What's wrong about my mentality re: credit card use?

In My Humble Opinion
21

I won’t declare “right” or “wrong” here, but as has been noted, if you are using your CC to buy luxury items for which you don’t presently have the cash, then you are living much, much closer to the financial edge than most experts would advise.

As for your friend’s/family’s position that CC’s are evil and should only be used in emergencies, well, I disagree with that. There are plenty of reasons that I use a credit card:

-much handier than a wallet full of cash.
-if your wallet gets lost/stolen, you can cancel your CC with only $50 max liability (zero if you cancel before the thief tries to use it), but you probably won’t recover the cash that was in your wallet (assuming your wallet gets recovered at all).
-in a dispute with a merchant, the CC company can be your ally; if the merchant really is screwing you over, the bank can reverse the transaction and charge the merchant a fat fee for doing so, which often gives the merchant a strong incentive to play fair. You do not have this weapon on your side if you pay with cash, check, or ATM card.
-many CC’s offer cash back or other benefits, which means it can actually be cheaper to buy an item with a CC than with cash.
-using a CC means you’re nut punching your ATM card’s PIN into keypads all over town. Banks don’t typically offer the same protections on your checking/savings account as credit card companies do on your credit card.
-Nowadays, if you’re unsure how much you’ve spent during the current billing cycle, you can check your card’s tally online. Unlike in the past, there’s currently no reason not to know where you stand WRT expenditures.

The only reason not to pay it off every month is because you don’t have the cash to do so - in which case I refer you to my first paragraph.

22

Just to add,

It takes a bit of discipline but it’s much easier (when living on the financial edge) to be living paycheck to paycheck 6 months ahead of the curve rather than 6 months behind the curve.
It’s a lot better feeling each month working your accounts from a surplus down to zero rather than working them from a deficit up to zero.

23

Replace “Amazon gift cards in points” with “UPromise 529 points” and this is me. Six percent is pretty low, but if you don’t have the cash to pay the card off at the end of the month, you can’t afford the purchase. It’s all about budgeting and responsible financial management.

Think of the card as a convenience rather than a loan. Delayed gratification can be a good thing- it can help you decide if you really need the item.

24

Echoing the “if you have financial discipline…” comments here. I make virtually every purchase on my credit card, pay off the entire balance monthly and have gone to Europe twice on the reward points earned therein.

25

As long as you can afford it and understand all of the ins and outs, what’s the problem?

I once posted a thread about topics that people get all smug and proud about, and this was the number one item on my short little list.
Just like smoking and drinking, this is one of those subjects where folks on one side of the line can sneer at those on the other side and say “Well, I don’t do that, and you are silly if you would.”

I have carried credit card balances for most of my life, though it has been more out of a need to buffer large expenses (e.g. unexpected automotive repairs) than a need to buy big-screen TVs.

I never had the self discipline to keep decent quantities of cash in reserve, so the interest payments are my punishment.

26

That is exactly the point. When you start buying stuff you cannot immediately afford (and that’s what the OP said he does), then you are essentially not living within your means. Buying on credit is fine if it is for essential things like housing (mortgage), education (school loans), transportation to work (auto loan), but not for nice-to-have items like an oversized house or luxury-class car or large screen TV that are more than you can afford. That’s how a lot of people dig themselves into their financial holes. OTOH, it’s people like the OP who give the credit card companies their profits.

27

And debt tends to be like weight. It creeps up on you. You start wanting the instant gratification of an iTouch. Before that is paid off, you decide you need a new TV. No one wakes up 40 pounds overweight, and responsible people don’t wake up one morning $20k in debt, but getting out of debt or losing the weight demands a greater sacrifice than just not giving into the temptation to begin with.

28

Totally agree with the above post. I have a credit card, which I use for various reasons (consumer protection, convenience) - but I always pay it off every month.

I have seen too many people get in to the following cycle.

It starts with one luxury item. That you’re going to pay off at, say $50 a month. There’s $50 less disposable income you now have. So you are now more likely to need a credit card for the next major purchase. This snowballs and snowballs until your minimum payments are now a chunk of your disposable monthly income. So then you start using the credit card (or credit cards, by this point) for groceries and for gas. Then you might get a consolidation loan to pay off all your cards. Lather, rinse, repeat and the next thing you know you are filing for bankruptcy.

29

I agree that 6% is not that bad a rate to pay if you want to get something a little early. Many people will pay that sort of rate for a car loan, when they could have bought a cheaper used car for cash, etc. But I think you could be doing better.

Do you have an emergency fund with 6-12 months of expenses? If not, then you should be building one up in savings. If you do, then you could use some of that money for purchases, and then pay it back to yourself over time. Instead of paying 6%, you’d be earning 1-2% (on the money in the fund). Do you have any investments? If not, you should. If so, then are any of them making 6% guaranteed? I doubt it. In which case you’d be better off cashing enough out to pay for whatever purchase you were putting on your card.

Again, 6%, paid off diligently is not that bad. But if you have your financial affairs in order, you can do better. And if you don’t, you really should get there before doing things like spending $1000 on a television.

30

It’s not being smug, it’s providing advice to someone who was seeking it. Would it be better if we all said, “actually, buying expensive things that you can’t afford is a much better way to go through life. Who cares if you’re paying more for it than it’s worth- as long as you keep it up until you die, it’ll be someone else’s problem. Knock yourself out.”?

I’d be surprised if the OP *didn’t *expect a substantial portion of the responses to be along the lines of “Well, I don’t do that, and you are silly if you would.”

31

There’s a way to say it and there’s a way to be annoying about it. The message is important, but some folks have a way of saying it in a way that they sound like it is more for their own benefit than the listener.

And there is ample room between the extremes of “I pay cash for everything, including my house” and “Who cares, put it on plastic, they’ll sort it out when I die” for many people who are financially responsible and who still carry a credit balance.

32

No - it’ll only cost “at least $129.00” if you don’t pay it off for at least a year.

That 29% is the annual rate of interest.

To work out the monthly rate, you take the twelfth root of the APR, in this case that’s about 2.14% per month.

So if you pay the card off after one month, it’ll cost you $102.14. After six months, it’ll cost you $113.58.

33

What bank gave you a credit card with 6% interest rate? I have a very good credit rating and have only seen mine down to 8% or so ever, right now they’re above 10%.

34

He’s probably right - I’ve read that elsewhere (about spending more even if you’ll be paying it off).

Certainly if I’m shopping and am planning on using a credit card, I don’t worry so much about whether I have enough in the account to pay for it right now. As a result, I’m less likely to watch every dime, and more likely to make impulse purchases. Even though we’ve always been able to pay it off (and have a separate card with a lower rate if we have something unexpected we need to pay over several months), it’s a bandwagon we’re trying to get off of (the impulse spending that is).

35

As long as you can manage the debt, then it is okay. The trick is making sure you are managing your money reasonably. As posted above, debt sneaks up on you.

Also, always make sure you understand your card agreement to the calculation of interest and the paying off of the debts.

[QUOTE=Sample Agreement]
Applying Your Payments
When you make a payment, we will apply it to amounts shown on your Visa Statement in the following order:
i. first, to any interest
ii. second, to any fees
iii. third, to any cash advances
iv. fourth, to any purchases
If you have paid more than your New Balance, we will apply the extra payment to amounts that have not yet appeared on your Visa Statement, in the following order:
v. first, to any fees
vi. second, to any cash advances
vii. third, to any purchases
In any category of charges, those amounts which bear the lowest rate of interest will be paid first.
…
Interest Calculation
If you do not pay your New Balance in full on or before the Payment Due Date shown on your Visa Statement, you will lose your interest-free status for purchases and fees. In such event, you must then pay interest on all purchases and fees shown on that month’s Visa Statement as well as interest on all new purchases and new fees. Interest is calculated from the transaction date (for fees this is the date the fee is posted to the Visa Account) until the day we process your payment for the total amount you owe.

We calculate interest daily, however we only add it to your Visa Account monthly. The amount of interest we charge is calculated as follows:
We multiply the amount you owe each day by the applicable daily interest rate or rates (that is the applicable annual interest rate or rates divided by the number of days in the year); and for each month, we add together the interest charges for each day.
The total is the interest we charge you.

[/QUOTE]

Based on the above example, when you buy something and can’t pay it off right away, you will be paying the interest on all of your purchases. If you buy an item for $100 that you can’t pay right away, and $400 for other ongoing purchases, then you will pay the interest on $500, and every new purchase until the balance is paid, not just the $100 item.

At that point, it is like taking money from a loan for everything instead of your account. You’d be better off to move the money to a loan/line of credit and use your credit card for interest free purchases (assuming the balance is paid off every month). This way your new credit card purchases don’t accumulate interest.

Personally I pay off my credit card every month. Recently I’ve been renovating our bathroom and been unable to pay off the full amount. I paid the CC (19%) with my Line of Credit (3.25%) and managed to get 1 month of interest free while it was on my card since it started accumulating interest when I made the transfer.