or forgot to bring the funds with you. Without the money with you, you won’t buy and there could be times when you end up not buying after waiting a few days. If it even happens once in your life, your credit cards have just cost you money.

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Mark Wolfinger October 21, 2009 at 7:59 am

That’s a specious argument. Being frugal means making intelligent decisions. It does not mean refusing to spend, nor does it mean going out of your way to save every possible nickel.

Suppose I do spend $50 one time – something I would not have done with ore time to think about it. I would have made the same decision with cash in my pocket.

What about the value of convenience? Credit cards are easy to use. That has value to me. I don’t ever have to be bothered taking the time to get cash. I am never embarrassed by trying to buy something only to discover that my payment has been denied because I don’t have enough cash on my person.

I believe PF bloggers serve their readers well. But this is one of many instances in which I believe you have drawn a poor conclusion based on poor spending decisions of some people. This is not a one-size-fits-all situation.

Best regards

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MoneyNing October 21, 2009 at 8:19 am

You are absolutely right, and I made the same points about convenience and value of credit cards as you did within the post. I’m just saying that credit cards cost money for the vast majority of people in the world, large or small. Nothing more.

I wasn’t trying to say at all whether it’s good or bad. Like I always say, spending is a personal choice. I have a credit card myself and love having one. Now why would I believe that I’m irresponsible? :)

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Mark Wolfinger October 21, 2009 at 11:41 am

You wouldn’t.

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