Young Americans Are Ditching Credit Cards

[+LogicalApex MVC]

Credit Cards are dumb. Cash and Debit for the Win.

 

And if you can't afford it. You most likely don't need it.

I disagree...

 

A random example...

 

I purchased my Nexus 4 in February and in April dropped it in its case, but cracked the screen. 1 quick call to Amex and 48 hours later I had a full refund for the phone. Cash or Debit wouldn't get me that.

[threetonesun]

I'm actually living in Massachusetts now. National Grid never disqualified me from getting services even though I did have bad credit a few years back, nor did they report me to the credit bureau when I made payments late. The only time it'll show on my credit report is if I fail to pay a bill for maybe 3-4 months, then it goes to collection which would show on the credit report.

 

I know, as I said, National Grid keeps a score to themselves. I have no idea if they ever use it... my old roommate "forgot" to pay the electric bill for about 6 months, and it seemed to impact no one in any particular way.

So far, had similar experiences in Kansas, Florida, Oklahoma, Mississippi and New York. These are all for apartments mind you so it may differ for a home owner since they had a major credit check just to get the house.

 

It's possible that a credit check is just the easiest way for them to verify that the person exists at all.

[spenser.d]

Credit Cards are dumb. Cash and Debit for the Win.

 

And if you can't afford it. You most likely don't need it.

 

That's interesting.  Having a credit card since college helped me build my credit to where it is today, above 750.  I've got a miniscule rate on my auto loan recently because of it.  I also can't really even tell you the total amount in free cash I get from just paying everything with my credit card instead of cash because of rewards on my first card.  My second card that I got for work expenses gets me a free night at a hotel each year + hotel points that I've already used to go on vacation for free.

 

Want to know how many times I haven't paid down my balance at the end of the month? 0.  I fail to see how credit cards are dumb.  Many people that use them may be dumb, but if you aren't, you get a ton of benefit.

[Dinggus]

Credit Cards are dumb. Cash and Debit for the Win.

 

And if you can't afford it. You most likely don't need it.

 

So, in emergencies you have cash stashed away?

 

Would I rather spend $800 cash or $800 credit on a plane ticket to go to a family funeral? I'd use credit. I get points and rewards, plus I'd rather not drop $800 right there on the spot.

 

In the US you need good credit to borrow, if you have no credit or bad credit, enjoy a high APR.

[threetonesun]

So, in emergencies you have cash stashed away?

 

Would I rather spend $800 cash or $800 credit on a plane ticket to go to a family funeral? I'd use credit. I get points and rewards, plus I'd rather not drop $800 right there on the spot.

 

In the US you need good credit to borrow, if you have no credit or bad credit, enjoy a high APR.

 

Yeesh. Yes, you should have cash on hand for emergencies. Using credit cards for emergencies is the worst way to use them, and that's a big reason why the average US credit debt is $3500 or whatever.

[Brandon]

Yeesh. Yes, you should have cash on hand for emergencies. Using credit cards for emergencies is the worst way to use them, and that's a big reason why the average US credit debt is $3500 or whatever.

You're thinking the wrong way.

 

I have maybe $2,000 in my checking account at any one time. The rest is in mutual funds and stocks. What if I have an auto accident and need to pay $4,500 to get my car fixed? I can't get the money out of my mutual funds / stocks for over a week. With a credit card though, I have 30-55 days (depending on when the purchase is within the billing cycle) to move money out and not have to worry.

 

If you literally have thousands in cash just sitting around in non-interest baring accounts, you aren't properly managing your financial assets.

 

Debit card transactions will get denied due to lack of funds, or I'll be hit huge with fees from the bank, if they even let it through.

 

Of course, I wouldn't get the $50 in 1.1% cash back either from the purchase either, so I just lost money.

 

Credit cards, if treated like cash can make you money.

[AJerman]

I disagree...

 

A random example...

 

I purchased my Nexus 4 in February and in April dropped it in its case, but cracked the screen. 1 quick call to Amex and 48 hours later I had a full refund for the phone. Cash or Debit wouldn't get me that.

How did you get a refund on a phone you broke?

[threetonesun]

You're thinking the wrong way.

 

I have maybe $2,000 in my checking account at any one time. The rest is in mutual funds and stocks. What if I have an auto accident and need to pay $4,500 to get my car fixed? I can't get the money out of my mutual funds / stocks for over a week. With a credit card though, I have 30-55 days (depending on when the purchase is within the billing cycle) to move money out and not have to worry.

 

If you literally have thousands in cash just sitting around in non-interest baring accounts, you aren't properly managing your financial assets.

 

Debit card transactions will get denied due to lack of funds, or I'll be hit huge with fees from the bank, if they even let it through.

 

Of course, I wouldn't get the $50 in 1.1% cash back either from the purchase either, so I just lost money.

 

Credit cards, if treated like cash can make you money.

 

If you have access to the money in 30 days, it's not really an emergency, is it.

 

Also, you should probably get car insurance. :laugh:

[ILikeTobacco]

If you have access to the money in 30 days, it's not really an emergency, is it.

 

Also, you should probably get car insurance. :laugh:

You may have misread. He has 30 to 55 days to pay it off without interest. The second the emergency happens, he can pay for it with the credit card and start the process of cashing in his mutual funds and stocks to pay for it. He has the money right then and there to make the emergency payment with the card, and before the credit card bill is up, has the ability to pay for it without interest.

[Brandon]

You may have misread. He has 30 to 55 days to pay it off without interest. The second the emergency happens, he can pay for it with the credit card and start the process of cashing in his mutual funds and stocks to pay for it. He has the money right then and there to make the emergency payment with the card, and before the credit card bill is up, has the ability to pay for it without interest.

Yup. Again, it's a hypothetical situation. If my AC broke at home or there's a leak in my roof, I can't wait a week for the funds to clear out of my investment accounts to my checking account. Credit cards solve that issue, and since I'll pay it off in full when the statement is due, it's a free short-term loan that reduces my stress.

[AJerman]

Yup. Again, it's a hypothetical situation. If my AC broke at home or there's a leak in my roof, I can't wait a week for the funds to clear out of my investment accounts to my checking account. Credit cards solve that issue, and since I'll pay it off in full when the statement is due, it's a free short-term loan that reduces my stress.

Or... you be smarter with your money don't tie up all of your money into investments that you can't access without having to wait and have to borrow money to pay for things. There's nothing wrong with investing your money, but most people keep a savings account as well with a decent chunk of money in it for exactly the situation that you're relying on borrowing on a credit card for.

[+LogicalApex MVC]

How did you get a refund on a phone you broke?

 

It is a feature of my Amex. If I lose, have stolen, or accidentally damage anything up to $10K within 90 days of purchasing it they will fix it or refund the purchase price.

[ILikeTobacco]

Or... you be smarter with your money don't tie up all of your money into investments that you can't access without having to wait and have to borrow money to pay for things. There's nothing wrong with investing your money, but most people keep a savings account as well with a decent chunk of money in it for exactly the situation that you're relying on borrowing on a credit card for.

So you are saying you would rather choose to limit your income instead of being responsible with a credit card? Why are you choosing to limit your options instead of taking full advantage of them? Using a credit card like we are saying IS being smarter with your money. Having money sitting in a stupidly low interest account when you have the option to make significantly more money from it is the smart thing to do.

[Brandon]

Or... you be smarter with your money don't tie up all of your money into investments that you can't access without having to wait and have to borrow money to pay for things. There's nothing wrong with investing your money, but most people keep a savings account as well with a decent chunk of money in it for exactly the situation that you're relying on borrowing on a credit card for.

Why though? Savings accounts earn fraction of percent interest. Even investing in market index funds return on average 9% over the past 100 years. Having $5,000 sitting in cash/savings accounts can cost $400+ a year in lost interest income. It doesn't take a financial genius to see the opportunity cost there.

 

It's legally gaming the system. I'm only borrowing what I can pay off in full. For free.

[+LogicalApex MVC]

Or... you be smarter with your money don't tie up all of your money into investments that you can't access without having to wait and have to borrow money to pay for things. There's nothing wrong with investing your money, but most people keep a savings account as well with a decent chunk of money in it for exactly the situation that you're relying on borrowing on a credit card for.

Why is this a bad thing? If he is a pay in full customer like me then he has anywhere between 20 - 40 days before he has to pay any interest on that money. Leveraging a CC is actually a very smart decision in that case.

 

Why? you ask. He is borrowing at 0% interest and take advantage of the float. Allowing him to keep his money invested longer thereby increasing his earning and lowering the cost of his purchases over time...

[AJerman]

It's called responsibility and balance. Yes, I could throw all of my money in a high interest account and have absolutely nothing available to me and have to rely on borrowing like you suggest, or I can keep a chunk of money in accessible accounts in case of these emergencies you mention, and put the rest in higher yield investments. You should never tie up all of your money at once, that's common sense of financials. You guys all seem to have an entirely different mindset of borrowing money being the cool thing to do. That's the issue our country has today, people would RATHER borrow money than be responsible ahead of time. Like Brandon just said, it's gaming the system. In your opinions it's better to game the system for every last bit of interest rather than have the personal responsibility to know you can cover what you need to pay, when you need to pay it by yourself without having to borrow money.

 

Like I said, having a credit card just in case is not a bad thing at all. It's a valuable tool that when used right is great to have. But I wouldn't start relying on it to be my emergency fund at all. I consider that irresponsible. And you most certainly don't need to have one, nor are you handling your money wrong to not have one. Credit cards are the easy way to have backup money without actually having backup money. So what if I missed out on a couple hundred dollars in interest over time. I didn't LOSE any money though, and I have the personal satisfaction to know I can cover my own ass without having to get someone else to cover me.

[threetonesun]

You may have misread. He has 30 to 55 days to pay it off without interest. The second the emergency happens, he can pay for it with the credit card and start the process of cashing in his mutual funds and stocks to pay for it. He has the money right then and there to make the emergency payment with the card, and before the credit card bill is up, has the ability to pay for it without interest.

 

Yup. Again, it's a hypothetical situation. If my AC broke at home or there's a leak in my roof, I can't wait a week for the funds to clear out of my investment accounts to my checking account. Credit cards solve that issue, and since I'll pay it off in full when the statement is due, it's a free short-term loan that reduces my stress.

 

Neither of these are an emergency situation, that's exactly how you're supposed to use a credit card.

 

The only cash I carry is enough to cover odd cash-only transactions. That doesn't mean me buying groceries is me covering an emergency on my credit card.

[+LogicalApex MVC]

It's called responsibility and balance. Yes, I could throw all of my money in a high interest account and have absolutely nothing available to me and have to rely on borrowing like you suggest, or I can keep a chunk of money in accessible accounts in case of these emergencies you mention, and put the rest in higher yield investments. You should never tie up all of your money at once, that's common sense of financials. You guys all seem to have an entirely different mindset of borrowing money being the cool thing to do. That's the issue our country has today, people would RATHER borrow money than be responsible ahead of time. Like Brandon just said, it's gaming the system. In your opinions it's better to game the system for every last bit of interest rather than have the personal responsibility to know you can cover what you need to pay, when you need to pay it by yourself without having to borrow money.

 

Like I said, having a credit card just in case is not a bad thing at all. It's a valuable tool that when used right is great to have. But I wouldn't start relying on it to be my emergency fund at all. I consider that irresponsible. And you most certainly don't need to have one, nor are you handling your money wrong to not have one. Credit cards are the easy way to have backup money without actually having backup money. So what if I missed out on a couple hundred dollars in interest over time. I didn't LOSE any money though, and I have the personal satisfaction to know I can cover my own ass without having to get someone else to cover me.

Leverage is a powerful tool. It is why Apple took out loans to pay its shareholders a dividend when they have more than enough cash on hand to do it. Ignoring the power of leverage is something the unsophisticated do while wondering why they are always a few paces behind.

 

Additionally, you're not only missing out on interest earnings, but also valuable rewards that dwarf anything you an do with cash alone.

 

Another example from my life...

 

Me and my wife wanted to go to Canada for my parents-in-law 40th wedding anniversary. With me working full time it had to be a very short trip (a weekend) so flying was realistically the only option. Except tickets were $1400 each way from PHL to YYZ. Using my Amex reward miles we saved over $4K in airfare and that was free earnings for us.

[AJerman]

Leverage is a powerful tool. It is why Apple took out loans to pay its shareholders a dividend when they have more than enough cash on hand to do it. Ignoring the power of leverage is something the unsophisticated do while wondering why they are always a few paces behind.

 

Additionally, you're not only missing out on interest earnings, but also valuable rewards that dwarf anything you an do with cash alone.

 

Another example from my life...

 

Me and my wife wanted to go to Canada for my parents-in-law 40th wedding anniversary. With me working full time it had to be a very short trip (a weekend) so flying was realistically the only option. Except tickets were $1400 each way from PHL to YYZ. Using my Amex reward miles we saved over $4K in airfare and that was free earnings for us.

Rewards are the best thing about a credit card now days, I'll definitely give you that. But the most popular rewards for a long time were airline miles, and my dad works for an airline so that doesn't really apply to me. I know they are doing a lot more rewards now though like you were mentioning earlier, and security on your spending on credit cards is good as well. Remember, I said several times that credit cards aren't evil and when used right are great, I originally was just trying to make the point that they are definitely not a necessity. What you're talking about is using them wisely, likely planning how you use them to work in your favor. That method of using a credit card still would suggest you have an emergency fund in savings to cover most random expenses that come up, and then putting planned transactions on the card to give you the best leverage. I still reject the notion of having a card with the intention of using it as your emergency fund, because you can't plan when emergencies will happen. They can certainly be there as a last ditch effort in the case of needing to free up larger chunks of money from savings, but I wouldn't consider it wise to do so as a habit.

[Brandon]

Just had a good reason why credit cards are extremely useful.

 

I had a friend visit me this past weekend. He had a 93' Olds' Cutlass. Needless to say, 10 miles from my house, the transmission blew. It cost 3x as much as the car was worth to fix it, so we went car shopping. Since he didn't have his check book with him, we were able to cover the $4,000 downpayment on a credit card, and pay it off online when we got home right away

[fintechfooty]

That is dumb. Like it or not you need good credit. Credit cards are a great thing, just don't be an idiot with them. Its not that hard.

That's what I've been told while growing up. It doesn't matter if you spend $20, or $200, your credit is determined by if you pay it off. Unfortunately Good Credit = almost everything in life.

[+Fahim S. MVC]

You don't need a credit card to establish a credit rating. You can do the same thing by taking out a small loan and paying it back in a timely fashion, and rinse and repeat.

Take out a $500 or $1000 dollar loan.. pay on it for a good long time and you'll get good credit in no time.

 

But don't you have to pay interest on each one of those loans?

[XorpiZ]

For us uninformed non-Americans - how exactly does "good credit" work?

[_neutrino Veteran]

i am 26, i have never had nor do i ever want a credit card. you can also used pre-paid cards to help build your credit as well as just having recurring bills in your name (like utility bills)

[spenser.d]

i am 26, i have never had nor do i ever want a credit card. you can also used pre-paid cards to help build your credit as well as just having recurring bills in your name (like utility bills)

 

The bills thing will only come into play if you don't pay and they go to a collector that reports to the credit agencies.  Otherwise they typically don't appear on your credit history at all which isn't helpful.  Prepaid cards might help a bit, but they probably only count as much as having bank accounts count - they aren't revolving credit (you don't really have a line of credit with them).