Credit Cards- Friend or Foe?

As an avid consumer of online financial content, I’ve seen the entire spectrum of advice when it comes to whether you should have a credit card.

From Dave Ramsey telling you to never have one to Flight Hacks telling me to have 10, it’s really hard to get an idea of whether credit cards are a smart financial decision or not.

As financial advisers, we are in the fortunate position to see the backend of people’s finances. This allows us to see the real situation of how people handle credit cards and not the online version they want you to believe.

So are credit cards a good idea? Well it really depends.

The first thing I want to point out is that for most people, credit cards are NOT a good idea.

Responsibly using credit cards is a bit like driving, everyone thinks they are an above average driver but that just can’t be possible.

Most people are regularly paying interest on their credit cards.

Whilst they may tell you they pay it off every time, in reality, many times the payment falls through the cracks and they end up paying interest. This is despite them having the money available in their bank account to pay it off.

If this is you, then getting rid of your credit is the best way to avoid getting stung with outrageous interest payments.

The second part of this relates to how much you spend when using a credit card.

There is really good evidence to support that you are more likely to spend money when using a credit card over a debit card.

Something about the psychology of spending money that isn’t ours causes us to spend significantly more than if we needed to pay with our own money.

Usually, you’ll find that you spend more than you anticipated on your credit card and by the time you review your finances and find out, it’s too late.

So should you have a credit card? Steering clear of having a credit card removes pretty much all of these problems so it really isn’t a big deal to not have one.

If you do want to have a credit card for the points, I usually suggest only using it for ‘non-discretionary’ expenses and paying it off each pay period. This way you don’t pay any interest and aren’t tempted to overspend.

Whilst credit cards can be a great way to build up some points and get some benefits, if they are hijacking your financial future, they really aren’t worth it.