More Americans Are Saying “No” To Credit Cards
by Erik Folgate
Filed under Consumer News, Credit and Debt
The other day I wrote about an article I saw from a writer at the U.S. News and World Report about the apparent rise in consumers paying credit card bills before they pay their mortgage bills. I called it the worst financial advice I’d ever seen from a major publication. It may not have been “advice”, but rather the writer’s interpretation of data he had gathered and people he interviewed, but the point of it was that the writer NEVER challenged his own point of view. He bought into the idea that maybe it’s better to pay your credit card bills over your mortgage payment. I was more suprised at the quotes from some of the people he interviewed and one in particular was this one:
“It is hard to operate in our society without a credit card today,” Gumbinger says.
As you know, I don’t use credit cards and I don’t think they should be considered “financial tools,” because rich people will never attribute their wealth building to how well they use their credit cards. This is a controversial topic for some of you. You don’t see the problem with using a credit card. I don’t think any differently of you for using one, I just don’t think they’re worth it. Every policy from a credit card company is set out to rip you off from the fees, to the terms, to the interest rates. One slip up, and they take you to the cleaners. I had written the article not even realizing that the USA Today came out with another article on the 8th talking about the decrease in credit card use among Americans. Of all publications out there, the USA Today money section is getting it right. People are using their credit cards less, because in hard economic times, they realized that the plastic wasn’t helping their situation.
Credit card usage is slowing. Revolving credit — largely made up of credit card debt — fell by nearly 20% in November, the largest drop on record, according to the Federal Reserve, reflecting less borrowing by consumers and banks’ tighter lending standards. Through October, the number of new credit card accounts was down 46% from the same period in 2008, according to Equifax.
You could definitely interpret these statistics as the result of credit card companies tightening up their lending practices, but honestly, do you really believe that credit card companies have slowed down how many pre-approval applications they send out? We still get them all the time. We’re seeing a fundamental shift in the way we manage our money, and credit cards are not part of the equation. We don’t trust them anymore, because they’ve done nothing to build our trust. This is a great chart which reveals who we trust most and least in the financial sector.
Look at that, that poll shows that we trust lawyers and car dealers more than credit card companies, the federal government, and national banks! That’s crazy to think about, but I think it’s accurate. Even investment firms have lost the trust of us, because their corruption has been exposed, and they almost bankrupted this country. The arguments for credit cards will always be brought up, and here are a few that I often hear:
- I can’t use a debit card to rent a car, book a hotel, or a flight
- I’m not protected with a debit card
- I get tons of reward points and cash back for using my credit card
- My credit score will suffer and I won’t be able to buy a house
Here are my answers to those arguments:
- Show me a hotel chain or rental car company that won’t accept a debit card with a visa or mastercard logo on it, and I’ll take back my words publicly on this blog. They might hold a deposit on the card, but if you don’t have enough money to cover the deposit in the account, should you be traveling in the first place?
- You have the same protections from a debit card that you do from a major credit card. If it’s got Visa on it, it has the same protections.
- How many of those reward points have you actually used over the years? Don’t lie! And the cash back thing is such a joke, you need to spend $10k just to get $100 back. I’ll pass on the $100 for the security of knowing that if I have a crazy emergency, I’m not floating a bunch of money on my credit card just to get 1% back.
- Your credit score doesn’t matter if you stop applying for credit cards and car loans. The only time it matters is when you apply for a mortgage or insurance. If the company won’t manually underwrite your application and look at the CASH you’ve got in the bank to be a good risk, then don’t do business with them. If an employer won’t hire you because all they do is look at your credit score and don’t ask you why it’s low, then they probably aren’t someone good to work for. Plus, if you’re paying a mortgage on time with no other debt, your credit score is not going to suffer much by not having a revolving credit account. The FICO score only measures people with debt. Why would you want debt for the rest of your life? Why don’t we come up with a financial score rating that measures the net worth of individuals and make risk decisions based on that?
I probably still didn’t convince some of you, but I really don’t go on my soap box about credit cards too often. This week happened to be an exception, because it was relevant to the national press writing about it. My point is that we need to stop focusing on how to effectively use credit cards and start focusing on how to increase our income, how to start spending less than we earn, and how to save wisely for the future. Focus on those things, and you won’t care about how many reward points your credit card gives you.
(photo credit: World of Good)
Hertz won’t rent a car on a Mastercard (or presumably Visa) debit card without a credit check. Fail that (as I did), and no matter how much $ you have in the account the card is linked to, you get no car.
Thankfully, Hertz is only one of several car rental companies, particularly if you’re renting near an airport. I have rented from Enterprise in at least 3 cities with my little debit card.
Wow, that is great! We have one credit card we use for just gas. It is kind of a pain to use, but we get 4% back so we keep on doing it. :)
To Amanda above – why do you need to rent a car? Even if you have a temporary journey, you should be able to purchase a very old used car for peanuts and then dump it at the end of your journey. Probably cost you less than renting.
I stopped using my credit card four years ago, and found my life got easier. It was one less thing to juggle, one less bill to pay. It’s no hardship living within your means. It actually comes as a relief. Spending borrowed money is stressful. And I’ve never been turned away just because I wanted to pay in cash or by debit card.
I’m not necessarily talking about renting a car for a trip or for pleasure. If our car is being worked on or out of commission for any length of time a rental is the only way for my husband to continue going to work or anywhere else for that matter. There is no place I’m aware of where a car can be purchased on the spot in a matter of moments for $40-50, the cost of an average one-day rental car.
I’m certainly not advocating credit cards, I was simply pointing out that there are, in fact, instances where a Visa/MC debit card is *not* accepted but a Visa/MC credit card is. Fortunately in our nearby city where Hertz turned us down, Avis rents to us whenever we need to, and we haven’t had trouble with hotels either. The author said to “show me a hotel chain or a rental car company…” Well, Hertz is one, that was my entire point.
Hotel:
From the Delta Montreal page. Was there last weekend.
“A credit card is required to confirm and guarantee your reservation. Your security is important to us. We offer a secure website to process your information and take steps to maintain your privacy.”
In canada we don’t have debit cards with Visa or Mastercard. But our debit cards are more economical because charges are process in the order they arrive. Unlike the states where they are processed in the way that makes the bank the most money.
I don’t have a visa with rewards but would dearly love to. I use my other reward programs to the hilt. I made about 1200 last year, and didn’t buy a thing I didn’t need with them.
There are no manual mortgage underwriters in Canada. Hubby is a mortgage broker. With no credit rating, you are treated to one of the perks of no credit significantly higher rates on your mortgage. You are considered a B risk. No banks will touch you (unless you are a customer that has a strong relationship with the employees and then sometimes). But HomeTrust will (for a fee)
I pay a fee on my card but I haven’t had interest. I have gone over my limit and had to pay $29, twice.
Credit cards make my life easy. I have lost my purse a grand total of 12 or 13 times in my life (ADHD–don’t ask) and if there was cash in there all those times instead of credit/debit cards, I would have lost more in losing my purse than the fees having a credit card.
I agree they are snakes. I agree that maintaining a balance is no way to get ahead financially. But in my life they make sense.
When managed and used correctly, credit cards are in fact a good way to generate income.
how do you use them to generate income?
I used to travel a lot for work as a contractor/freelancer, and as such, didn’t have a “company” card for charging expenses. I usually tried to use my debit card, to avoid interest fees on the expenses while I waited to be reimbursed by the client. However, my debit card was actually turned away once at a hotel, even though I knew I would have more than enough money for the room deposit (even though the room was paid in full in advance by the client). The reasoning, as explained to me by the desk service person, was that most people don’t have enough money to cover the charges, so they don’t accept them (or, apparently, the associated risk), despite debit cards working “just like a credit card.”
It’s so unfortunate that everyone who uses a debit card is prey to policies based on what is considered the “general norm” of not having enough money in the bank. Of course, it’s also unfortunate that people who try to use their money responsibly by avoiding credit debt (not that credit is always irresponsible, just that it can be a source of trouble for many, as we all know), for whatever reason they choose, are punished for doing so. The result is an unfortunate and not entirely open or unbiased, but supposedly “objective,” metric (credit reports, FICO scores) for measuring who is worthy of what financially. *grumble*
I think that both points of view have their meritorious points. No matter which way you lean, it eventually comes down to paying attention to your finances and managing them the way that brings you the most benefit. You can incur ridiculous overdraft fees on debit transactions or ridiculous late charges on credit cards- there are negatives as well as the positives to each way.
I would like to see more people really think through the use of credit, as I think that it’s not often a topic that people really think about. I’d like to see more people caring enough to debate the pros and cons.
When I had my debit card number riped off by a roommate almost ten years ago, it took longer to get all my money back from the bank than it would have if it was a credit card. Being that my debit card was linked to my checking account which had all the money I needed to LIVE, it really sucked for a while being cleaned out. Thank god for credit cards or I would have been up the creek…,
I think credit cards are still very useful to hotels and car rentals. I don’t see the big deal with using credit cards for those type of purchases anyway. Plus they are a godsend for business – makes bookkeeping easier.
I never run up balances and always pay they off each month. (shrug)
it’s a valid point carla. It can take longer to get the money back from the debit card, but the point is that that you ARE protected, but it could be a little more of a hassle if it’s with a debit card.
I don’t have any credit cards, not one. I just use my debit card, which in fact earns me points in my banks rewards program. Each year I earn a least a few hundred dollars in certificates and in the last few years I’ve never had a problem where the card wasn’t excepted because it was a debit card. For me using a debit card keeps my spending which trust me is a good thing :)
“My point is that we need to stop focusing on how to effectively use credit cards and start focusing on how to increase our income, how to start spending less than we earn, and how to save wisely for the future.”
PREACH! Beautifully said.
The nearly fanatical dependency on and fear of living life without credit cards baffles me. I have literally seen people panic (and I do mean panic) over even the thought of parting with plastic. Hello, warning sign.
I would not panic over not having a credit card. But what bothers me is a person I know who has no credit card, no checking account, only a savings account. He has to monthly get a money order (actually I think 3) for paying rent, cable modem/phone and electric/gas. I just can’t help thinking of all the money he is wasting getting money orders every month. Here we have free checking accounts and you only pay for the checks. (3 a month, he could buy checks once every 5 years or so.) Yes, they charge fees if you overdraw, etc. and that is why he doesn’t have it. He doesn’t trust himself. If you can wisely use checking accounts and credit cards, I don’t see a fervent need to not own a credit card. Now, I do understand not having many. We have one in my husband’s name and one in my name and we each have the other’s card. That is it. No store cards, no gas cards, etc. Both have 1% back at least and no fees. My husband makes a couple hundred dollars a year on his, I only make about $50 a year. We are not huge spenders. And yes, our rewards is cash. No points, airline miles, etc. He requests his to pay down his next months bill when he wants to. I request a check when mine gets to $50 and I put it in my son’s college fund. Have we had to pay some to the credit card company? Yes. Once in many years I paid late and had to pay way too much. If I could find a card with a longer mailing period, I would probably switch. (I have two weeks from when I receive it in the mail to when they have to have it and you must mail it early or it won’t get there. Does not leave much time if you are on vacation, or if you pile it up until you get to the mail.)
Debit cards, my husband tells me have gotten better to where they have almost the protection of a credit card. Would have to look up the rules. But a few years ago, the answer was no they did not. IE the earlier poster who said the person emptied out their bank account and how long it takes to get the money back. Apparently that has changed some though.
I’m almost 61, and I have never owned a credit card and never will. When I was 20, I decided that I would never do anything on credit except a house, a car, or education. I paid off my house a year early. Actually bought one of my cars outright for cash. Paid off all of my student loans in a timely manner. At present, I have absolutely no debt, and it feels great. Can I get everything I want whenever I want? No, but it’s rewarding to save for things over time and then be able to buy them for cash.
I was talking to one of my friends about my “no credit card” policy. She said, “Oh, I could never do that because I’d never have enough money to live on without credit cards.” She was seeing her cards as another source of income and living beyond her means. Now that is much scarier than living without credit cards.
Marilyn, I totally agree! You are a true testament to the kind of person I am talking about. You’re debt free at an age where being debt free gives you a LOT of financial security. Great job!
I beg to differ on your statement about car rentals and debit cards.
My car broke down on the way from Boston to Montreal. It was a Friday night. No garage in vermont had the part I needed. The part was unavailable until Monday. I had no place to go in Vermont so I needed to find a way to get to Montreal. I made it to the Burlington airport, thanks to a shuttle van that stopped at the same garage, but none of the rental agencies at the airport would take my debit card without an $800 hold on the card. I had $300. Who travels such a short distance with more than that in cash? It was a weekend trip.
I asked each car rental place that if I’d had a credit card would it have mattered whether or not I had $800 for them to hold. Each reply was the same: it didn’t matter how much credit remained on your cc as long as you had one.
I don’t disagree about your other advise not to use a credit card, but know that in the case of travelling like I do up and back to Montreal, having a credit card, and using it / not using it wisely, is the way to go.
If you have a handle on your spending, never carry a balance, and pay attention to your finances, I see no reason to not have a credit card. They come in handy when you find yourself in emergency situations and need a card for a car rental, airline ticket, hotel room, etc. Sure, under normal circumstances, maybe you could find a rental company or hotel that would take a debit card…but in dire circumstances, you can’t always be choosy. I would also suggest that when making purchases online, or in other situations where you may be vulnerable to identity theft, it is much easier for a credit card company to cover the fraudulent charges, at no hassle to you, whereas using a debit card makes the entire balance of your bank account up for grabs.
Erik, great article, and you are right that a debit card with a Visa or Mastercard logo is accepted by most businesses that accept Visa and MC credit cards, provided there is a sufficient balance on the card. (As some people have commented, there are exceptions, but hopefully few and far between).
I do agree that credit card aren’t completely necessary, as long as you have a debit card available (visa/mc) as it works in much the same way. I personally avoid using a debit card because I rather like the 30 day “buffer” before the money gets taken out of my checking account. It’s also nice to get all those nice airline miles I’ll never use! :)
How long ago did you post this, this report would come in very handy when it comes to writing my essay on, why most americans should not use credit cards.