In most personal finance conversations, the subject of credit cards is highly contested. People always ask us the question, “Are credit cards bad?”, and we almost always give the same answer:

It depends…

You see, we’ve been on our financial journey for quite a while now, so our views on certain subjects have evolved over time. We don’t think credit cards are as evil as people make them out to be.

They’re just misunderstood. Let me explain…

Are Credit Cards Bad?

First, let me start by saying this:

Credit cards are ABSOLUTELY a bad idea if you still have any problems with overspending and/or paying back the debts you owe.

If you find yourself in this category, then yes, credit cards are bad and you need to stick with the basics.

And, before you say it, we are well aware of the fact that another personal finance “guru” suggests cutting up your credit cards as a first step towards financial freedom.

Although we get where he’s coming from, we realized that his views are flawed because he falsely assumes that EVERYONE is exactly the same. When it comes to personal finance, there are never two identical situations. That’s definitely true in this case because credit cards can be used responsibly, they just have to be in the hands of a responsible person.

Responsible Credit Card Usage? Is That Even Real?

Being a responsible credit card user is all about your behavior. It has absolutely nothing to do with the credit cards themselves.

I can already hear you asking, “But Dj, how can you possibly use a credit card responsibly?”

Well, you can start by only spending what you’ve put in your budget for the month. And, you HAVE to pay your card(s) off, in full, each month. If you never carry a balance, you never pay that dreaded thing called interest!

What’s the benefit of using a credit card this way?

We have one credit card (with no annual fee) that we use for all of our regular monthly spending. By doing this, we’re able to keep our credit scores sky-high without actually adding any extra debt and we get to collect cash-back & travel rewards each month.

In our view, if we can get 1% – 4% back for every dollar that we are going to spend regardless, why wouldn’t we do that? We’re big fans of free money and that’s exactly what this is:

Free. Money.

No, we’re definitely not going to “get-rich” off of cash-back and travel rewards, but we do have extra money that wouldn’t be there if we only used cash. At the moment, we’ve accumulated 50,000+ points, which adds up to about $500 in real money.

That’s $500 we’ve gotten back from spending money (over the course of about 4 months) that we were going to spend anyway.

(We ended up using those points to pay for most of our vacation trip to Mexico)

Why Do Credit Cards Have Such A Bad Rep?

The main reason why people ask, “Are credit cards bad”, is because that’s what we’ve been told our whole lives:

“You don’t need a credit card because they’ll just make you go into debt.”

“You’ll spend XX% more when you use a credit card instead of cash.”

“Credit cards are evil! Cut them up because cash is king!”

In certain situations, I could probably agree with these statements because they can be true for some people.

Some people. Not all.

And therein lies the problem: Credit cards are talked about in a negative way most of the time. Without any further research, you just take that as truth and run with it.

The actual truth is:

Credit cards are NOT the problem. Bad behavior is the problem.

Making statements like, “Don’t use a credit card because you might go into debt” is just the same as saying “Don’t drive a car because you might get into an accident”.

Your behavior is what determines whether or not you go into debt, not the simple fact of owning a credit card.

I have 6 credit cards to my name right now and there has never been a time where one of them has climbed up out of my wallet to go spend money on their own.

Never.

So, Are Credit Cards Bad? Here’s My Simple Answer:

Nope.

Not if you’re careful.

Just remember these key takeaways:

1. Fix your bad habits first
2. Only spend what you’ve budgeted for
3. Pay off your card(s) each month
4. Repeat steps 2 & 3
5. Win!

***

What’s your opinion on this? Do you think it’s possible to use credit cards to your advantage or are they truly evil pieces of plastic destined to drown the world in debt and despair?

Let us know in the comments below!

$tay Wealthy Friends

— Dj