As I stated, debit cards are improving. However, for me at least, I still get better deals and security with my credit card than I can with a debit card. Part of financial success is looking at all of your options objectively and being able to decide which makes the most sense for you, not for someone else. I’m not saying a credit card makes the most sense for anyone else but, at least at this point in time, it makes the most sense for me. In the end, I’m saving more money by using my credit card than I could with any debit card that is available to me.

A fear of credit cards is not the way to consider objectively whether it makes sense to use them. I had a fear of credit cards until I got my first and I was missing out on the benefits of using a credit card responsibly for years because of that fear. Of course, there are a lot of people using credit cards irresponsibly. However, there are also people who look at those individuals and develop an irrational fear of something that, if used responsibly, can be a very useful tool.

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Michael, please read the comments by Ryan, Charles, and Mikkell closely. Credit cards
should be part of a wise financial strategy. As with everything you need to understand how to properly use them

You might be surpassed at the penny pinching habits of some of the very rich. Just as it is easy to squander large amounts of money through poor financial practices so too can you accrue quite a bit of financial gain by being pecuniarily responsible.

My wife and many of her family are amazingly tight with a dollar. I’m not kidding when I tell you that some of them live in million dollar homes and cut coupons. My wife happens to be a CPA and oversees our personal fiances. At the present time we have a whopping 42 credit cards. No typo. I put as much as fifty-thousand on each card per month. As you may recall, I am traveling to China for another adoption. The tickets are paid for with our air miles. My wife loves to shop online at LL Bean. But she never has to pay for the clothing as she uses the gift certificates which continue to pile up. Before we built a home theater in our house we used to go out to see a movie several times per month. But we would get the tickets for free by using a specific card. We gave hundreds of them to our nephews and nieces as well. Just before the GM card changed its rules I was able to use 5 grand worth of points toward the purchase of a car. My case is very unusual as I own and operate several concerns which call for a great deal of purchasing. But most people can
use credit cards effectively if they have the discipline.

Mr. Roth brought up the issue of barter. Although he was trying to be humorous, barter is a very viable way to earn a great degree of money. If you form the right group you can get almost anything done. Imagine not having to pay for a tooth implant. How about over 20 k in excavation work. The group I belong to includes a car dealer who allows us to purchase vehicles at auction through him. Several of those who take advantage of that little perk are household names from the sports and entertainment world. Use all the tools Michael. They add up to make a substantial difference on your bottom line.

Budgeting is telling your money where to go instead of wondering where it went. Looking at the statement at the end of the monther is the latter not the former. It can be good at doing a post mortem on your spending habits and for chronicling, but so can doing a cash envelope. The points systems you find on credit cards can easily be found on bank debit cards nowadays, and there are plenty of banks that don’t charge you fees for the use of their debit cards. Lastly, if you have a Visa debit card you get the exact same protection that you have on a visa credit card. From their zero liability policy, “The Zero Liability policy covers all Visa credit and debit card transactions processed over the Visa network—online or off. The only transactions not covered under the Zero Liability policy are commercial card, ATM, and non-Visa-branded PIN transactions.” http://tinyurl.com/g77ga

I know that’s not much at all but it is 2-3 trips for my wife and myself to our favorite Italian restaurant.

With a creditcard you’re loning money… while you have it as well yourself. So you don’t need to loan it.

But you are loaning it free of all charges, including interest, if you pay the bill off in full every month. In addition, the nicely laid out statement can be used as a budgeting tool, you can get some nice “rewards” if you select your card carefully (sure, you won’t become rich off the “rewards” but it’s getting something for nothing if you’re responsible with your card), and there are extra security protections that debit cards currently don’t match.

The fact is I never had a credit card until my wife shared with me quite a bit of literature on the security aspects. I know some of these things with debit cards are changing but, in general, if there is an unauthorized charge on your debit card, you’re paying for it out of your own pocket. You can quickly be taken for thousands of dollars due to this. Credit card companies do a lot more to ensure that their customers are not liable for unauthorized charges. This was the sole reason I got a credit card in the first place, basically for online purchases where you can never be fully confident about the security of your information. All the other benefits I mentioned were ones I discovered once I started using my card.

It’s so utterly ridiculous that it remains a mystery to me why so many Americans (cc’s are far less popular here) fall for it.

Mr. Moderate, I did try that. In fact, I never had a credit card in my life until 4 years after graduating from college. I used a system much like you described. It did a good job of showing the big picture of how much I was spending. However, I didn’t have the monthly summary showing where every bit of that went on one sheet of paper or one computer screen. I’ve actually reduced some “frivolous” spending (although most people have considered me a miser all my life, I felt some of my money was being thrown away) since getting my credit card. The amount of money I spend per month is a fair bit less than I spent per month three years ago, even though I’m buying for two now and I was only buying for one back then. And my wife’s bill is consistently less than half of mine, so it’s not just that we shifted the spending over to her card.

I solve that problem using a cash envelope system. At the beginning of each month or pay period you decide ahead of time how much you are going to spend on a certain course grain activity–groceries, dining out, entertainment, et cetera. You fill the envelope up and draw from it before you leave the house. At the end of the period you subtract the final number from the inital number and you have a very convenient, automatic accounting of your expenses. I used to think that the statistics on spending with cards versus cash didn’t apply to me either–until I tried it for one month. You may be surprised by what you find.

Ryan I don’t know about you, but the credit card companies have gone crazy trying to get me to carry a balance. It’s to the point where I have a card where I get 5% cash back for any grocery or gas purchases, that was 0% APR for 16 months and 4% APR after that. I’m just a poor college grad too, just never carried any balance, but with APRs like that I can make more on interest than they are charging so I’ve been making a pretty penny during the 0% APR phase (of course most people don’t realize if you don’t pay it off then all the accrued interest jumps in, so you just pay it off before it expires).

However, I can guarantee I do not spend more paying with a credit card than I do paying with cash because I look at the numbers, not what’s in my wallet. In fact, looking back over the past month’s worth of spending in one snapshot has helped me realize how much I spend at times in ways I wouldn’t had I just seen a $100 withdrawl from a bank here and a $50 withdrawl there. I can look at it and say why did I spend $50 at Home Depot and $30 at Target? What did I get? Do I still think those purchases were worth that much money? If anything, I think I’ve become more careful with my money since I started using a credit card because I see all of one month’s spending at one time and I see the final number, reflecting how quickly all those little things you don’t really think about add up.

Opening yourself up to late fees an interest? Not if you’re responsible and make sure you’re not spending more than you have and you pay your bill or schedule a payment as soon as you get your bill.

As for the employer angle, if you’re on the market you will never know if a prospective employer passes on you because of your FICO score. You will never have a chance to explain that your FICO score is not a reflection of your responsibility. They will just look at the number and, without explanation other than they had someone else who was more qualified, tell you that you didn’t get the job.

Here’s another reason to consider credit over debit: security. While gains have been made with debit cards recently, credit card companies will be much more likely to fight for you in the case of fraud or stolen identy than banks that issue debit cards for one simple reason. It’s their money. If you claim fraud and refuse to make the payment on the amount in question, they are losing money. With a debit card, it’s your money. The money came straight out of your checking account and the bank has no financial incentive, other than the threat of you taking your business elsewhere, to help you recover it.

I’m not suggesting credit cards are wise for everyone. If you’re not responsible enough to ensure you don’t overcharge and that you pay in full on time every month, then you’re not responsible enough to use a credit card. However, if you are responsible enough, there are benefits to having a credit card and using it responsibly.

1. Points – They are a bonus to be taken advantage of when you can get them. (Like you said, “If you are doing a transaction that is necessary running it through the card to get points is a good idea.”) However, I don’t know I will spend more when using a credit card vs. cash when at a restaurant. In fact, I make sure I don’t do that. Discipline is something required in finances, credit, cash, or otherwise.

2. FICO – I don’t have enough info to argue about the need for a FICO score for mortgages (that said, I didn’t find one company who would forgo the credit check, especially during the pre-qualification). More importantly though, there isn’t an insurance company out there that doesn’t give better rates to people with better FICO scores. (They are statisticians – the better the score, the more likely they are to get the money they charge you. Hence, better rates.) Sure, some companies won’t put as much emphasis on a FICO score, but they usually cater to high-risk individuals and their rates reflect that. So not building up a good score IS throwing money away, something Gates and Buffett don’t do.

3. How much is my money making? By NOT paying with cash, I do keep my money in a MMA so that it accrues interest over the month before I have to pay my bill. If I paid with cash, that money would leave the account sooner and be worth less. Again, I don’t keep any monthly balance so no credit-card charges to me. The potential for late-charges is a poor excuse for those who don’t wish to plan. The potential for charges shouldn’t be a discouragement for those who can handle their budget.

4. Emergencies – yup, credit cards are HORRIBLE for emergencies. I, myself, have been building up a 6-month cushion to protect myself. However, I’m not going to put more than 1-2 months of cash in a MMA. Rather, the bulk of the emergency cash will be in slightly less liquid mutual funds or the like. Depending on the emergency, it may well be reasonable to use a credit card to pay the cost up-front, while making sure that whatever you purchase is covered by the emergency fund.

Basically, it comes down to self-control and sticking to a budget (or at least not spending more than you actually earn). Living paycheck-to-paycheck is not ok whether you pay by cash or credit.

1. Points: You can certainly get points for purchases on both debit and credit cards, so ditch the credit card and go debit if anything, but I doubt you’ll find a millionaire that says they made all their money on credit card freebies. If you are doing a transaction that is necessary running it through the card to get points is a good idea. If you are making a purchase like eating out you know you’re going to spend more on the card than with cash, then the $0.01 on the dollar freebie isn’t worth the 30% increase in outlayed money.

2. Need a FICO score: You don’t need a FICO score. Warren Buffet, Bill Gates and the rest of the millionares seem to be doing fine without one. Want to buy a house? Go to a mortgage company that does manual underwriting. Your insurance company wants to charge you more for no FICO score? Go get another insurance company that doesn’t (there are plenty of them). Your job is using FICO as a proxy for financial stability? Go show them your balance sheet. Now if you have a low/no FICO score because you are a financial mess, that’s another story.

3. I’m leveraging OPM: How much is your money making over 30 days? Practically nothing since you have to keep it liquid and aren’t putting into anything with a high rate of return. Let’s say you spend $4000 a month and use the bank’s money for 30 days to carry it while holding it in a ridiculously returning Money Market account of 8%. After taxes you net $20 in interest from using OPM–go buy a nice dinner at McDonalds for your family. However you have opened yourself up to late payments, increased spending by not using cash et cetera. Is it really worth it?

4. Emergencies: Emergencies are the worst time to pick up debt, which is what a credit card is. Instead save up a 3-6 month emergency fund and draw off that. If you can’t afford to put together such an account within half a year, then you are living beyond your means and using your credit card to delay the inevitable when Murphy comes to visit.

For a couple good financial blogs, check out:
http://feeds.feedburner.com/Allthingsfinancial
http://itsjustmoney.blogs.com/its_just_money/atom.xml“>http://itsjustmoney.blogs.com/its_just_money/atom.xml
(Neither are mine.)

I still always carry about 60 bucks in cash just in case. But that usually just sits in there a couple of weeks at least.

Also, for me, using the credit card for everything makes the review of the budget very easy. It’s all in one place and, unlike a bank statement, tells me where each payment was made which makes it easier to cross-reference with receipts or recall (“oh yes, I got gas on that day and groceries at that store on this other day”) where my purchases were made and what they were for.

I’m one of those few people who the credit card companies hate. I have a no fee card, always make my payments in full and on time so they don’t make any money off of me in interest or late fees. The only money I make for them is the percentage of each purchase they make from the retailers I use my card at.

Pretty much the only things I don’t pay with my credit card are my mortgage (normally, the only check I will write for the whole month) and online bills that would charge me for paying with my credit card (I do a direct withdrawl from my checking account for these).

It is true that a lot of Americans are going to be in deep trouble when interest rates, especially mortgage rates (with all the ARMs out there), get out of control. Fortunately for me, by early next year, my only debt will be my mortgage and my rate is locked in with payments that are so affordable for me that I more than double my principle payment every month to pay it off more quickly.

I’m sorry if I’m getting a little bit sidetracked now and then but that’s the excitement