The Case Against Credit Cards pt.2

Welcome back soldiers. We’re picking back up where we left off by presenting the final 2 cases against using credit cards. 1 case has to do with math and the other has to do with personal experience.

Credit Cards Have a Poor ROI

Perhaps the number one reason you use credit cards is for rewards. Yes, I’m talking to those who enjoy racking up cash back and airline miles!

Many swear by the amenities that credit cards provide. Here’s an interesting tip: 31% of people NEVER redeem their rewards (Bankrate, 2017). But you’re Mr./Mrs. Frequent right? Let’s put something in perspective. About 7/10 people in the U.S. own at least one credit card. There are approximately 325 million people in America. In spite of your “not me” thinking, this is a very large number of people (~ 98 million) who don’t cash in rewards. Another factor to consider is low or poor reward rates. The most cash back percentage points given to consumers usually maxes out around 5%. In many cases, consumers have to spend anywhere from $500-$5000 just to reach certain welcome incentive point thresholds. Spend thousands of dollars to only get back tens, hundreds, or one flight? That’s backwards logic. That’s also a lot of frivolous spending.

Take a house for example. When you pay towards your mortgage (besides taxes and insurance), you are building up equity. If you pay off your house, you’ve obtained a glorified savings account, and have become the owner of an asset. You can take that $500-$5000 I mentioned earlier and put it into a good mutual fund with a return of around 6%. In comparison to owning a home or investing in the stock market, credit cards have an extremely poor ROI.

Credit Card Turning Point

I used to be one of those people who paid off my credit card every month. After getting the initial welcome rewards, I grew fatigued from constantly having to spend exorbitant amounts of money to obtain enough points to redeem something worthwhile. It was stressful if I’m being 100% honest. I consistently worried about making the payments so I could avoid the outrageously high interest penalties (interest was still double digits with decent credit). I also began looking at my monthly budget in terms of points and rewards potential instead of managing my finances in a more thoughtful way. Ultimately, the real turning point for me came when I read the following passage out of “Your Money Counts” by Howard Dayton: “When we get into debt, we assume that we will earn enough or will have sufficient resources to pay the debt.” Reflecting on that text really struck a nerve. How in the world could I really guarantee that I’d have the money to pay my credit card off every month? The thought is actually pretty arrogant in the sense that we have no way of predicting the future, regardless of how stable things appear.

Soldiers, I now rest my case against using credit cards. At the end of the day, it’s up to you on what you decide to do with your money. I do, however, pose this question to you: what’s causing you to keep on using credit cards in spite of their toxic attributes?