How can I convince you to not put your spending on a credit card?

As I never grow tired of saying, being financially aware is one of the most crucial ways to find peace in your life and achieve anything you want. Being rich isn’t the goal, but being intentional and making the best possible decisions can not only put you in a better financial position, but also give you the strength to tackle other challenges.

Well, I certainly need some strength right now, because sometimes I feel a little despondent that one of my messages is not being heard, even by people who would be most likely to benefit from it.

I speak of the habit of people putting all of their everyday spending on a credit card.

The Big Sell

It’s easy to understand why people do this. First of all, the idea of the reward credit card is so ingrained and so ubiquitous (and so well advertised) that one could be forgiven for assuming that it is the expected way of spending money.

In fact, it seems hard to find a credit card that doesn’t give you some kind of reward these days.

Why is this? Well, some of this is due to increased competition. The more options there are out there, the more incentives a company needs to offer in order to get your business.

And what is the business they get? It’s all of the money you give them. This can be things like annual fees, balance transfer fees, finance charges, etc. (Here’s a great article on how credit card companies make money.)

Is this a lot of money? Well, I could dig up some figures, but if you think for a minute about how much advertising there is on credit cards (newspapers, TV, etc.) and imagine how much that costs, figure that they must be making at least that much to make it worthwhile.

It’s like the casinos. Would they have the ability to build those buildings if they weren’t making money hand over fist?

In short, they are making a serious hell of a lot of money.

Too smart for them

But they aren’t making money from you right?

You never pay finance charges at all. You pay off your balance in full each month. They get nothing from you (except for perhaps an annual fee) and you get to reap all the rewards you want.

Except, there are at least two reasons why this isn’t true.

1. You spend more money when you use credit cards versus other forms of payment (see here, here, and here, among much else).
2. Using the card in lieu of actual budgeting means that you’re likely going to overspend (as the converse is known to be true).

Now, the problem with both of these is that they are extremely intangible and hard to notice.

That one spends perhaps 10% (or some value) more in a given month isn’t likely to be detected. Even if you overspend by $100 a month, unless you’re in a huge financial pinch, you’re not going to notice. But as I recently mentioned, the proverbial $100 a month can net you as much as a million dollars over the course of your working life.

But what if it’s more? What if you spend an extra $300 a month, compared with not using plastic? What about $500? How much are those rewards really worth?

The only way to know how much you overspend is by doing an “A/B test”. Try your normal spending habits one month, and then pay with cash (or just using your checking account) another month.

But most aren’t willing to do that.

Keeping it all in the air

The bigger problem I have with putting all of your spending on a credit card is more logistical: How do you know when you’ve hit your limit? How do you know when you’ve spent too much?

This one baffles me. “I never spend more than I can pay off at the end of the month” is the common refrain. But I have yet to hear how someone really knows. Just making sure that you have enough money in your account to pay it all off seems a bit inadequate, and might actually be more difficult, unless you really have no movement on your checking account until the day you pay off your credit card.

Unless you have a lot of float, having to make sure that you have enough to pay off your credit card when you’re not tracking how much you are spending seems like a situation that is rife with potential failure. I honestly don’t know how people do it.

If you’ve got a rock solid budget, and know how much you can spend in your various expense categories in a given month, then perhaps you could redirect your spending to a credit card, since it’s all been planned in advance. But I’ve tried this, and it’s a tremendous pain. It’s just one more thing to keep track of, and it makes my life even more complicated.

If you’ve got no debt, and are otherwise a financial rockstar, it feels slightly more difficult to encourage my no-credit-cards-for-everyday-spending rhetoric. But if you have debt, and you’re using credit cards at all, then the analogy of “digging yourself out of a hole” has never seemed more apt.

Crickets

But ultimately I feel like I’m coming up short here. That one is making a financial misstep by putting everyday spending on a credit card—and unnecessarily enriching those you really don’t need to—seems obvious and axiomatic to me.

But my voice isn’t as loud as “cash back!” or “points for air travel!“. And so I feel like my message is being drowned out.

But maybe not. I’m sure some of you are out there, running the numbers, seeing what’s best for you. And coming to the same conclusion.

In the meantime, I’ll keep stating my case.