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Credit cards certainly help drive our economy and drive some people into financial ruin.
As I stated more than once, my philosophy of personal finance is simply save first, spend the rest but never carry a credit card balance.
My American Express card was recently cancelled by Amx. It was a business card and they said since I no longer ran a business I couldn’t keep it. Even though I had the card since 1986, I had to apply for a new one which I did and was approved virtually instantly. I saved money on the annual fee too, and now accumulate Hilton hotel points. Now I have to travel to use them, but as soon as I figure it out, I know I can use them on Amazon purchases as well.
Then my bank United card raised its fee to $600 a year. Since I rarely fly any more I cancelled it and got a new free bank card with cash back. To my surprise since I received the card two months ago I have accumulated $233 in cash back which I can transfer directly into one of our bank accounts or apply to the card balance. Hey, it will offset the extra 3% merchants charge me to use the darn thing.
All this, despite no fault of my own, lowered my credit score. That seems rather unfair, but I have no intention of applying for any loans so no big deal.
I have to admit it’s easy to spend money with plastic and I suspect it takes some personal discipline to not over spend – even a budget won’t help with that😰
I monitor our two card balances very closely – not with a spreadsheet, just a frequent login to our bank – and pay the balances long before the due date. In fact, just a few days ago I paid enough on one card to cover several pending charges. Yup, they are holding my money and I’m losing 0.15% in interest for 20 days.
Suffice to say credit cards are the proverbial two-edged sword. If I carried the balances shown below I couldn’t sleep during my afternoon nap.
WalletHub estimates Americans paid around $254.2 billion in credit card interest and fees in 2024 alone, averaging about $154 billion annually over the past decade😱. That big number is equal to what the federal government spends in fourteen days – a fact of interest, but no consequence.
A few Gemini generated data.
Credit card vs debit question. Do you pay for common things like groceries or coffee with debit or credit?
Always credit unless I am in a bind for cash back.
I really dislike the whole CC industry from a consumer perspective. The perks in cashback and rewards are just a hidden cost that you and in fact all other customers are paying for with retailers due to their high merchant fees.
Because most businesses don’t like the friction of adding separate CC charges this means that everyone ends up paying even if they pay by debit or cash. Post Covid there are of course plenty of businesses that refuse cash, which makes sense from a handling cost perspective.
Then of course there is the consumer debt point. When living in the US once I had a landlord who unfortunately had ALS. So housemates were not just a sort of income but people around to handle emergencies and chores around the house. He unfortunately had been recently divorced from his wife as a result of her ruinous behaviour in running up CC debt. She had kept a separate mailbox at a post office in the next town to avoid him seeing how many she had taken out and of course the bills. Very sad at his stage of life. No real economic need for it, before she ran up the debt they had a reasonable standard of living and respectable pension provision.
I am finding more and more business charging a fee to use a credit card especially for home improvements like a paving company, rug installer, and mechanical maintenance I paid for this year.
We had our kitchen remodeled a few years ago, and I remember the contractor gave us a big discount for paying with cash instead of a credit card. I think it was at least 10%, maybe more. I’m usually all about the CC points, but I couldn’t justify passing up that savings.
We didn’t use the card for any of those expenses for that very reason. Any time there is a big expense that charges an additional fee we pull out the ancient papyrus method of payment that younger generations have no idea how to utilize. A check.
I’m sorry, but I really don’t understand paying the credit card company more than once a month. I don’t even look at the account more than twice a month, if that. Paying more than once is unnecessary work. I could simplify things further by putting the payment on automatic bank draft, but I like to check the statement first.
If I have an especially large balance for the month, I’ll often make a payment before the statement closing date, so a smaller balance is reported to the credit bureaus and hence my credit utilization is lower. That helps my credit score.
I’ve been running an experiment for a while now and what Jonathan says seems to be correct. Pay off your credit card on the day before statement close and you’ll see your credit score rise for the very reason Jonathan cites: a lower credit utilization number is reported to the credit bureaus.
So far my FICO score has gone up between 11-20 points depending upon who is reporting it. My experiment has been running for just over two months.
That makes sense, although since I don’t care about my credit score, and I’d have to move money to my bank account I wouldn’t do it myself. But paying every time you make a charge, or several times a month, is different.
Some of my friends play the CC points game and are pretty good at it. I can’t keep up with all the hoops one must navigate to earn the maximum. I was tempted to get an AMEX platinum when they offered an extra 120000 pts but didn’t do it. I use two credit cards – Costco Citibank for gasoline at Costco (5% back) and travel/eating out (3%). Everything else goes on a BOA cash rewards card that pays 2.35% if you maintain 100k in a combination of BOA and Merrill accounts. This works great for me with little hassle.
I play and am pretty good at it, but it does take some effort. I have a spreadsheet I keep updated so that I know what CC benefits we need to use. One of my rules for this game is that if I can’t offset the annual fee by using the perks, I can’t justify keeping it, and out it goes. And the perks have to be for things I’d do/buy anyway. For example, we just got a new card that includes monthly credits for Peloton membership and Apple Music, both of which we already have. I just need to change our billing on both accounts to the new card.
Why do I do it? The travel benefits—free flights or hotel rooms, lounge access at airports, TSA Precheck and CLEAR membership speeding us through security. As we get older and slow down our traveling, I’ll get rid of most of the cards—I’ll also want to streamline our financial life as we age.
I was told by a credit card representative that people who pay the balance in full each month are known in the business as “deadbeats”
Deadbeat, here 🙋♀️
Well, if you charge enough, they get large merchant fees. If you charge $5000 a month, they get $50-75.
Glad to be one then.
I find myself paying off balances on cards a couple of times a month, long before the closing date. I don’t like to see the balances grow, so although I could be making money by leaving the funds in a MM account, I compete against myself at my own expense. I wouldn’t be surprised if the banks know this and keep the tab for checking my credit score front and center. Speaking of Bitcoin at another ATH… :-). You all take care.
I just got $100 from Venmo after signing up for their credit card a couple of months ago. I don’t bother with new cards unless there’s an easily-claimed reward involved.
I was curious to see how much available credit we have now, and according to Credit Karma we could spend $326,000 on our cards.
As for paying them, it might be overkill, but I log on every morning and pay off the balances. The last time I paid interest on a balance was in early 2017, and I have no intention of paying any more 🙂
My ATM card is also a debit card, but as others have said, there’s not much, if any, consumer protection when using a debit card, so I only use credit cards.
“The future is in plastics,” they said. Turns out they were right—modern life freezes without credits or plastics.
After loading up our credit cards following our UK rental car debacle, our credit score dropped from 821 to 763. After managing the cards and paying them off on time, our score recovered, and actually improved, to 832 in less than 2 months. I’m guessing it is because they increased our credit limit, which decreased our % usage.
One unexpected aspect was that when the rental car company put a large charge on our Capital One card, we received 1.5% cash back. When the rental car company later refunded the charge, we were left with a negative “cash back” balance. As we use the card the new cash back rewards offset the negative balance. It was an interesting 8 weeks of learning some unique aspects of CC rewards.
So did you cancel your United card or downgrade it to a no-fee card? It could kind of read either way. For credit rating purposes, it’s usually better to downgrade than to cancel a card if that’s an option. Closing a card does two things with negative impact on your credit score: (1) it lowers your total credit available, which then affects your credit utilization rate; and (2) it wipes out an older card, and age of credit matters in the algorithm, as well. I have one card that’s now 26 years old, and I’ll never cancel it, but I could see downgrading it at some point. (It’s a $95/year annual fee, so it won’t break me in the meantime.)
Case in point: We want to get a new card with a snazzy sign-up bonus for Player 2 (a/k/a my husband), but you can’t get a bonus with this particular card if you already have another version of it. So we called and downgraded the older version to a no-annual fee card. That keeps the available credit and age of credit factors intact. Now we wait a decent interval and then apply for the new card.
As you note, though, unless you need to obtain credit soon, it shouldn’t matter much if your credit score takes a minor hit.
I canceled because there was no downgrade. I was grandfathered in a card they no longer issue. The choice was accept or reject new pricing.
Got it
If you want to read about a master of manipulating credit cards for free stuff, cash back and even “selling” his credit score (don’t ask me how that works) take a look at the Root of Good FIRE blog.
I don’t have a problem with credit cards. As is true of all tools they should be properly used to derive proper benefit.
One challenge is that the young can go into debt via school loans and credit cards before they have even launched their careers. Many do. A few years ago Newsweek ran an article about how credit card debt was damaging college students. An attorney spoke for a PhD candidate who was in debt and suing the credit card companies. He stated that she thought that these cards were “free money.”
My credit score bounces about 3 points from quarter to quarter. I have no idea why. My regular credit reports offer a few suggestions for improvement. One is “You have 15 lines of credit open” and it is suggested that to get an “Excellent” rating I should have 22+. Ah yes, the more cards I have the more I can potentially borrow.
We pay off the cards each month, so I use about 3% of my credit limit. I rotate cards to get the best cash back and use each for specific purposes. It makes my monthly accounting very easy as the entire bill on the card may be “dining” or “gasoline” or “utilities”, etc. We’re on a road trip, so this month I received a $41.54 cash back credit for related purchases on one of these cards.
When interest rates were hovering about 1% I routinely received more monthly credit card cash back than interest in the spending account. One could say I was paid to use the credit cards.
I’ve always found it interesting that we may be obsessed with achieving the maximum return from our savings or checking, but then pay thousands of dollars each year in credit card interest.
From reading this site, it appears to me that in the US, using a credit card rather than a debit card is normal for everyday spending. Would that be correct?
Yes, I only use my “debit” card in ATMs, and that very rarely. At one time you could get an ATM-only card, which I preferred, but my bank stopped doing that. Not only is a credit card safer, as it’s not tied to your bank account, it almost always comes with perks. I have about 300,000 FF miles with American right now mostly from my Citibank card – I need to switch to my cash-back Capital One card!
My FICO score is in the 800s, but I can’t say I care. Apparently it might affect the cost of my insurance, but I have no expectation of needing a loan.
Would using a US credit card (chip but not necessarily a PIN) in the UK be a problem?
When I bought my last car, they accepted a personal check to pay in full and let me immediately drive away in the car. I asked if they were taking acchance and they said they had vetted me which I assume means credit a banking check in some way.
We almost always use our phones to tap and pay with our cards, very rarely using the physical card with chip, but no PIN. In several months “living” in the UK we have never had a problem.
To Mark’s point though, we’ve never paid for parking or gas in the UK. We did encounter the issue once when buying gas in France, and in that instance used our debit card which of course has a PIN.
I don’t want to use my phone that way. It’s a Google pixel and I try to avoid giving Google data. It’s true it can track my location but I don’t use Google search and my main email provider is Proton.
I think your chip card would work fine for most things. I’ve seen plenty of people pay by tapping cards, and have never seen anyone have to enter a PIN.
I think in most instances you would be fine but probably could come unstuck with car parking and unattended gas pumps that sometimes ask for a PIN.
It used to be you needed a card with a PIN for ticket machines, don’t know whether that’s still true. I do have one card with a PIN I got specifically for travel. I’m probably too old to rent a car in the UK, and anyway I’d prefer not to. The last time was 2004… Have visited using only public transport and that worked fine.
Most ticket machines now have contactless pads given the preponderance of Apple/Google Pay. Gas stations less so.
It remains an ordinary frustration that I can’t often pay at pump in US gas stations with my UK but $ denominated Debit Card (which I have because it saves me a lot on forex).
More US credit cards have stopped charging foreign conversion fees, although banks less so. Capital One was always good about it, and credit unions generally charge 1% instead of the big banks 3%.
Yes, credit cards offer a lot of consumer protection, debit cards offer none. I’d only use a debit card to avoid a big fee (and at a place I trusted). See RDQs experience, I’ve had my own where a debit card would have left me in trouble.
Debit cards in the U.S. don’t carry the same protections as credit cards.
Pretty much so. I am reluctant to use a debt card because if it is scanned they could directly wipe out your bank account.
A couple of years ago I had a credit card scanned and someone charged $25,000 in industrial equipment to it. I didn’t have to pay, but it was scary.
A few years ago when we were setting up our estate we had to cancel the lone no annual fee credit card we obtained almost 40 years prior. When we applied for a new Chase card (the best card for travel per The Points Guy) we had to submit our annual income. Problem was we had no regular income as we had both just retired and were living off our portfolio while delaying claiming our Social Security benefits. We just wrote down a somewhat random amount, the classic 80% of what our pre-retirement income was, which we utilized on our pre-retirement Monte Carlo simulation. Chase never checked. We felt the number really didn’t matter because as I have written previously we have never had a budget, ie are just naturally frugal, never exceed our credit limit, and pay the balance monthly. Well just last week we received Chase upped our credit limit. I don’t even know what the new limit is because it’s only a number.
In a related matter since I have received notification several times in the past that I was the potential victim of corporate data breaches (I think companies should be fined significant amounts until they start taking data breaches seriously, which it’s obvious they don’t because it keeps happening) I receive monthly notifications from several monitoring companies. Basically its notification as to my credit score has increased or decreased based on or card balances. Like Dick it really doesn’t matter as our credit scores are always in the 800s.