I mentioned yesterday that I do not use a credit card for all of my purchases. We actually operate our “allowances” on a cash basis. We take out money on the 1st and 15th of each month to cover lunch, dinners out, haircuts, and any other miscellaneous purchases. I don’t use a credit card for these purchases because they are usually small or we might be out with other people.

I’ll write more about our allowance system later, but wanted to mention it because while I love credit cards I don’t find them appropriate for every situation.

I had a lot of fun with the great credit card debate with Ana at Debt Free Revolution. Of course neither one of us probably convinced the other one to switch sides!

I learned a bunch, especially all the uses of debit cards. Thank you to everyone who participated in the comments.  Here’s a wrap of all the articles in the debate:

• Dirty Credit Card Company Tricks
• The Great Credit Card Debate Off to an Early Start!
• 25 Reasons to Love Credit Cards
• Ways Credit Card Companies Separate You From Your Money
• The Great Credit Card Debate Continues….
• Can You Really Win With Credit Cards?
• Don’t Hate the Credit Card
• The Great Credit Card Debate

While today is the official wrap day for us feel free to continue the debate in the comments or on your own site if you have one. Let me know and I’ll add a link to your thoughts.

Finishing the debate wouldn’t be complete without a big thank you to Ana for accepting my challenge!

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Posted January 7, 2008 in Credit cards, Debt by Madison | 3 Comments

We’re headed to the airport today to head back home after our 2 week vacation. I’m going to postpone my normal weekend roundup (look for it on Tuesday). I just couldn’t resist another credit card article before Debt Free Revolution and I call a truce in our debate about credit cards.

A comment in an email from a reader, jejily, really caught my eye:

Unfortunately, putting a credit card in my wallet is like putting a six-pack of beer in front of an alcoholic. One purchase (or one beer) is reasonable, but for addicts (and I’m a shopping addict, for sure), we can never stop at just one.

And I do have to agree, for some people giving them a credit card is a recipe for disaster. But like all vices, you can’t fault the credit card. Cash Money Life compared Credit Cards and Guns linking the common denominator: misuse.

Alcohol, guns, shopping… It sounds like you can insert any bad habit or addiction and blame the object not the person. I’m getting a little off topic here, so let’s get back to the basics.

Successful use of a credit card involves:

• Don’t spend more than you have.
• Pay your balances in full.
• Get the best reward credit card you can find.
• Watch your statements for mistakes.

Ana addressed the rewards programs in her post yesterday:

I can honestly say I have not seen any credit card reward that is enticing enough for me to put up with credit card companies’ games. 

Well Ana, you haven’t heard about my Fidelity529 credit card. 2% of all my purchases are put into my kids 529 plan! And it’s run by FIA Card Services, which has great customer service. We’ve had the card for years and never had a problem. Unfortunately though, the current card isn’t offered to new cardholders.

Here’s more people making money using reward credit cards responsibly:

• Earn Money with Cash-Back Reward Credit Cards @ Free Money Finance
• Cashing in American Express Membership Rewards Points @ Five Cent Nickel
• Pet Credit Cards @ Credit Card Watcher

A stumble upon user commented that she wonders if I work for the credit card industry. For the record, I do not. Actually I do not use a credit card for all of my purchases (gasp!)… find out why as we wrap up the debate.

Read earlier posts in the Great Credit Card Debate:

• 25 Reasons to Love Credit Cards
• Ways Credit Card Companies Separate You From Your Money
• The Great Credit Card Debate Continues….
• Can You Really Win With Credit Cards?

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Posted January 6, 2008 in Credit cards, Debt by Madison | 5 Comments

Ana at Debt Free Revolution and I are debating about using credit cards in 25 Reasons to Love Credit Cards and Ways Credit Card Companies Separate You From Your Money.

So far it seems as though the majority of the debate is what can a credit card do that a debit card can’t do? And it seems as though the fraud protection component as Eden points out is somewhat confusing.

But other earning potentials still exist for credit cards. In fact, if you can find a debit card that offers 2%-5% cashback, offers float, and can make us $11,000 per year in credit card arbitrage then you might have me sold! 

To put things in perspective we have some financial rules we live by when using credit cards. We do not live beyond our means. All of our credit card purchases are paid in full at the end of the month and we do not pay any interest.

Many of the cons are associated with carrying balances, paying interest, and spending more than you can afford.

Here’s a look at some of Ana’s points and my counterpoints:

Double-Cycle Interest Billing (paying two months interest in one month): 

I don’t believe in carrying a balance on credit cards or paying interest. If you always pay your purchases in full, you don’t have to worry how many times they charge you interest. (I will admit it is pretty dirty though).

Rate-Jacking (or raising your interest rate):

Again, if you are paying in full, the interest rate shouldn’t be an issue.

Bait and Switch (or approving you for a higher interest rate):

As Deepali points out in the comments:

Also, bait-and-switch isn’t really that, it’s more like failure to read the fine print. The 0% isn’t guaranteed until they pull your credit report and make a decision, and they’re somewhat upfront about this (ie, it’s in the disclaimer, but the responsibility is on you to read it).

Ana does make some great points that I agree with:

• Universal Default sucks, especially if it is due to inaccurate information.
• Moving the Due Date game, like what happened to Lynnae is really not cool and I too would be steaming mad!

Ana refers to credit cards as “hot” (venomous) snakes. Wow! What I’d really like you to consider is if you only use a credit card for what you can afford, you don’t carry a balance and don’t pay interest aren’t credit cards more like soft cuddly teddy bears? Ok, I’m not going to go that far… but there are benefits that result in financial gain if you can use the cards responsibly.

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Posted January 5, 2008 in Credit cards, Debt by Madison | 8 Comments

The Great Credit Card Debate was launched when I challenged Ana at Debt Free Revolution to a credit card match. I love credit cards, so much so, that I have 89 accounts.  Ana hates them! Others have even noticed our opposing views, most recently highlighted by Father Sez.

Ana’s official stance is on Ways Credit Card Companies Separate You From Your Money. However, Ana couldn’t wait and got started early in Dirty Credit Card Company Tricks. I countered with reason number 1 (you won’t lose money if you lose your credit card).

Here’s 25 more reasons to love credit cards:

1. Earn cashback and rewards. We earn between 2% -5% cashback on all our purchases on our credit card. It’s like buying everything on sale! Here’s a list of some of the best cash rewards credit cards.
2. Make money on balance transfers. Credit card arbitrage is profitable. Credit cards frequently offer balance transfers at 0%. Leverage it by transferring this money to a high yield interest account. We’re able to make over $11,000 per year using this strategy.
3. Rent a car. Some car rental companies will not allow a rental without a credit card. My in-laws don’t use a credit card and were turned away from a car rental company in Houston. The policy varies depending on the company, but I wouldn’t want to be standing at a rental car company unable to get a car.
4. Make online purchases. Try asking Amazon if they take cash!
5. Float. A great thing about using credit is just that… you are purchasing on credit and the payment isn’t due until a month later. That leaves the money in the checking account for an extra month to earn interest.
6. Raise your credit scores. Most credit scores have a mix of business component that gives you points for holding a credit card. In addition, using it responsibly can help boost your score.
7. Corporate reimbursements. If you have expenses for work using a credit card is the only way to go. Not only do you get to earn rewards but you don’t have to pay the bill until later, giving you time to get your expense report turned in and paid.
8. Post bail. As I already mentioned in the roundup last week Five Cent Nickel shared with us that you can now use a credit card to post bail.
9. Take advantage of affiliate offers. Recently American Express hosted it’s wishlist for customers and partnered with Etrade for a signup bonus (now expired).
10. Fraud Protection. The companies call you when they see unusual spending patterns. It’s a great feature. When a charge does get through you can always do a dispute. I’ve done one a couple times at different companies. All painless processes and the charges were removed.
11. Limits on fraud. If a charge does go through, you will never be responsible for more than $50.
12. Convenience at gas stations. With sleeping kids in carseats it’s much easier to pay at the pump than to have to run in and pay cash.
13. Check in quickly at the airport. We fly Northwest a lot and they have a convenient kiosk that can read your name off your credit card to speed up your check-in.
14. Get coupons. Being a cardholder gets you on the mailing list for coupons at some stores. We get Macy’s coupons all the time which I’ve found you can sell on eBay and make even more money.
15. Shop for others. Credit cards work well when you want to buy things on behalf of other people. I can purchase things for my mom using her credit card.
16. Pay negative ATM fees. When out to lunch with friends, charge the bill and have them pay you in cash. Earning those reward dollars on other peoples’ money is like getting paid to go to the ATM!
17. Try out purchases. You don’t need to front the money for items that will be returned. For example, if I need to purchase two shirts for one of my boys because I’m not sure which one will fit better, I can purchase both on credit and return one later. As long as the credit posts before the statement closing date it’s essentially a try-before-you-buy program.
18. Deposits. I remember that many places that we worked with during our wedding wanted a deposit. With a credit card they can place a temporary charge eliminating the need to come up with money that will later be returned.
19. Buy a car. Thinking of financing another item? Lower your interest rate using creative debt reduction strategies.
20. Access to emergency money. Have you ever been caught when an ATM was down? If the bank is closed for a holiday or if the ACH feature is unexpectedly down at a bank (which was the case at one of our banks recently) a credit card can come in handy to make a purchase.
21. Documentation. Credit card statements are handy little records of your purchases.
22. Qualify for better rates and services. Our local credit union has tiers of service depending on how many qualifying services you have. A credit card counts as a service and adding it to our package qualifies us for higher interest on deposits and less fees for other services.
23. Billpay features. Our FIA Card Services card has a great billpay program that gives you the ability to pay other cards and reoccurring bills. This enables us to simplify and organize our finances.
24. No more cash discounts. It violates the terms of service for Mastercard and Visa, therefore there is no longer a monetary benefit to using cash that once existed.
25. My dad got one. My dad doesn’t use a computer, doesn’t email and doesn’t believe in credit cards. I was pretty sure he would be the last person on earth to get a credit card. If he got one, then they must have something good to offer!

Of course, I’m not saying credit cards are perfect. Occasionally they make mistakes but they do get fixed. This does happen with any company though (I have many more errors on our cell phone bill but that’s another story).

Patrick at Cash Money Life debated Ana previously. Patrick had some additional points including short term loans and extended warranties. In addition, Ana challenged him to go three months without using a credit card. Whoa! I hope that isn’t in store for this debate…. credit cards are making us way to much money for me to give them up.

Action Plan

Your financial goals likely involve money: making it, saving it, investing it, and enjoying it. Credit cards can be used to help meet those goals. Why not use them?

Add your comments here and at Debt Free Revolution. If you have a blog, join the debate and let us know why you love or hate credit cards!

The Great Credit Card Debate Continues….

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Posted January 4, 2008 in Credit cards, Debt, Intermediate by Madison | 22 Comments

We only have one more day until the big credit card debate…. however, Ana at Debt Free Revolution tried to slip in an early post: Dirty Credit Card Company Tricks. It seems she’s trying to convince Lynnae at Being Frugal to get rid of credit cards after being hit with a fee.

Since I busted Ana, I thought I’d leave some credit card goodwill to get things started on this side!

My husband carries a wallet that is over 14 years old. It looks terrible and is falling apart. However, he’s in love with it and won’t get rid of it… he even got a new one for Christmas but has no intention of using it. One of these days the wallet is going to break completely in half and he’s going to find that he has lost all the contents of his wallet.

Reason #1 to Love Credit Cards

If you lose cash, you are out the money. If you lose a credit card you can call and get a replacement card with a new number. In addition, they can close your account and you will not be responsible for the charges. Carrying cash: out of luck! This gives me some peace of mind in case I ever lose my purse or my husband’s wallet finally falls apart.

Check out 25 more reasons to love credit cards in the official credit card debate! The war is on Ana!

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Posted January 3, 2008 in Credit cards, Debt by Madison | 7 Comments