Are Credit Cards Bad?

From Podcast #173, Pick A Card, Just One Card, the one in which Jesse talks about financial scar tissue, Monopoly money and credit cards.

A lot of us use credit cards—most of us probably use credit cards.

Last time I checked, 80 percent of the United States lived paycheck to paycheck. People don’t have a lot of savings. The savings rate actually bumped up just recently, which is good to see. But it is still woefully inadequate for most people’s retirement needs, and that’s a little bit scary.

However, the eternal optimist that I am, I think that most everyone has a good, solid shot to break that paycheck to paycheck cycle, get out of the debt that is dragging them down, and ultimately, save more money. I think it’s possible.

Which brings me back to credit cards… I use a credit card. I actually use two now, as a result of a recent credit card churn experiment. But it is a two-edged sword when it comes to credit cards because one is plenty. Right? One should be just fine. One is more simple. You don’t want to be standing there flipping through your Rolodex of credit cards, asking yourself which purchase or what this purchase requires as far as credit card point maximization.

But on the other hand, I’ll be honest, I like the points.

I am above average when it comes to being aware of my spending. I’m really aware of spending. I follow my budget religiously. Sometimes I overspend because I can’t predict the future, and I roll with the punches as required. But I feel pretty good about the points. They have worked for us and there continue to be little bonuses along the way.

Gaming credit cards is not going to make you rich. But it’s enticing and it’s enticing enough that I don’t want to necessarily say, “I don’t think you should use them.” I think I would rather say, “Yes, you’re going to use a credit card.” The whole system is moving in that direction, I don’t really want to fight against the system, I’d much rather say, “Okay, how can we play that game and play it well, play it responsibly?” Swipe, but swipe responsibly—right?

Credit cards are not inherently bad. People who treat credit cards like Monopoly money make poor choices and get themselves into trouble. But the credit cards themselves are not the problem.

So, I’m advocating that you choose one card. Don’t make it complicated. You don’t want to have your Marriott card, your Delta card, your Costco card, “This card’s for gas purchases, this card’s for when we go out to eat, this card’s for everyday purchases, this cards for purchases on Amazon…”

I don’t know if it’s super-productive to be using what limited brain power you have and I say that in the nicest way, but everyone, you’re cognitively limited, right? It’s like a budget for your brain; zero-based. And if you’re allocating it in one place, you’re not allocating it in another place. And I don’t think spending your allocation maximizing credit card points is particularly effective.

Now, if it’s your hobby—and I’m being honest—if this is your hobby, like some people garden, some people build cool cutting boards out of scrap wood, and some people golf—if your hobby is this credit card point maximization and you just really geek out on it, who am I to say you shouldn’t do it? You’re probably killing it.

But for those of you that might have some financial scar tissue in terms of credit cards, for those of you that have just somehow ended up with nine/ten/eleven cards, I think it’s time to batten down the hatches and maybe just get rid of a couple of those cards. You don’t have to close the accounts—just cut them up, be done with it. And make your YNAB life simpler in the process. Instead of having to reconcile nine different credit cards, you’re just reconciling one, maybe two, and be done.

We want you engaged, and when you have this daunting task of reconciling eight/nine/ten accounts even just once a month, you end up just pushing off the budget process completely. And where that’s dangerous, it’s not so much the reconciliation in and of itself, but it’s the other steps that get skipped: sitting down and thinking about your priorities and how your spending lines up with those priorities; thinking through long-term, less frequent expenses and how you set aside money for those; and working toward aging your money where you’re spending money that’s at least 30 days old.

When you put off the budget process, you’re not doing any of the prioritization work. You’re not really necessarily going to be engaged with the rules. You’ll just be dreading the fact that you have to do the valueless activity (or marginally valueless activity) of reconciling your accounts.

We need data accuracy to reconcile the accounts. But once we have the accurate data, it’s all about the decisions.

Unless gaming the credit card system is your passion, I advocate for simplicity. One, maybe two credit cards and always remember, when you swipe, swipe responsibly.

Until next time, follow YNAB’s Four Rules and you will win financially. You’ve never budgeted like this.For more about how to stop living paycheck-to-paycheck, get out of debt and save more money, faster—subscribe to the You Need A Budget podcast today!