Before we begin, ask yourself this question: “Are credit cards ‘good’ or ‘bad’?”

Think about your response.  Decide upon your answer.  Then read on.

Okay, so you presumably know how you feel about credit cards.  Now let’s ask the same question about rope.  Is “rope” good or bad?

Now you might be confused. What does “rope” have to do with credit cards?  Well, at first glance, nothing.  And perhaps you find it difficult to attribute “good” or “bad” with an inanimate object like a piece of rope… because we don’t really associate the qualities of “good” or “bad” with the object.  After all, rope is neither good nor bad. It’s just… well… ROPE.

Much the same, credit cards are neither good nor bad.  They’re just pieces of plastic with a magnetic strip and an embedded chip.

But many people will argue (vehemently) that credit cards are “bad” because they “make ” you spend more, cost you interest, and put you into debt.

Nope.  They don’t– any more than a piece of rope is “bad” because it hangs people.

What about the USEFUL WORK you can accomplish with a piece of rope?  If rope is used as a tool, it can make life easier.  If it’s used as a weapon, it can be destructive.

In much the same way, credit cards can be used as a tool to actually IMPROVE your household economics.  Or, if used improperly as an “extension of income”, they can be costly and destructive.
So it’s not the credit card that’s good or bad.  It’s how people USE their credit cards.

Feature #1: Interest float.  Used as a strategy, interest float allows you to use the bank’s money without paying interest on it, allowing your own money to earn interest in your bank account.  Hopefully you have a high-yield savings account, rather than a non-interest account.  Cash in envelopes (for budgeting purposes) and cash in your wallet earns no interest.  As long as you can pay off your credit card bill in full each month, credit cards don’t cost you money.  They can help you earn interest by using them as a float tool.  Paying everything in cash “just because you have the cash to do so” doesn’t mean it’s the smartest way to go.  Credit cards usually have a 26 day (on average) grace period each month.  In a twelve-month period, that’s 312 days per year of using the bank’s money for free while earning interest on your banked cash.  If you pay in cash, instead, that’s 312 days of interest (compounded daily) that you won’t earn.

Feature #2: Rewards (Points or Cash-Back).  Used in conjunction with your budget to pay monthly bills that you would otherwise pay via check, your routine bills like cable TV, internet access, cell phone service, insurance, etc. can earn you Reward Points if you pay them via credit card.  Redeeming reward points or earning cash-back means that your existing monthly bills and shopping can save you money.  The more you can take advantage of such perks, the better your cash flow and resulting lifestyle.  Again, it boils down to money habits.  It’s not enough just to have a budget– you have to FOLLOW the budget.  Fix the money behavior and the credit card is a tool.

Feature #3: Simplified Accounting.  Getting organized for taxes is easier with a categorical breakdown of expenses that many credit cards summarize.  This doesn’t directly save you money, but it does save time.  And, as the expression goes, “time is money.”

Feature #4: Consumer Protection.  If you’ve ever ordered something and the wrong item arrived… or if an item showed up defective… or if the shipment didn’t arrive at all…  Well, if you paid with a bank draft or by mailing payment in advance, you might be out the money.  Along those same lines, if someone steals your purse or wallet, any cash you have is gone.  But credit cards offer “zero liability” fraud protection.  Report the card as stolen or missing, and you aren’t responsible for purchases and transactions you didn’t make.  Dispute a charge for incorrect, damaged, or non-delivered merchandise, and the burden is on the merchant to fix the problem.

Feature #5: Credit Score Management.  In the “old days”, credit scores were used solely for their intended purpose: deciding whether someone is creditworthy to be issued a loan or credit card.  Those were the days when Social Security Numbers were solely used for enrollment and benefits in the Social Security program.  Nowadays, however, Social Security numbers are used for everything from credit checks to account verification for utility companies and social media logins.

Similarly, credit scores are used for much more than awarding credit.  Insurance companies use credit scores as a metric to assign premiums: The better your score, the lower your premium may be.  They’re also used to qualify people for housing: If you’re score is too low (or you don’t have one), some places won’t rent an apartment or home to you.  In some jobs that require a government security clearance, a bad credit score can have a negative impact on it.  Employers who entrust employees with financial duties use it as a subjective determining factor for the hire/not hire decision.  So it’s completely incorrect to assume you don’t need a good credit score “unless you plan to go further into debt”.  Whether “right” or “wrong” from an intended-use standpoint, people with good credit scores generally pay less and have more opportunities than people who forsake their credit scores.  People with bad credit are often discriminated against.  Managing credit cards responsibly saves you money.

I could go on, but you get the point.  Am I advocating the use of credit cards?  Absolutely… “IF“.  What’s the “if”?

IF you develop good financial habits first– being responsible as a consumer to pay them off in full each month, along with proper budgeting, then using credit cards as a tool can be beneficial.
Rope isn’t bad.  Rope isn’t good.  Rope is just rope.  The expression, “give someone enough rope to hang themselves” is used to address the behavior of the person, not the strands of fiber braided to create the rope.  If using credit cards is the equivalent of “giving you enough rope to financially hang yourself”, then don’t use credit cards.  Simple.

If you do use credit cards, do so with caution and awareness.  Use them as a tool, not a crutch.  Treat them as a way to maximize your income, not as an extension of your income.  And take the time to continually improve your financial literacy along the way so you aren’t closed-minded on the truth.