Many people think that they can get ahead by using credit cards. By paying off each month, they pay no finance charge, gets 2% cash back, and use the credit card company's money for free. They think the credit card company is losing money on them. Is this right?
Theoretically is yes, but practically is a big NO! First, every time you use the credit card, the credit card company is already making 2% from the merchants. But this is not the issue. The real issue is are you really making money or saving your money by using credit card.
Studies done on consumer spending shows otherwise. Dunn and Bradstreet say that spending cash hurts and registers psychologically. They also did a study proving that people who spend with plastic, even disciplined and responsible people, spend 12%-18% more. Those same people spend 37% more when using plastic at a fast food restaurant and 78% more at a vending machine.
Even if you’re conservative and only over-spend by 6%-12%, you’re still not winning and you’re taking a risk. You’re risking that the credit card company will post your payment late and that you’ll get charged with late fees and interest on that balance. Even if it’s their mistake, you’ll spend the next five months arguing over $20 because these people break federal law everyday.
Some merchants even require minimum spending limits before credit card transactions are allowed. This requirement may even lead to unnecessary purchases.
As responsible as you are, you could probably continue in your credit card spending habits and break even – maybe even make a little bit of money. But as long as you’re playing with snakes, you’re going to get bitten. This may not be a big deal for you personally, but it is a big deal for millions of people. We have yet to meet a millionaire who says that the cash back they got on their credit card was what made them wealthy.
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