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Should You Own Credit Cards or Cut Them Up?

by dollarwise
should you own credit cards?

Should You Own Credit Cards?

Not everyone should have a credit card. In fact, for many they are a dangerous thing that allow you to spend way too much, way too easily. If that’s you, you shouldn’t own a credit card. If you are tempted to spend money you don’t have, credit cards are a bad idea. Similarly, if you have unpaid credit card debt, get rid of that thing as soon as possible. Cut up your credit cards and never have one again. You need to pay off all your debt on these cards as quickly as possible. The banks are killing you on this. Make sacrifices, sell some stuff, refinance the debt into your mortgage or as a one off transfer the debt to a 0% balance transfer card. Just pay it off and kiss goodbye to the plastic.

Some Reasons To Own Credit Cards

That said, I own rewards credit cards. For me credit cards do a few things that make sense.

  • The bank pays my bills for me and I don’t have to pay it back for up to 55days. I’m happy to earn interest on that while the bank pays it for me.
  • I like earning a few frequent flyer points and turning those rewards into free travel. I have taken lots of free trips with these points. That’s free travel and sounds good to me.
  • Some cards come with free international transaction fees that save when making international purchases or when travelling.
  • You often need a credit or debit card for online purchases. Go debit if credit cards are not for you.
  • You get some purchase insurance or travel insurance thrown in. This is an extra perk, I wouldn’t look for it, but it has come in handy once or twice.
  • I have easy access to most of my transactions to keep an accurate budget.

For these reasons, rewards credit cards make sense for me.

Credit Card Rules

However, I’ve got a few rules that you must keep to make having credit cards worthwhile. If you can’t keep these rules, you shouldn’t have one.

  1. You must pay off 100% of the balance every month to not ever incur any interest payments.
  2. Never take a cash advance for the same reason as above.
  3. Never buy anything you wouldn’t have anyway.
  4. Never ever pay an annual fee, unless that fee is waived or there is a cash equivalent given.
  5. Never change your buying habits to earn points or the like, they’re not that valuable.
  6. Never use your card if a surcharge for using it is applied.
  7. If possible earn some points or get some rewards with your card.

With those criteria in mind you should be able to find the right credit card if credit cards are for you.


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Dividends Down Under September 1, 2016 - 9:22 pm

We’ve made a conscious choice to not get a credit card. It’s true we’d be slightly better of mathematically if we did, but we like the mental mindset of staying debt free as much as possible (though a mortgage is impossible to avoid).


dollarwise September 2, 2016 - 5:41 pm

I can definitely understand that. I loathe debt myself. I don’t really think of credit card payments as debt when I know it’s paid off in full every month via direct debit. It’s still logically debt, I just don’t think of it in that way. Obviously I’d never leave any debt on a credit card and I wouldn’t spend anything that I hadn’t planned to. The points and perks have also come in very handy. Just a while ago I had to take an emergency trip. A free return flight with a card made that possible for the cost of the card, $195/year. For that I got what would have cost me nearly $600 (same day flights are not cheap!). I also use the points for semi-regular plane trips to some isolated places where qantas has a monopoly. Again $300 fares are essentially free. So the savings I can get are reasonably substantial and beyond just the interest saving by delaying the spend.

Richard January 10, 2018 - 3:42 pm

Excellent advice, and I agree that if you have the self-discipline, you can really make credit cards work for you. Myself and my partner spend an average of $75,000 per year on our card account – every cent of which is paid in full on the monthly due date, via automatic debit to avoid ever paying interest. However our average daily balance on the card is $8,500 – which means this amount is instead sitting in our mortgage offset account and thereby reducing our home loan interest. With a mortgage interest rate of 4%, this represents a saving of $340 per annum – which more than covers the annual credit card fee. Plus our card earns an average 0.8 frequent flyer points per dollar spent, which means we get around 64,000 FF points per year – enough for a business class return flight to Europe every 3 to 4 years (so worth say around $2000 per year). And remember that these savings are after-tax too (FF points are tax-free!).

The only thing that I would add to your list of rules above is to never make purchases on a credit card if the vendor will charge you a transaction fee for doing so. The transaction fee will usually be much higher than the benefits gained!

dollarwise January 12, 2018 - 10:44 pm

Richard, note I’ve added in your rule. It’s a good one that I follow myself. Thanks Luke@dollarwise.

dollarwise January 12, 2018 - 10:41 pm

Great comments. Sounds like you are using the system, rather than being gamed by it. I’ll add in that rule too! Almost goes without saying, but you have to watch out for the credit surcharge!


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