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Credit Cards: No thank you ... I'll pass
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On November 4th 2009, columnist Karen Blumenthal wrote an article in the Wall Street Journal titled “Credit Cards: Break Up, or Make Up?”. The premise was whether you should cancel your cards due to new fees and higher rates. Karen is a very good writer. However, I question her advocacy of using credit cards and her justifications. I have only one reason you should use them; that being if you prefer to live in debt.
In the article it was noted that Bank of America was testing annual fees ranging from $29 to $99 on a small number of card holders, some of which may include those who pay their bills in full every month. Sounds more like testing a form of punishment on folks that pay their debts off on time. Sure, that is what I want … the opportunity to go into debt and pay extra for the privilege.
It continues with the advice of investigating which credit cards are worth keeping. That is an easy answer for me: none. Bill Hardekopf, chief executive of lowcards.com, is quoted as saying “a credit-card partnership is not like a marriage … it doesn’t have to last a lifetime”. In this case, I'm all in favor of a financial divorce. Better yet, don’t ever get married to this financial fiascle in the first place.
Then the FICO argument or the repercussions are suggested. Paraphrasing Blumenthal, “new credit is harder to get”. That is a good thing. Yes, the industry is making it harder for you to get yourself into debt. However, she continues by stating “letting go of old cards can hurt your credit score”. That is true. But seriously, what is more important: an “I Love Debt” score or a policy that makes it more difficult for you to enter into a financial nightmare?
Further, the article elaborates on card companies that have raised interest rates, cut credit lines or added annual fees. Blumenthal suggests calling the company before cancelling the card; ask why the change was made and what it would take to reverse it. She states "transferring another balance to a card or using the card more often might result in lower rates". Whether using it a little with a high interest rate or often with a lower one still adds up to debt either way you go.
Convenience is often associated with credit cards. This convenience is what gets us in trouble. For instance, Blumenthal states “if you like the convenience of charging groceries, contribututions and many of your purchases, reward cards can offer nice perks … compare carefully and be prepared to pay annual fees for the best plans”. Sounds like a catch 22 to me. Use it often, get more rewards. But don’t forget, the better the reward, the stiffer the annual fee. Card analysts say interest rates tend to be higher on reward cards, negating the benefits you get from charging purchases. It sounds like the reward goes to the credit-card company.
Finally, Blumenthal states “there is no magic number, but three or four cards per household give plenty of credit as well as the kind of mix that may help your credit score”. Maybe this should be restated … three or four credit cards should provide plenty of debt as well as the kind of environment to mess up your financial life.
I think I will pass on credit cards, thank you very much. If you play with snakes you will get bitten. That is what credit cards really are. They are snakes waiting to invenomate you with debt, high interest rates, annual fees, all of which will potentially lead to calls from debt collectors: the true snake doctors indeed. Sounds like if you even breath on a credit card it is going to cost you. But if you insist on using plastic, try a debit card. The reward with this is that you only spend what you have in the bank. They also come with the same protection and fraud services as credit cards. The reward points for debit cards … well, it is that fact that you are using your own money and avoiding debt.
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