Should You Have a Credit Card?

Dave Ramsey is adamantly against having credit cards and with good reason--when you work with people who are continually digging themselves deeper in debt, you take away the shovel.  When we followed his plan to get out of debt, we cancelled all of our credit cards and paid off our debt and you know what, it worked!  When there is no means for adding more debt, it certainly makes it easier to get out of debt.

Four or five years after we got out of debt, however, we decided to apply for some credit cards, mostly because our credit scores were tanking because we weren't using credit and we planned to buy another house.  So we got credit cards, used credit cards, and generally paid them in full each month.  Until I didn't.  I made several large purchases and while I always paid my credit cards on time and paid much more than the minimum payment, I still ended up carrying debt (which I am making great strides to pay off currently).

So the question is, should people have credit cards?  Currently Americans are carrying $905 BILLION in credit card debt, a average of $15,654 per household with credit card debt.  YIKES!  Yes still many people feel like they can't live without at least a few credit cards.

I think credit cards can be a useful part of your financial plan but only if you pay off the balance in full each month.  People like credit cards that offer some sort of reward for using them but getting 2% cash back on all purchases yet carrying a credit card balance which you pay 18% interest on is dumb.  I have a friend who has a Delta American Express card and he only flies Delta so he can get rewards on his credit card however I can almost always find flights that are cheaper than Delta plus the credit card carries an annual fee of $95 so in my book, that doesn't make much financial sense.

Currently my plan is to keep my credit cards (they are all no fee, low interest cards from credit unions), pay off the one card I have a balance on, and use them sparingly (on large purchases which I have the money for so I can pay the card in full before the end of the billing cycle).  I am definitely NOT going to use them for lots of random purchases that I both don't need and can't afford.  I don't want to get rid of the cards and close the accounts because I do want to have a good credit score, and it is just psychologically more comfortable to know that I do have a lot of credit available if needed.

Let's Just Say I Suck at Using Credit Wisely

I've had my credit cards for approximately a week and a half and already old bad habits are showing themselves.  With one credit card, I used it exactly as planned.  I bought hubby a bowling ball with it for Christmas and will pay it off at the end of the month and won't use it again.  With this credit card I will get a $100 REI gift card which is great.

With the other credit card, I figured I would pay my bills with it (cell phone, Skype, etc) and pay it off at the end of the month and since this is a cash rewards credit card it would be great because I will take care of my bills, build some credit, and get a little cash back to boot.  It didn't quite work out that way.

I did pay my bills with it for the month but when we were at the mall yesterday I used it to buy us lunch--two gyros for $15--because we were hungry and hubby wanted one and I wanted to treat hubby because I haven't spent freely on him in ages so I broke out the card rationalizing that it wasn't that much money and I will just pay it off at the end of the month.  The problem with this is that, had I been using cash, there is NO WAY I would have spent $15 on a quick lunch for us.  Using a credit card made it way too easy to spend frivolously.  And then hubby got his second bowling ball in the mail yesterday and it came with a $10 credit on our next order and since hubby will be doing a traveling league, I hopped online and bought him a three ball roller bag using the $10 credit--and my credit card.  I hadn't planned to buy him a bag, I was just going to buy him two bowling balls.  If I was spending cash, I would have waited to buy the bag and spread out my purchases over a few months.  Plus I've used my credit card for a couple of Baskin Robbins Blasts, a couple of purchases at the $1 store, and probably some random stuff I can't even remember.  Ugghhhh  bad bad habit!

Now most of my check will go to pay the credit card bills at the end of the month and this is certainly not how I want to live--using my credit cards then having to spend my entire income at the end of the month paying for past purchases.

Soooo...

• I will pay off both credit cards at the end of the month.
• I will leave both credit cards at home and put two $100 bills in my wallet to use for financial emergencies (I'm much less likely to break a $100 bill unless it is an emergency).
• I will only use these credit cards once every six months (and in these cases, I will have the cash in the bank--checking not savings--to pay for what I purchase, and not rely on an upcoming paycheck to pay off the credit cards).
• January AND February are going to be a no-spend/low-spend months since we have been spending like crazy this month and I don't foresee any reason that we must spend in the first couple of months of the year.  Also, I feel much better about myself and our finances when I am super careful with our spending instead of casually spending money because we have it (or because I have credit cards and I have money coming in at the end of the month).
• We will use all of the money we don't spend on random junk during these months to put towards something we really want--traveling to Europe and hopefully Asia at the end of next year.

I Got a Credit Card (!!!)

So I had this idea last week.  I thought that it might be time to get a credit card in my name.  Hubby has a credit card in his name which he rarely ever uses (our health insurance payment is billed to his credit card and we pay it off each month, that's about all).  He also is an authorized user on his sister's credit card which for some reason shows up on his credit report even though he only uses it when she asks him to use the card to get money to give her kids (however his sister uses the card for nearly every single purchase she makes in order to get air miles and she seems to use it A LOT.  But she also pays it off each month in full so this makes hubby's credit score really high).

A couple months ago I needed a credit card to bill my monthly Skype payment to (I used PayPal the first month but since I haven't used PayPal in ages there was only enough for one month's fee) so I used hubby's credit card (I didn't want to let some company access either of my bank accounts because they are covered by my savings and I didn't want some glitch or theft or something like that to drain my bank account).

Then last week I figured it was high time to get a credit card.  Besides my name being on our mortgage, I have absolutely NO credit.  I haven't had a credit card for more than three years when we got gazelle intense, paid off all of our debts and credit cards, and promptly cancelled our credit cards a la Dave Ramsey.  It was a refreshing feeling to have no debt.  Plus since then I have had no income to speak off (odd jobs here and there but nothing steady) so it didn't make sense to have a credit card because I didn't want any outstanding bills that I had no way to pay.

Now that I have a grip on my spending plus a relatively steady source of income plus the need for #1 some sort of credit history (I don't want to rely only on hubby's credit history) and #2 a credit card to put some revolving expenses on, I took the plunge.

I had heard that it makes sense to apply for credit cards all on the same day instead of one at a time so that it won't show that multiple businesses have checked your credit so I sat down and figured I would apply for four credit cards in the hope that at least one would give me a credit card.

I applied for credit card #1 through my credit union.  They even called and confirmed my info and asked why I didn't have any credit so I explained that I paid off my debts a few years ago and have used cash to pay for everything since then.  She said she would talk to the underwriter and get back to me.  She called me back and said "sorry, you don't have enough credit...to get a credit card."  Uh, OK.

I applied for credit card #2 because I got a flyer in the mail from REI that said if I applied for a credit card and used it within the first 60 days after I get it, I will get a free $100 REI gift card.  Wow, that sounded nice.  I applied online, made sure there was no annual fee, and it said I was approved.  But to date I haven't heard anything from them.

I considered applying for credit card #3 through Capital One.  I used to have a Capital One credit card but got tired of having a massive balance hanging over my head so I sold a bunch of stuff, sold some old gold, gathered up some of my paycheck, paid it off in a lump sum, and took great pleasure in calling to cancel the account.  They were sad to see me go.  But over the last few years they continue to send me "we want you back" emails so I considered reapplying for a credit card through that company but noticed it had an annual fee.  I don't want to pay an annual fee so decided not to apply for that one after all.

I then went on and applied for credit card #4 through my other credit union.  The application was simple, it was all done online, they didn't even call to confirm anything, there was no annual fee, and they had a super low interest rate (which I WILL NOT NEED because I WILL NOT carry a balance from month to month).  Today I got a credit card in the mail with a $5000 credit limit.  Wow, color me surprised!

So now I am the happy (?!) owner of one, possibly two credit cards.  I don't plan to use them for anything except my monthly Skype payment and my annual web hosting payments.  I intend to pay the card off each month, and I will not use the card if I don't have the money to pay for the item I am purchasing (like if we get plane tickets, I will have the cash in my bank account BEFORE I use the credit card then pay the credit card off the minute to charge hits my account).

My goal is to #1 prove that I can handle credit responsibly, and #2 grow some sort of credit history (which I hope to never need but you never know, at least having a good credit history as opposed to no credit history is--I think--a good thing).  We shall see.  I used to look at new credit cards like "free" money raining down on me.  Now I look at them like someone is handing me a porcupine--it's a nice, interesting animal best handled carefully and with extreme caution.

The Great Credit Card Debate

Actually it wasn't that great and the only debate going on was inside my head, but over the past few weeks I have been wanting to apply for a credit card.  I think it was because every day that I was working, I was seeing people with massive amounts of cash buying in for poker games and all of them seemed to have a wallet full of credit cards (of course, some of that cash could have came from their credit cards but I digress...).  It seemed like the "cool" thing to do--the adult thing to do--to have a few credit cards in my wallet.
I haven't had any credit cards for a few years.  At that time I was in debt, I found Dave Ramsey, and I promptly cut up my credit cards, paid them off, then cancelled the accounts.  Back then I felt all cool and impressive and grown up when I flashed my collection of credit cards (I had nearly 20 cards by the time I was 19 years old...I was also deeply in debt for YEARS).
So one side of the debate, the reasons FOR applying for some credit cards, were:

• I could use them in the event of an emergency
• I could carry some "status" cards like American Express that would show how "cool and impressive" I am
• I could earn air miles, cash back, and other perks when I use them
• I could build up my credit score

Basically those were all of the reasons I could think of to have credit cards.
But on the other hand, some of the reasons AGAINST getting credit cards that I could think of (to myself, in my head...really my head is a busy place!):

• If I have an emergency, getting into credit card debt would only create more problems (although the use of the card would temporarily give me some money, I would then be in DEBT and could end up struggling to pay back the debt)
• If I have a real emergency where I needed cash I can take cash from my savings/emergency fund.  For a bigger emergency, I could easily borrow a large amount of money from a few friends and relatives (I know mixing money and relationships is a really BAD idea but there are a few people who would loan me money if needed)
• If my self esteem depends on what others think of me because of the things I wear or the credit cards I carry or the car I drive or other material things, I am not as evolved as I should be/want to be
• My credit score was high enough to buy a house so it should be just fine without amassing credit card debt
• I might be more likely to buy things I don't need on credit because I am tempted to rack up air miles or cash back, etc.  That would be a bad thing.
• I don't have a job as of now which means I don't have a steady income.  Using a credit card would mean I am pledging future income to pay my debt and I #1 don't have a set future income, and #2 don't want to be forced to get a job to pay for debts I rack up (this is the biggest reason I live frugally and don't get myself into debt...I don't want to be forced to work a 9 yo 5 job!) 

So after much deliberation I decided against applying for any credit cards during these past few weeks when I would technically have the main qualification to get one, namely a job and an income.  It really does make more sense, to me at least, to follow what Dave Ramsey says and carry debit cards with the Visa/Mastercard logo on it them which are backed by actual cash that I have in the bank but can be used just like a credit card.  End of debate.

I Was Soooo Tempted!

Thanks to a payment from Adsense that hit my bank account yesterday, I was able to go online to Amazon and order the cell phone I have been wanting for a while.  While the phone was not super expensive at only $79.99, I of course first Googled Amazon promotions and coupons to see if there were any other ways I could save money on this purchase (I tend to Google coupons for everything).  Unfortunately there weren't any but when I went to the check out page at Amazon a huge offer flashed above my purchase price.  Seems that if I applied for an Amazon Visa or Mastercard, I would get an additional $50(!!) off my purchase.  I was super tempted, and considered applying, and thought about what I could do with the extra $50 that I would save...but in the end I decided not to apply.  I have been doing great with no credit cards for more than two years.  Then I heard Dave Ramsey's anti credit card rant in my head.  Then I considered what would happen if I did get the credit card and later gave in to temptation to make other purchases with it.  Then I considered what I would do if I ended up with a sky high balance on it like I did with my credit cards in the past.  Then I decided that there was NO WAY I ever wanted even the possibility of having credit card debt again.  Then I paid the $79.99 for my purchase and logged out. Whew! Dodged. A. Bullet.

Just Say 'No' to Credit

Which is exactly what I did today. Way back at the beginning of this blog, I posted my overarching financial goals. I am happy to say that I paid off hubby's Target card today, then I called and cancelled the card. Having cancelled all of my credit cards a while back, I don't even flinch now when the person in the cardholder retention office grovels and tries to get us to keep our credit cards. A simple "no, please close the account" said about five or six times does the trick. Now we have only a few more big debts before we are debt free except for the house. I made a deal a while back with the IRS to pay $1000 a month towards my taxes so both the 2008 and 2009 taxes will be paid off by February, I have called the car repo creditor to make an offer in compromise but haven't heard back from them yet, and I now have hubby paying $1000 towards one of his credit cards each month (which he previously never thought was even possible). Oddly enough, I feel richer now than when I had a handful of credit cards even though I have only about $1500 in savings as opposed to the tens of thousands I used to have in available credit on my credit cards. Being debt free rocks!

Check Out Your Next Credit Card Statement

Here's a photo of hubby's most recent credit card statement. Beginning last month, a change to the credit card laws made it a requirement that credit card companies put information on consumer's statements telling them how long it will take to pay off their debt if they only make the minimum payment. Enter the comedy of the absurd (although I am still hoping it will make people pay off their credit card debt faster instead of throwing up their hands in despair). According to this statement...

• If he only pays the minimum payment each month (about $150, one dollar a month more that what is charged for interest) it will take him 2126 years to pay off the debt and he will have paid a total of $1,718,807.00. Um, yeah...if that doesn't make you want to never touch another credit card I don't know what will.


• If he pays $377 per month it will only take him three years to pay off this debt with a total payment of $13,573.00 which, the bill helpfully points out, will save him $1,705,235.00 over just paying the minimum amount...ayayay.

Which is why we are throwing every available cent at this debt and we hope to have it paid off by the end of the year. I hate credit cards!!!!

25 Reasons Why I Hate Credit Cards

I hate credit cards. They are like a drug that you get addicted to. Pretty soon the thought of making a move without one or more credit cards at your side seems virtually impossible. After a while though, you get mad. Anger is a good motivator and anger at the whole credit card system (along with repeated Dave Ramsey lectures on TV) pushed me to the point that I abandoned credit cards all together. Here's why I hate credit cards:

1. Over limit fees.
2. Late payment fees.
3. Annual card fees.
4. Universal default clause.
5. Companies that slash your credit limits randomly.
6. Crappy customer service.
7. Companies that jack up your interest rates to loan shark levels.
8. The ease with which it helps you spend money.
9. The psychological reliance on a piece of plastic.
10. The ease with which an addiction to spending can develop.
11. The ease with which an addiction to collecting credit cards can develop.
12. The way that being granted credit makes you feel superior, worthy, and important.
13. The psychologically manipulative way that the color of a card makes you feel important...red...black...gold...platinum!
14. The impact your credit card use has on your credit rating.
15. The paper trail that using a credit card leaves.
16. The fact that when you most need credit, like in a crisis, they refuse to increase your limit. When you aren't in a crisis they seem to raise your limit randomly.
17. The fact that people will use a credit card when they are having a crisis (job loss, etc) which actually has the affect of compounding their crisis (because then they have added debt to the mix).
18. The greedy credit card companies. If they treated people fairly, people wouldn't hate the credit card companies.
19. The marginally illegal collection practices they and their collection agents use.
20. The ease with which you can spend more than you can afford.
21. The manipulative way they use "incentives" to keep customers. Air miles that are virtually impossible to use, for example.
22. The way that you can use a card to pay for a meal and still be paying off that meal two years later.
23. The way that by paying the minimum amount due, you can actually be paying the card off for thirty years even without adding any more purchases!
24. The changeable interest rates (they can raise your rates any time they want to while you have no say so over this even though you entered into the contract at a set interest rate).
25. The changeable due dates. Some credit cards seem to change their due dates monthly without giving you any notice so if you set the payment to recur on a certain date which worked the last few months, this month paying on that same date could cause a late payment.

I hate credit cards! Blah!

I Did It! No More Credit Cards!!

I'm feeling light-headed. I'm feeling faint. My heart is racing. Am I having a panic attack? I'm not sure.
Today I paid off my last credit card. I had paid of this card last month but rung up a couple of purchases on it this month so had a small balance on it which I paid off today. Then I called the company and told them I wanted to cancel it.
I talked to one person who couldn't believe I would want to do such a thing. "Don't you need it for emergencies?" "No, I have cash for emergencies." "Uh...let me send you to a supervisor."

Me to supervisor: "I would like to cancel my credit card."
Supervisor: "Don't you want to keep it for emergencies?"
Me: "I have cash for emergencies."
Supervisor: "You have cash set aside for emergencies??" She sounded surprised.
Me: "Yep. I don't want any more credit cards and this is the last one I have to cancel."
Supervisor: "Oh" Then a long pause.
Supervisor: "Can I add 10,000 air miles to your account so that you will keep the card?"
Me: (tempted) "Uh no. I am finished with credit cards, please cancel it."

So I did get the card canceled but it seemed like a traumatic transaction for both me and the supervisor. I have never been without a credit card since the day I turned 18 years old and I am now in my 40s. I feel like I have been on crutches for so long that even though I can walk fine and don't need crutches anymore, someone yanked the crutches away from me and I am left standing there feeling like I don't know what to do. Breathing deeply would be a good start, I guess.
In theory, I am literally better off without the card than I was with the credit card. Before I would say I need a credit card for emergencies however I would keep the balance near the limit so the actual money I had on the card to use for an emergency was often less than $100. Now I have $1,200 in my emergency fund IN CASH that I can rely on in an emergency. Obviously I am now much more prepared for a financial emergency than I have ever been. I just takes some getting used to though.