When to Use Credit Cards

Posted by: Michael S. | Jan 08,2008


I read Henry’s post about irresponsible use of credit cards with interest today.  It seems strange that all of us here at Experts on Credit are not really huge advocates of credit cards.  Most of the dialogue here leads to one basic truth: don’t overuse your credit cards.  Really, if possible, don’t use your cards at all.

The thing is credit cards are an inevitability in modern life and people need to find good ways to use credit and get out of debt, which was why Experts on Credit was born.  When it comes down to it, though, it’s really not a good idea to spend on credit.  Even if you have a 1% APR, which is impossible, you’re still going to be paying more for a purchase than the sticker price.  That’s all credit really is: a way to make items more expensive.  

This is true if you leave a purchase on a credit card balance for more than a month.  If you pay off the item in full at the end of the month, it’s basically like using the card as debit.  However, this is only true if the card doesn’t have high transaction fees or has a very short window before charging interest.  In most cases even if you pay in full at the end of the month, you will still pay above what is listed on your initial store receipt.  Chances are if you could buy something via debit today you would not put the item on credit.  As Henry mentions, you might as a way to build up your cash savings, but in the long run this will drain your savings account, so this is hardly a foolproof method of saving money.  

So all this begs the question: is there ever a good time to use credit?  As mentioned, paying your bill in full is the best way.  What if you don’t?  What if you leave a balance on the card?  I would argue that this could be to your benefit even if you have fairly high interest.  Paying off a credit card balance over many months can strengthen your credit rating.  Still, though, the alternative of buying and paying off in full can have the same type of benefit, you just have to use the card every month and then pay it off.  

There are some items that make less sense on credit than others: gifts and food being the top two.  As these items have no resale value, they’re much more problematic when bought on credit.  It’s also important to note that some returnable items are good to buy on credit because it can be easier to get a refund on the purchase, compared to debit where the money came directly out of your account.  Finally, credit card reward programs can offset what is lost in interest, but by no means should this be a reason to use cards for every other purchase, and even the best rewards plan will not outmatch the best APR.  

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