Why do we (people) use Credit Cards as there is no such thing as a free lunch?

glewis

Dear MSE fans

Please will you help me create a list of pros and cons as to why we should use/have a credit card?

Pros
===
1. Can get points/prizes or even cash back for using the card, like the tesco reward points.
2. It's emotionally easier than cash (I think ease of spending goes, card, cheque, cash)
3. It's a load/cash buffer if you run out of money before you run out of month
4. They make you feel special with a 'gold' card
5. Easy to download financial data into money management software
6. I've always used one
7. I can be spending 'their' money whilst getting interest on my money for an month.
8. What else is good about them?

Cons
===
1. No such things as a free lunch - the companies are out to make money from you.
2. Easy to lose track on cash flow
3. I've always used one
4. If you miss a payment, you get a black mark on your credit record
5. If you don't pay it all back each month it is a very very expensive way to borrow moeny (legalized loan sharks)
6. Whay else is bad about them?

Then more I think about it, the more troubled I get by the idea of credit cards especially if you want to play these companies at there own game of 'making money', it is a bit like gambling in that the house always wins. Even if you remember to pay it off every month for 20 years, it just take that one mistake and you will get hammered. [Mine mistake was that my wife withdrew cash by mistake on the credit card (because it was the same colour as the debit cash card, {and yes I know the pin should be different but who manages to remember a different pin/password for everything?} and so we where paying big interest on the cash withdrawal] I think that wiped out several years worth of credit card perks. I want to convice myself to get rid of the evil credit cards.

So what do people think, and credit cards good or bad, and why?

Kind regards
Giles

izools

It helps me manage my money/cash flow better

The three reasons I use a credit card:

1. It improves my credit score thereby increases my chances of getting a mortgage / loan / etc when there is a genuine reason
2. It provides me with better protection on purchases than a prepay card or debit card
3. It allows me to earn more interest on my current account balance - as my purchases are deferred by 30-60 days, my average current a/c balance is much higher

Simples :beer:

FYI, most credit cards carry a lower APR than what would be provided on an unsecured personal loan at the same value. My bank (HSBC) quote 15.9% for a 4,000 loan. Most credit cards carry the same or lower APR. Ergo, no, they are not legalized loan sharks. Legalized Loan sharks like Greenwood and Provident charge in excess of 200% APR.

brewerdave

It helps me manage my money/cash flow better

Provided that one is very disciplined credit cards can be a good thing.As per your list mine allow me a free use of money for ~ 6 weeks provided I pay in full. On the other hand my wife would quickly fall into the proverbial because she hasn't got the necessary iron will!!!!
As an aside we have actually suffered from the opposite problem to the one you suffered re similar coloured cards - my wife has actually purchased something using our debit card instead of the credit card and I was within minutes of going overdrawn for the first time in 25 years!!!

theartfullodger

Sigh!

Four reasons...

a) (Rather than cash) as then I get accounts I can use for e.g. tax return &/or "proof of purchase" if goods are faulty.. (you don't need a receipt to take stuff back, just "proof of purchase" see..
http://www.thisismoney.co.uk/consumer-rights
)
b) Assists cashflow by borrowing for free until I (I always do..) pay the full balance off when due, by direct debit..
c) Key one: Buying stuff my CC gives you extra consumer protection not available with normal debit cards or cash: The CC company is liable if there's a problem as well as the merchant .. see..
http://www.which.co.uk/consumer-rights/sale-of-goods/your-rights-when-paying-by-credit-card/
d) Very very occasionally (much less now that years ago when paper slips had to be processed..) charges get lost in the system & I get something for nowt...


And no, I never pay interest charges - to a CC company or a Bank.

Cheers!

Artful

glewis

Cons
===
5. If you don't pay it all back each month it is a very very expensive way to borrow money (legalized loan sharks)

izools wrote: »

FYI, most credit cards carry a lower APR than what would be provided on an unsecured personal loan at the same value. My bank (HSBC) quote 15.9% for a 4,000 loan. Most credit cards carry the same or lower APR. Ergo, no, they are not legalized loan sharks. Legalized Loan sharks like Greenwood and Provident charge in excess of 200% APR.

Many thanks for putting Credit Cards into perspective for me. Apologies for the use of inflammatory language.

I have only ever had one personal loan (other than a mortgage) about 20 years ago when I was silly enough to take out a loan to buy a car when I had the saving to pay for it. Martin has mentioned this folly in financial education stuff.

Kind regards
Giles

danothy

It helps me manage my money/cash flow better

They're just a tool with certain advantages over cash and if you consider them that way then things are less likely to go wrong. I use them to pay for things that I would otherwise be buying anyway with money I have anyway and consider that money spent.

If, however, you for some reason perceive the available credit as additional to your income then you're nurturing a financial catastrophe.

dzug1

It helps me manage my money/cash flow better

Well from a personal point of view none of your cons apply - I treat it as a charge card and pay it off by DD in full each month. In the days before DD was available I think I went wrong once - paid a few ££ short through misreading the amount and paid a few pence derisory interest as a result,

And whilst yes there is no such thing as a free lunch (I'm paying for the thing in the prices I pay the retailer) everyone needs lunch and it has to be paid for somehow.

If, however, you for some reason perceive the available credit as additional to your income then you're nurturing a financial catastrophe.

Agree with you there, Danothy

nzseries1

It makes a charity donation when I use it [and give me a feel good factor]

Apologies, my answers are a bit incorrect. I saw the option
"I get point when I use it"
but didn't understand what that meant - now that I've thought about it a bit more and I know it means "I get points / rewards for using it" I should have ticked that one.

And when I saw the option
"It has better download features than my cash debit card"
I thought it said
"It has better features than my debit card"
which I thought meant I get rewards for using it which I don't with my debit card. I missed the word "download". Sorry, I shouldn't have ticked that one. It's been a rough morning, not enough breakfast!

StephenM_2

It is free to me. I don't think I've ever paid interest or a credit card fee in the 30 years I've had a credit card. For several years now I've pay off the balance in full every month by direct debit so there's no danger of forgetting. It may not be a free lunch but its other people (the ones who don't pay in full, and especially the ones who get hot by penalty charges) who are paying for my lunch.

Yes, shops factor credit card handling fees into their prices. But in the vast majority of cases, everyone pays the same regardless of whether they pay by credit card or not.

BugsyBrowne

StephenM wrote: »

It is free to me. I don't think I've ever paid interest or a credit card fee in the 30 years I've had a credit card. For several years now I've pay off the balance in full every month by direct debit so there's no danger of forgetting. It may not be a free lunch but its other people (the ones who don't pay in full, and especially the ones who get hot by penalty charges) who are paying for my lunch.

Yes, shops factor credit card handling fees into their prices. But in the vast majority of cases, everyone pays the same regardless of whether they pay by credit card or not.

I never pay in full at the end of the month, and don't plan to either..

StephenM_2

star-fire wrote: »

I never pay in full at the end of the month, and don't plan to either..

Thanks for paying for my lunch then.