Everyone agrees: credit cards aren’t that great.
They abuse their customers, charge obscene interest rates, and do everything in their power to take as much money from us as possible. It’s a big enough issue that the government passed extensive laws about it.
Why do we keep using these products? Because we think the good they bring outweighs the bad. But there really isn’t any good to credit cards, and most of the reasons we believe make credit cards good are things that are destroying us financially.
Here are 5 credit card myths that need to be busted:
1. Credit Cards Are More Convenient
This myth: Credit cards are the most convenient way of pay. Plus, at the end of the month, you get a nice list of everything you spent. It’s a great way to see where your money is going without having to keep a ledger.
The truth: Everything a credit card does, a debit card does better.
Debit is just as convenient as credit. The process is just as quick and you can even get cash back at a lot of place. And like credit cards they send you a statement every month showing where all your money went – only this time without a bill to pay!
2. Credit Cards Are For Emergencies
The myth: It’s okay to use a credit card for emergencies.
The truth: Using credit cards for emergencies is a bad idea.
Think about the kind of emergencies that come up in your life. Most of them are pretty cheap. It’s things like an appliance breaking, a quick doctor’s visit, or something on the car messing up. The overwhelming majority of emergencies cost less than $1,000 bucks. The rest can be handled for $2,000. Anything higher than that usually comes with monthly payments.
So when life strikes and an emergency happens that you don’t have the money for, your first response is to go deeper into trouble by spending money you don’t have?
That dog won’t hunt.
Instead of depending on your credit card for emergencies, depend on your money. Having a minimum of $1,000 in the bank will cover almost any emergency comes up. And if you are out of debt, having an emergency fund that covers three-to-six months of expenses is all you need.
3.Credit Cards Are Safer Than Debit Cards
The myth: Credit card theft is safer than debit card theft.
The truth: They’re the same.
Although most banks and credit unions don’t have near the comprehensive coverage of credit cards, most banks use credit card companies to process their debit card transactions. That’s why there’s a Visa or Master Card logo on your debit card. If you choose to run your debit card as a credit card in the machine you will get the full credit card company protection.
Because of the prevalence of credit/debit card theft, banks and credit card companies are aggressive about finding stolen cards and refunding the amount quickly. Many times they can stop the theft before it even hits your account!
And with your emergency fund in place, you won’t even notice the short dip in your bank account.
4. 0% Interest Is The Same As Cash
The myth: Using a credit card that has 0% interest is the same as using cash.
The truth: You will spend more on a credit card than you ever will with cash. It’s not the same.
The first thing to know is that 0% interest is a scam. The whole point is to get you to overspend. There are so many studies to show that we spend more money when using credit cards than we do when spending cash.
Think about it for a second. If you have a $500 dollar credit limit and $500 dollars in your pocket, which one are you more likely to spend? If you’re honest, you will admit you’re more likely to blow the credit card than the cash.
5. The Rewards are worth it
The myth: You can beat the system through credit card rewards.
The truth: If you could beat the system, they wouldn’t give you credit card rewards.
This myth has more merit than any of the others. By using credit cards you can get rewards for things like airline miles, gift cards, or cash back. That has some merit because if you use the card as if it were cash, you spend the same amount of money while racking up the points.
In reality, these rewards are used to make you spend more than if you were spending cash. It’s a clever ploy to make you think, “I deserve that thing, and it’ll help me get rewards anyway”. Believe it or not, that simple push is all it takes for most people. It’s not because they are dumb, but because credit card companies understand how our minds work.
So what do you do if you want the rewards but not the card? Get a debit card. Perk Street has a debit card that pays 2% cash back on purchases. There are other cards popping up as well that don’t put you into debt to reap their rewards.
If that’s not enough to convince you rewards are better, consider that most millionaires are debt free and don’t own a credit card. They don’t live that way because they’re rich, they are rich because they live that way.
Know the truth
If the truth really can set us free, my hope in busting these myths is that you are set free from the bondage of debt. There are a lot of lies out there that keep credit cards in our wallets. Breaking a few of them is the first step towards freedom.
What’s your worst credit card experience?