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Credit cards: A necessary evil?

December 18th, 2007 at 03:09 pm

Everyone has a different take on credit cards.

Some people here do interest rate arbitrage. In other words take the 0% and park the money in a savings or money market account earning 4% - 5%. They pocket the interest minus any transfer fees.

Other people here declare credit cards as pure evil and say the first thing is to get rid of them. Melt them, chop them, dip them in liquid nitrogen and shatter them, let the dog chew them up, or all of the above.

My take is some where in the middle. In todayís society, I think that itís impractical to make every purchase in cash. Do you pay your electric bill in cash or your mortgage?

So for example, my cable, phone, internet is about $160 a month. I have it as a line item in my budget. When I get my first paycheck of the month, I fund that item. Does it really matter how I pay for it? Cash, check, debit card, credit card? The item is already funded. For all purposes, that money is already sent.

What advantage do I get? I get to float the payment for a few weeks (a few pennies). I build up my credit score, using credit responsibly. I also get points or cash back.

The argument is that itís easy to charge more than you budgeted. Isnít also easy to write checks when there is no money in your account. You say no? Why? Is it because you have a different mindset around credit cards. In other words, itís ok to overspend credit cards but not your bank account.

My point. Change your mindset, follow your budget, and enjoy the perks. Never spend more then you funded and the payment option wonít matter.

But after saying all this, there are some people who canít control their spending. And maybe cash only is the way to go. But I think this population is pretty small and if you budget and are mindful of the budget, you should have no problems. And maybe turn those points into gift cards you can sell on Ebay or Craigslist for the $20 challenge.