Are Credit Cards Evil?

If you listen to certain radio talk-show hosts you might think that credit cards are evil. Credit cards are NOT evil. They are a tool, but just like with any other tool, they need to be used responsibly. If you can’t handle a tool you shouldn’t use it.

I think you should have one or even several credit cards. I have one main one that I use for cash back, a Delta card that I used to get a free flight, an Amazon card that gives me 5% cash back on Amazon and the Costco credit card that I use to get 4% cash back on gas.

But what about all the credit cards versus cash spending studies?

No doubt you’ve heard studies that prove that we spend more with credit than we do with cash. It is very possible that these are myths.

The most popular is the study that Dun & Bradstreet supposedly did where they found that people spend 12-18% more when using credit cards instead of cash. However, no one can seem to find that study. Everyone cites it, but no one cites the source.

There is also a study that McDonald’s reports that the average ticket price is $7 when people pay with credit and $4.50 when they pay with cash. Again, though, no one can find the original source (1).

Mark Wells, CFO of the payment processing company for McDonald’s reports that, “When an establishment accepts credit cards, the average ticket size goes up. We anticipate a 40 percent increase in the average ticket size for those franchises implementing credit card processing for the first time” (2). Again, though, Wells doesn’t provide any supporting data for this statistic.

While those studies might be made up, it is important that you practice responsible spending when using credit cards.

  • If you can’t pay the full balance off each month, don’t use credit cards.
  • If you think you will spend more with cards than cash, use cash.
  • Whenever you use your card you should immediately transfer money from a category in your budget and move it to the credit card category. For example, when I buy gas at Costco I immediately enter the transaction in my budgeting software. It records it as a credit card transaction and moves the amount I spent from the gas category to the Costco credit card category.

You’re better off not using credit cards if you can’t pay them off during the billing cycle. If you’re paying 12.9% interest and getting 1.5% cashback, you’re clearly not coming out ahead.

If, however, you can use them wisely, and you pay them off in full before any interest is charged, why not take advantage of the rewards?

  1. Most websites that talk about these two studies cite this article on NerdWallet as their source: https://www.nerdwallet.com/blog/credit-cards/credit-cards-make-you-spend-more/. Citing a website that didn’t do the original study, and doesn’t cite their source, is not a proper citation and proves nothing.
  2. http://www.businesswire.com/news/home/20031021005628/en/Credit-Cards-Process-Faster-Cash-McDonalds-Franchises

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