Things got ranty on The Pete the Planner® Radio Show this week. And like most rants this one started with a Facebook comment. To hear my thoughts on whether or not credit cards are necessary, listen to the clip below courtesy of 93 WIBC.
The gist of the Facebook comment was that my stance on credit cards being unnecessary is unrealistic. That unless you are a millionaire, credit cards are necessary for living. First of all that is a really sad philosophy on life and our world, but also it's not true.
But I'm not just going to say that statement with backing it up. I'll even do one better than just backing it up, I'll share my own personal credit card journey. When Mrs. Planner and I first started our lives together we used our credit card for large purchases only. At that time, points were still sort of new and exciting. In theory we paid off the credit card each month, but things happened and what seemed like suddenly we had racked up $3,000 on our card. After we paid that off we vowed to be less haphazard about our credit card so we came up with a plan. The plan being that we would use the card intentionally and with a deadline of paying it off every month. This plan was successful. We paid the card off every month but after a few months I felt like we were spending more money than usual. I compared our spending with a credit card versus our previous spending with only cash or debit card. I found that while using the credit card we spent 20% more each month! This wasn't acceptable to us so moved into a new phase of credit card spending which was to only use the card for emergencies. Essentially our credit card became our emergency fund. Eventually we realized that with a little discipline we could afford to save for an actual emergency fund and then we were no longer dependent on a credit card.That was our credit card evolution.
I'm not trying to hate on credit card companies. Above all I am a capitalist, but I also have the right to not get sucked into their money making scheme. People like to talk themselves into credit cards being a "tool" to help them earn money or rewards or that they are necessary in the case of emergency, but those are not good reasons. Credit cards make you complacent. They cause you to spend more. They make you feel more financially secure than you are because you are continually pushing your expenses down the road. There is a sort of "herd mentality' about credit cards. Everyone is doing it and they are easy to access so why not? But resist that mentality. Credit cards are a crutch, a bad habit, and with a little discipline I know you can break the habit.
I have a theory that you can change your financial life by putting yourself through a sort of financial bootcamp. If for three months you cut your spending significantly, pay down debt, rid yourself of a credit card dependency, then your financial life will be significantly better for the rest of your life. Creating good habits is the only way to have a better financial life.
Bottom line is this: If you don't want credit card debt, don't get a credit card.