Should you ditch your credit cards?
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(MoneyWatch) Some 50 million U.S. households have credit card debt, according to CreditCards.com. About two-thirds of Americans own a credit card, and about half of these folks carry a balance. But consumers' reliance on credit cards appears to be at a turning point. Some reports suggest that more people are steadily paying down their debts or are even deciding to forgo credit cards altogether. Despite the existence new consumer protections for credit-card users, distrust of card issuers and their gimmicks also remains high. Then there's the other reason -- after a confidence-shaking recession, many people are wary of taking on debt.
© 2012 CBS Interactive Inc.. All Rights Reserved. For those who are determined to avoid using credit cards, the other payment options include using debit cards, checks, and cash. The number of consumers swiping a debit card to pay for purchases increased over the past two years as a result of the sluggish economy. Almost half of consumers surveyed said they believed debit cards helped control their spending.
It's hard to argue with someone who decides to put aside their credit cards. But if you opt to ditch your card, you should also be aware of the benefits you could be giving up and be prepared to deal with the limitations and risks of using other forms of payment.
Transaction protection: When you make a purchase with a credit card, there is a legal firewall between your bank account and the vendor. The bank issuing the card makes the payment to the vendor. You are obligated to pay the bank only after you agree that the charge is legitimate and that the item or service you bought was delivered as agreed. But make a transaction with a debit card and the payment is immediately deducted from YOUR bank account. Federal laws and bank policies include protections from fraudulent or unauthorized transactions due to debit card theft. But before a questionable transaction is sorted out, the money is taken from your bank account. In the meantime, if your account is depleted, any checks you've written could bounce.
Credit history: Responsible use of credit cards is an effective way to build a good credit score. Consumers who don't carry a credit card have a lower average credit score compared with those with at least one card and who always use it responsibly. The fact is, many folks will need a good credit history when it comes time to buy a house or a car. And you can only get that by responsibly using credit. According to experts, debit cards -- which are simply a card substitute for paying by check -- have zero impact on your credit score.
Convenience: It also can be difficult to rent a car without a credit card. Some hotels may not book a reservation on a debit card, and those that do often place a hold of several hundred dollars, which freezes that money in your bank account. That temporarily lower your available bank account balance, which can cause incoming checks to bounce.
Benefits and rewards: Finally, there are the additional befits and rewards programs that come with credit cards, including frequent-flyer miles, gift-card rewards, college savings, and other programs. Some credit cards provide good rates on foreign currency conversions, so these are a good option to use when traveling in a foreign country. Many credit cards also double the length of a manufacturer's warranty when the item is purchased on the card, making credit cards a good payment option when buying and shipping consumer electronics.
Of course, when folks get into credit card debt and can't promptly pay off their balances, the fees and interest they pay will almost always outweigh these rewards and benefits.
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I would recommend you to make your facts and logic's clear and please don't misinform the general public.
Lets understand and analyse your article point by point.
At first when you say Transaction Protection, well a bank will only give it to a credit card since its the bank money not a customers so they are more worried about having protection to it. When some uses debit card for transaction its the customers why a bank should be worried about they won't even care to have a protection to it. At the end of the day bank want to make money and its credit cards that enable them to make it so protection will be given only to credit cards.
Secondly when we say Credit history - the people who never took a credit/loan are the people who managed their finances well and they are the people who are trustworthy(frankly speaking those people will never take a credit card) rather than the person who took a credit and repaying on monthly basis and you call them credit worthy.
As others have said, the credit score system is created by bankers and insurance companies to optimize their profits. If it was a true evaluation on your ability to pay, it would include your total net worth, liquid assets and many other credibility factors.. but they do not. Get a credit card for a better Credit Score is probably the worst advice I hear on a regular basis.
You can't borrow your way to financial independence.
Many small businesses are giving small discounts to people who pay cash. Not a new idea, but I hope it catches on and consumers support those businesses. My dry clearner shop gives me a 10% discount for cash payment. My neighbors and I have formed a loose-coalition to send all our business to them.
The whole notion behind credit cards is that Americans can't afford to actually buy anything--most of what we buy other than a pack of gum or a coke is bought on CREDIT! And that is completely the game created by and for banks. No, no, NO!
The fact is the American economy is so weak that most Americans can't actually afford to buy much of anything of significance--not a car, not a college education, not the roof over their head. We live on banks, their money, and their credit system that serves ONLY them.
I suggest that American dump credit cards as much as they can--drive the banks and the credit card servicers into the ground the way they have driven Americans into the ground.
As for FICO, based in San Rafael, California, drive that company into the ground as well. They make the scheming behind the medical system overhaul seem like child's play.
If I have to buy anything that costs $100 or more I follow a simple rule - delay the purchase by 48 hours. That alone kills at least 95% of the purchases. Anything about $50 (except gas - that stuff is so expensive) delay by 24 hours - 98% kill rate. Anything below $50 spend cash.
I pay all my utilities by credit card, one bill to pay at the end of the month and never late.
Credit cards are God's way to give you money for temporary use ONLY - if you can manage it - it is a beautiful thing.
And, by the way, God has nothing to do with "mammon" (worldly, acquisition of wealth), and to use the word "God" in the same context as "credit cards" is a bit of a stretch, don't you think?
American has been terribly misinformed. We've been programmed to focus on building our credit instead of building our wealth. In other words, we've been granted permission to spend tons of imaginary money. ...
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Totally agree!
Then again, who is the most reckless spender given us as a role model? While putting the Iraqi war on a credit card, Bush threw a slogan: Americans, be patriotic, shop, shop, shop.
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I stopped using "credit" (money you haven't earned yet) 10 years ago now.
When I used "credit", I never had any money.
I stopped using "credit" and now have money.
Simple.
You want to have debt or money?
It took a lot of anxiety from me. No more rushing to a late-time open post office to mail away a delayed payment. Go to hell that.
And I absolutely don't care about that totalitarian, denigrading "credit history".