Credit Cards vs. Convenience Cards

I am asked all the time about my view on credit cards. Are they good or bad? How many should I have? Which ones are the best to have?

Truth be told, I love credit cards. I know, I know. Financial advisors are supposed to hate them. And there are definitely certain instances where they can be dangerous. But I want to show you how to have a healthy relationship with credit cards.

Before telling you how I treat credit cards, let’s change our nomenclature. I think of them as “convenience cards.” You should not use these cards for any kind of credit. Honestly, borrowing money by using a credit card and not paying it off has to be the most expensive way to borrow money. It’s not uncommon to see interest rates of 15%, 20%, or even 25%! Seriously, go look at your next credit card statement. It tells you right there what you are paying. If you need to borrow money for something, find a better way!

Credit cards can be really convenient, but of course they can also be very dangerous. They’re like little knives in your pocket. In the right situation they can be incredibly helpful and make the task you are trying to accomplish much easier. However, used incorrectly they can cut you and be really dangerous.

If you have credit card debt that you’re struggling to pay off, this is a financial emergency. You need to stop using the cards and come up with a plan immediately to pay them off. You will never get ahead financially paying the interest rates that credit cards charge.

If you can use the cards responsibly, they can be a great tool. I use credit cards for every purchase, but just for the convenience they provide. I don’t have to carry cash, I don’t have to pay immediately for my purchase, and it’s easy to track expenses when they are all on one statement.

Many credit cards also give you rewards for using them. Our primary card gives us airline miles, and our backup cards give us cash back. Have you ever wondered how the credit cards can afford to pay out those rewards? It’s because when people don’t pay off their balance monthly they subsidize the rewards that are paid to other card holders! The credit card company is not losing money here. It’s the people carrying a debt balance on their own credit card. 

Our family has five credit cards. Kaimey and I each have one that we use for everyday purchases. We also each carry a backup card that is only used if the main card is out of commission. This usually occurs because the credit card number was stolen by someone and we had to shut it down. In these cases, it’s nice to have another card available so we don’t get in a bind while waiting for a replacement card. I don’t advise using your debit card as your backup card (or main source of payment). Credit cards offer better protection if or when your card number is stolen.

The fifth credit card is only used for recurring bills. I use it to set up utility payments, cell phone bills, internet bills… basically anything that is a recurring monthly payment. I love this strategy for a few reasons: First, if/when my main credit card number gets stolen, I don’t have to figure out which recurring bills need the updated number. Since I never carry this card around or use it at unknown stores, the number has never been stolen. Also, when this credit card expires, I just have to look at one bill to see a list of all of the companies that need the updated expiration date.

There are many other benefits of using credit cards as well. It can help build your credit score, offers financial protection in case your card number is stolen, and like I mentioned before, you can’t beat the convenience.  

The main warning is that any time you spend money and don’t feel like you are really spending cash, you are walking on thin ice. The credit card companies have psychologists studying how to get you to use their card more and more. They go through a lot of effort to make you feel like you’re not spending a noticeable amount. And the rewards themselves are a way to gamify your spending. Be wise and know their strategies so you can avoid the temptation. Just use the cards for convenience.

If you find yourself struggling with the balance of how to use credit cards most effectively, I help with that! I’m happy to help you and your family develop a plan that works for you.