Credit Cards: Pros and Cons – Love them or Hate Them

by Mike on February 10, 2010

What do you think of when you think of credit cards? Do you think of cash back rewards and redeemed airline miles or are you plagued with thoughts of insurmountable debt…or somewhere in between?

Love them or hate them, credit cards are a part of the norm in America. reports an estimate of 640 million credit cards in circulation in the United States with the average American holding 4.

Popular arguments for credit cards:


It is easier to carry and swipe plastic than deal with paper bills and change.
However, a debit card is the same size as a credit card and affords the same convenience.


Credit cards offer better protection if they are lost or stolen.

Debit cards offer protection as well, but the amount of protection is highly dependent on when you report the card missing. Also, many debit cards can be used as credit cards, when that is done, you are afforded the same protection as the credit card counterpart.

Does my Visa Debit card have security protections? Yes, when you sign for your purchases… also offers a Zero Liability policy for signed purchases

Redeemable Points & Rewards

If you have excellent credit, you may be eligible for a credit card that offers cash back, rewards, redeemable airline mileage or some other incentive. It’s been argued that the rewards entice people to spend more. However, if someone is disciplined enough to gain & maintain the credit worthiness to be eligible for a rewards card, they are probably disciplined enough to use it responsively. Also, some of these cards carry annual fees, the highest I’ve seen was the Visa Black Card with a hefty $495 annual fee! Read the fine print! If you decide to chase the rewards, do a cost benefit analysis and make sure it will truly benefit you.

With the new Credit CARD laws, rewards may dry up as credit card institutions will be looking for new ways to maintain a profit. Also, while rare, debit card reward programs do exist. However, their rewards are generally smaller than those offered by credit card companies.

Credit Cards are Necessary to Improve Credit Score or Establish Credit

While it’s true that paying your bill on time, over time will increase your score it is not the only factor. Your credit score is also factors in

  • How many open accounts you have (so too many credit cards can hurt you)
  • Your debt to income ratio (too much debt owed negatively impacts your score)
  • Credit utilization percent (a good rule of thumb is not to use over 50% of your credit balance)
  • Duration account has been opened (the older the better…so opening a new account is not going help your score)
  • and more!

Some feel it is necessary to use a credit card to establish credit so they have credit history for bigger loans in the future. While responsible use of a credit card can factor into a strong credit report, lenders have alternatives for determining if someone is a candidate for a loan. Lenders can look at payment history on installment loans (cars, student loans), rent and even utility bills.

Bottom line: Responsible credit card use can be used to establish a strong credit history, but it is not the only solution.

Security for emergencies

I cringe at this argument! Credit cards are NOT security. You are at the mercy of a financial institution that can close your account or lower your limit. The best security for emergencies is an emergency fund, not a credit card!

Interest-free short term loan (assuming the bill is paid in full each month)

If you pay the balance in full each month, you don’t have to worry about interest. However, you have to be careful not to overspend.

Popular arguments against credit cards:

Credit Cards create the debt problem

Let’s get one thing clear – credit cards do not create debt…people create debt. That being said, the credit card industry makes it difficult to recover from debt with steep penalties and high interest rates. Will the Credit CARD act remedy the problem? Only time will tell.

Tendency to Spend More

Credit cards fulfill our need for instant vs. delayed gratification. Instead of saving for a purchase and taking the time to evaluate rather it is something we really want (or need)…credit cards enable us to live in the moment and make an immediate purchase before reflecting on rather it’s what we really want.

Personal finance guru Dave Ramsey takes a strong against credit cards:

When you play with a multi-billion dollar industry and you think you’re going to win at their game, you are naive. You cannot beat the credit card companies.

While it may seem there are more arguments for credit cards than against them. The debt problems carries a lot of weight. So where am I? I’m at a fork in the road looking at signs pointing to Camp Rewards and Camp Avoid. I’m thinking of forging a 3rd path, and that is Camp Minimal Use. I am not persuaded by rewards programs but I’m not ready to shred my last card either. I travel enough to appreciate the benefit of using a credit card when renting a car or checking into a hotel over debit. My frequency of travel is enough to keep my credit account active but not enough to rack up any real frequent flier miles. I don’t carry the card with me, so for everyday purchases I am limited to what I can afford from my bank account. It works for me!

What about you? How do you feel about credit cards? Love them, hate them, or indifferent?

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{ 13 comments… read them below or add one }

1 venture credit card January 8, 2013 at 3:20 pm

Back again in the eighties, credit card businesses began giving cash back rebates and benefits for cardholders who had
been most frequently making use of their cards. Select business reward credit cards that you simply
know you or your employees can use to further improve the organization.

Another credit card which is accepted a worldwide is the Bank
of America lines of rewards credit cards.

2 Credit Repair Company Haidee August 22, 2010 at 10:40 pm

Credit card is good, it help you make life a lot easier. As long as you know have the decipline to pay before your due date. Everything would be possible.

The Ethical Credit Repair Alliance is one of the top credit repair companies I know. They follow certain code of ethics and your assured that they are NO SCAM.

3 JoeTaxpayer February 11, 2010 at 11:48 am

I respect your view and I try to keep an open mind as we’re all different.
Let me offer you this (the making of a post of my own) – I was so far to the right, I spent the first 5 years out of school updating a notebook with every dollar I spent that I was very aware of where money went. Saving such a high amount was a result of an understanding of “living beneath your means” and a desire to not be poor as my parents were.
As a single person, I could do what I wanted, squeezing a nickel out of a rock, but I needed to not let my frugality become an issue with my family. My wife works, and on average, makes a bit more than I do. She got into the Latte habit. So the math was my coffee costing about a dime a cup vs hers at $4. I delicately got her to try home brew, but she settled on an expensive coffee roaster, so hers are now 50 cents per cup. This is where I consider myself successful, that I got her habit down by over 80%.
I save by not eating out so often (and I am the cook at home). So the issue often becomes, I’ve already cut out the restaurant tab, I need to just get the meal planned and not worry as much about occasionally spending full price on chicken when I run out of 1/2 price chicken in my freezer.
I needed to find the place where my 11 yr old wasn’t lecturing me about how I could actually afford the home cooked meal I intended to make, sale on ingredients aside.

Sorry for the long reply, this was my thought as I wrote that I didn’t need to concern myself with spending a bit more.
.-= JoeTaxpayer´s last blog ..My IRA Conversion Guest Post =-.

4 PF Journey February 11, 2010 at 3:30 pm


It’s anecdotes like this that put the “personal” in personal finance. I understand why you do what you do and you’ve established a plan and a mode of operation that would serve as an inspiration to reading so I’m really glad you shared.


5 PF Journey February 10, 2010 at 4:53 pm


Thanks…I thought that is what you were saying and while I see your point…I disagree. For me it is not a savings issue but a management / stewardship issue. I don’t believe you can “save too much” even if you were saving to give or invest in somebody else.

Though I get that wasn’t the main point of what you were saying and I understand with the amount that your saving and earning there is no motivation to change it.

6 JoeTaxpayer February 10, 2010 at 4:42 pm

@PFJ – I’m saying that our spending is so conservative, our savings such a high percent of income, that even if the cause and effect of using cards resulting in more spending were true, it’s not enough motivation to change my ways.
The recent PF blogger posts along the lies of “are you saving too much” reinforced this thought for me.
For what it’s worth – last few years spreadsheets show 40% of gross going to Retirement, Mortgage Principal, and College savings. College is fully funded for the 11 yr old, looking forward , I just need to track inflation, mortgage is due to end a year before college starts just to have that extra buffer.
Truth is, over the years my impulse buying has dropped to a level that one of my goals is to be more spontaneous and have more fun, with less perseverating over the small stuff. The big stuff, the Mrs and I still talk about before acting.

I hope you understand, I acknowledge Dave’s way and his audience. Forgive the analogy, but I’d know better than to walk into an AA meeting and suggest that they can social drink. Those with a debt problem may need to go cold turkey, and for them Dave is a valued mentor.
.-= JoeTaxpayer´s last blog ..My IRA Conversion Guest Post =-.

7 PF Journey February 10, 2010 at 3:51 pm

@Matt – I totally respect your stance against credit cards!

@JoeTaxpayer – Dave Ramsey’s target audience is those fighting their way out of debt and on the road to financial peace. Doing what is considered “normal”…in this case using credit cards has not worked for them so I understand his passion to get ride of them all together.
Sounds like you have a great thing going with the cash rebates and the 529 plan. I’m a huge advocate of “have a plan & do what works for you”. The problem is many people either dont have a plan OR what they’ve been doing isn’t working and need a change of plan.

You said:
Would we spend less if we went to cash-only? In any year we save between 20 and 25% of our gross, in addition to the college savings and early mortgage payments. I don’t particularly want to save more.

Are you saying you’re not concerned with the theory that you may be spending more because you are saving enough already? I would need clarity before I respond to that.

@Deacon Bradley ~ Another member of Camp Avoid! All good points

@BibleMoneyMatters & @professor ~ Welcome to Camp Minimal Use!

8 JoeTaxpayer February 10, 2010 at 3:27 pm

“Not to mention how much time I’ve saved myself this last year by NOT paying any attention to new credit card laws, fee regulations, interest rates, rewards, or anything else related to credit cards.”

As I carry no balance, I have no idea what the rate would be if I did. Could be 100% for all I care. The only reason I pay attention to the reward is I get a monthly statement from Fidelity for the 529 account. They kind of shove that balance in my face, I suppose. I have another 11 years till my daughter is a college senior, I’ll see (and I’m sure, comment) what the final 529 total was.
.-= JoeTaxpayer´s last blog ..My IRA Conversion Guest Post =-.

9 the professor February 10, 2010 at 2:14 pm

I agree with bible money matters, I use my credit card only for planned expenses knowing I will get a cash reward and pay off that purchase immediately. Credit cards are only advantageous for the self-controlled. This article is great, it actually complements an article I wrote about credit card self-control. You’re right on lakita!

10 Bible Money Matters February 10, 2010 at 11:04 am

We’ve cut up all of our credit cards except for one cash rewards card. We only use that one for really large purchases to get the cash back, and only when we have the cash to pay it off right away. As soon as it hits the account we pay it off.

Deacon is right, however – even if you are careful with your cards, credit card companies will often find a way to get you – so be careful!
.-= Bible Money Matters´s last blog ..What Is A Health Care Flexible Spending Account (FSA)? How Does It Work? =-.

11 Deacon Bradley February 10, 2010 at 10:28 am

I’m with Matt! I’ve been without credit cards for a couple of years now and love it! I don’t like the way credit card companies do business and I don’t need them. I’m in the process of ditching Bank of America for the same reason (for a local credit union).

One point I’d add against credit cards is (of course) summed up best by Dave Ramsey: “If you play with snakes, you’re gonna get bit.” Just because you’re really careful doesn’t mean they are. Payments can be lost, caused to be late, or any other number of things that can cause you to get hit with fees. Credit cards don’t get me anything that’s worth having to deal with those companies (especially with the news in 2009)!

Not to mention how much time I’ve saved myself this last year by NOT paying any attention to new credit card laws, fee regulations, interest rates, rewards, or anything else related to credit cards.

12 JoeTaxpayer February 10, 2010 at 8:58 am

Dave’s advice tends toward the extreme for a specific audience.
I’ve not paid a dime in interest on my credit cards in over 20 years. My main card gives me a 2% cash rebate into a 529 account for my daughter, now 11. That account has over $7000 in it right now (even after the recent market downturn).

So, while Dave’s point is correct for most of his target audience, for me, it’s wrong.

We spend on the card what we’d spend anyway. As with any financial situation, every individual is different. Would we spend less if we went to cash-only? In any year we save between 20 and 25% of our gross, in addition to the college savings and early mortgage payments. I don’t particularly want to save more.

13 Matt Jabs February 10, 2010 at 8:40 am

At this point neither me nor my wife find any reason to carry credit cards. We have been without them for nearly 5 months and have had no need for them.

Because I strongly disagree with the business practices of the industry, I imagine we will continue to avoid them altogether unless something remarkable happens. 🙂
.-= Matt Jabs´s last blog ..11 Most Commonly Missed Tax Deductions =-.

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