Dvorkin On Debt: Your Credit Card Is Not Your Friend

Why do we use credit cards? It seems like such a basic question, but can you guess the answer?

If you said, “Obviously for all the rewards, cash back, and airline miles you can rack up,” well…you’re wrong.

“The single biggest reason Americans use credit cards is because they are easier and more convenient than paying with cash,” says a recent poll from the financial researchers at Bankrate. More than 40 percent of those asked cited convenience ahead of all else.

In second place — way back — was “financing emergency expenses” at 19 percent. Rewards came in third, at only 14 percent of the vote.

I have mixed emotions about this.

Emotion 1: Convenience can be inconvenient for your budget

I’ve received some criticism for encouraging Americans to go credit card-less for at least a little while, so they can see the difference in their spending habits. In my last book, Power Up, I wrote…

Learning to live without a credit card is an integral part of financial empowerment. The lessons you discover will add to your building blocks that will eventually lead to your financial independence. Those who don’t use credit cards take money much more seriously  than credit card users. The act of physically handing over the dollars to a cashier or waitress generates a feeling of loss. The money is gone.

This thought horrifies some Americans. It’s as if I’m suggesting they give up solid food for a month. To a few, I might as well suggest not breathing for a month.

However, Debt.com has compiled some sobering statistics that show why you might want to try what I’m proposing…

• $854.2 billion — What Americans collectively owe on their credit cards. That’s more than $15,000 per household.
• 15 percent — The average national APR on credit cards. For every dollar you carry as a balance from month to month, you’re paying 15 cents.
• 26.87 percent — the average penalty interest rate if you miss a payment.

That’s a lot to pay for mere convenience, so I still recommend at least a temporary respite. You don’t have to cut up those cards, but you can lock them away in a drawer. My prediction: At the end of the first week, you’ll be surprised how much money you’ve saved.

Emotion 2: Rewards are rewarding for your budget

If you are going to carry credit cards, I’m all about the rewards. It’s free money — as long as you don’t spend money to get them. (See our report called Balancing Credit Card Rewards with Low APR.)

I admit I was slightly surprised by the Bankrate survey.  It indicated more than half (51 percent, to be exact) would keep using their credit card even if all the rewards were removed. Convenience matters that much. Only 19 percent said they’d give up their credit card if they couldn’t earn something for the privilege, while 26 percent split the difference: They’d “use the card less often.”

If you’re just happy for the convenience of your credit, I urge you to read these very short articles:  The 5 best cashback credit cards right now and The best reward cards right now. You should spend a few minutes and switch your cards to maximize your saving. If you’re already deep in credit card debt, I suggest you call us at 1-888-503-5563 for a free debt analysis from  certified credit counselor — because there’s nothing convenient or rewarding about big credit card bills.

Howard Dvorkin is a CPA and chairman of Debt.com, an educational resource for those who want to conquer all forms of debt in their lives.

This article by Howard Dvorkin first appeared on http://www.debt.com and was distributed by the Personal Finance Syndication Network.