As you build wealth, the reasons to use credit cards fall away even more.
Recently I wrote about my own revelation that, while I love collecting (and using!) frequent flyer miles, eventually, with my own financial goals in place, I won’t need to care about them.
And the same goes for you too.
This is about allowing oneself to think bigger. What happens when you are financially successful? What happens when you have some real wealth? We spend so much time in the shallow end of the pool, working on our frugal strategies, that we can easily forget about that there’s a goal we’re working toward, which is to have more than enough. To be financially at-ease.
And so, what makes sense in your debt-filled, penny-pinching days may not make sense when your home is paid for and you’ve got income to spare.
But when you follow this train of thought through, another financial crutch starts to fall over: using credit cards.
When you have wealth, why bother? Let’s unpack this.
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Why bother with credit cards?
There are a few strong financial rules I live by, and this one is one of the hardest for people to get on board with: do not use credit cards for everyday spending.
Just don’t.
I’m not such a zealot that I want you to cut up all your credit cards, but I do believe that credit cards are like alcohol, meaning that some people can handle it, and some can’t. And if you can’t have a credit card without blowing it up, you probably should just get rid of it.
I have a few credit cards, but most of them I never use and just keep for the perks. And while I use credit cards sparingly, there are a few times when I feel like it’s warranted.
But even if you use credit cards for all the reasons, if you look at each of them, the reasons start to falter when you have crossed over into the land of wealth.
To earn points, miles, or cash back
We’ve already discussed how frequent flyer miles mean less when you’re sitting on wealth. The same is true for points or cash back. You can earn around 2% cash back by using credit cards. Is that really worth your time and effort? Probably not.
Price protection
Many credit cards offer price protection, meaning that if you purchase an item with the card and the price later goes down, you are eligible for a refund of that difference.
You’re not going to be earning a large amount due to this perk, and filing a claim can be cumbersome. Again, is this worth it? If it takes you two hours to claw back $100, that might make sense at one point in your life, but eventually, it won’t.
(Also, this one will probably be moot anyway, as many card operators are starting to phase this perk out.)
Fraud / theft protection
You buy an item, and it never arrives, or you return an item and the vendor says they never got it. Or some other shady dealings happen, such as an unauthorized charge on your account.
All of those problems can go poof easily when you take advantage of fraud protection.
But debit cards offer the same level of protection about fraud and theft that credit cards do. Sure, you’ll be out the lost money until the claim is resolved, but will that matter to you?
I mean, I had a fraudulent charge hit my debit card this year, and not only did my float cover me, but the charge was reversed within a single day, way faster than I was told it would be.
Credit score
Worrying about your credit score is overrated. There, I said it. If you act ethically with your finances, and maybe put something on a credit card every once in a while, your score will be just fine.
But what do you need a credit score for? To get a mortgage? Not necessarily, and you may not even need to get a mortgage eventually. To get a loan? Why do you need a loan when you have wealth?
Your credit score will sort of “fade away” if you no longer use debt products. But you’re less likely to need what a credit score offers once you have wealth, so it not going to matter, even less than it matters today.
Because you don’t have the money
I’d be remiss if I didn’t mention the one reason that so many people use credit cards, and why so many people are so economically vulnerable: because they don’t have the money.
People use credit cards because they offer the illusion of extra income. “I can just put it on my card!” people say, evidently not realizing or caring that it’s not free money and will need to be paid off eventually.
Well, in the U.S. we have over $1 trillion in revolving debt, the bulk of which is credit card debt, according to CreditCards.com. There are over 300 million people in the U.S., more than half of them adults.
Do the math. We are not paying off our balances at the end of the month.
But eventually, even if you think you might need credit cards today, you won’t in the future. You’ll have the money. The idea of putting something on a card won’t make as much sense.
Think bigger
I know some of these points might seem unrealistic. “People will always want to spend beyond their means!” “But you can fly first class with frequent flyer miles!” I can hear many of these objections as I write this.
But the one I bet is most prominent is this:
“I’ll never be wealthy enough to get to that point.“
That’s the most important fundamental objection one can have. To lack the belief. To feel like it’s impossible.
I know wealth building and financial security feels impossible. It certainly isn’t easy. For most people, it’s a lifelong journey, one that begins the moment you say “No more! I won’t stand for anything other than success.“
Almost no one gets to be a millionaire instantly. We have to claw our way out of any holes we’ve gotten ourselves into (or ones where we’ve been tossed).
But wealth is like pulling on the lawnmower cord. You pull and pull, and the damn thing doesn’t start.
Until eventually, you pull just hard enough, and the engine starts to roar.
Right now, you’re probably still pulling the cord. That’s okay. But know that there’s something on the other side. I can help you get to that place.
And at that point, you’ll wonder just why you’re bothering with credit cards in the way you used to.
