The Case Against Credit Cards: Overspending, Obesity, Inequality

I just bought a movie ticket online. It cost me $16, and the truth is that I really shouldn't have spent that money. I'm behind on rent, unsure of my checking account balance 36 hours ahead of payday, and still suffering from recent expenditures connected to my five-year college reunion. But I want to see the movie very badly, as infantile as that desire is, and the price of admission isn't going to get cheaper. The sooner I see it, I tell myself, the sooner I'll stop thinking about it. Then I can move on to other, less consumption-based concerns.

What enabled me to make that purchase was a credit card. I could have gone debit, but I'd rather not involve my checking account at this time of the month; I needed to be able to put off the reckoning of my overpriced ticket. (At least I didn't "upgrade" to 3D.) Which goes to show what Derek Thompson argues at the Atlantic: "Yes, Credit Cards Are Making You a Bad Person" -- "dumber, fatter, poorer," like some nightmarish Daft Punk song.

The utility of credit is obvious. As Thompson puts it: "People rarely spend exactly what they earn, exactly when they earn it. With savings, we pass today's earnings to the future. With credit, we pull expected future earnings into today." Sounds like an effective way to leverage earning power and allocate resources. But in practice people underestimate how much they ought to save and overestimate their ability to pay back debts on time. The result is often financial havoc, and potentially other personal problems, as studies cited by Thompson suggest.

According to two MIT business professors, "Framing hypothetical purchases as credit card payments may significantly increase likelihood of purchase and willingness to pay." Their example was an auction for Boston Celtics tickets in which people using credit outbid cash controls by nearly 100 percent.

Beyond this tendency to overspend, research points to some other surprising consequences of cashlessness. For instance, the finding that people pay less attention to what they're purchasing when they put it on plastic, and even have more trouble remembering what they've bought. Or that the ease of credit credit card transactions might subtly reduce consumers' inhibitions about what sort of food to buy, thereby impacting health.

Finally, there's reason to believe that credit cards are one factor driving economic inequality, luring some families into punishing debt and increasing the costs of some goods for everyone, even low-income shoppers who carry no cards, since businesses historically have been unable to charge credit card-only transaction fees. (That changed early this year, but the practice isn't expected to catch on too widely.)

The commonsense approach to using plastic is to pay one's balance in full each month, building good credit and accruing rewards while avoiding interest payments. (And hopefully not gaining weight or losing one's memory.) But the banks don't really want their customers to do this, since late-payment and interest charges are among their favorite ways to make money. So, for instance, even a transaction that exceeds a user's credit limit can be approved, turning a customer into a profitable debtor. Other techniques include confusing procedures for redeeming rewards on cash-back cards, which can mislead users about what they stand to gain by charging things. A potentially unhealthy relation between banks and their customers is just one more deleterious side-effect of credit cards, it seems.

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Sophia Anne Walker

If people don't live beyond their means, and use credit cards just because they can, then they won't have left themselves in punishing debts. Credit cards don't cause problems. People who don't know how to use their credit cards cause problems for themselves.

If you have a plan, stick to it or improve it as you go along. If you have a business, have a business plan and live with it.
If you have a business card, use it for your business exclusively to gain a higher credit rating. Never use your business credit card for personal use.

July 04 2013 at 1:12 AM Report abuse rate up rate down Reply

Try renting a car (or any equipment), getting a hotel room in anything that isn't a fleabag without a credit card...

June 21 2013 at 2:34 AM Report abuse rate up rate down Reply

We all must learn to live without THINGS. Today people have to have thing they can not afford.

June 19 2013 at 6:38 PM Report abuse rate up rate down Reply

credit cards are not the problem-unconscious people are the problem.

June 17 2013 at 10:33 AM Report abuse rate up rate down Reply

Lets see. Banks used to lend money based on collateral. Meaning you put up something of value to secure the loan. And for the most part people respected this. Then came the merchants. At this juncture the merchants recieved the interest and the BANKS DIDN'T. And this wasn't bad until abuse became the norm. And by the way, this fell onto both parties envolved.

Now lets step into today.

Who makes all the money on credit card transactions? MasterCard and Visa!!!

And Why??? Bacuse they are the most accepted BRANDS on the planet!!!

Now, lets just think about that for a moment as a merchant and not a purchaser. Whom does this hurt? The merchant? The buyer?

BOTH! Why?

Because MC and VISA DICTATE THE MARKET. And, most importantly the merchant does not get the benefit of interest. MC and Visa pay them off and reap the bennies. And on top of it they charge the merchant to accept their card!!!

Now, just how arse backwards is that?

Now to all of you overeducated econimists out there. This is the plain and simple truth.

If, for example, Sears and Rareback (intended - the pages were softer than a corncob) offered a revolving credit at 9 percent and held that debt as their own. as opposed to instant payment with no interest and charged fees for use of another card? Who wins Sears!!

Sure Sears is now taking the risk, but, is this risk worth taking?

Just how many Billions of dollars has Sear's spent, waisted, lost to other plastic?

Think about it for a minute.

The bank or the merchant.The bank has done me wrong where the merchant has done me right.

June 17 2013 at 9:56 AM Report abuse rate up rate down Reply

this article was probably the worst i've ever seen. i expected much better and much more from such an important topic.

June 17 2013 at 9:55 AM Report abuse rate up rate down Reply

I love my credit cards. They charge no annual fee and give me cash back on my purchases. I use them for everything I can, including some of my bills. The only time I don't use them is for some businesses that charge a surcharge if you do. I never carry cash and rarely a check book. Once a week, I check the balances and then issue a payment through bill pay (which is also free) for the balances. I never pay interest and keeping them paid off weekly helps to keep me from overspending. Because I pay them off every week, I really don't care what the interest rate is. Once a year I cash in all my cash back rewards. If used wisely credit cards are convenient and will save you money. If you don't have discipline it is really not a piece of plastics fault.

June 17 2013 at 9:22 AM Report abuse rate up rate down Reply

I closed out all my credit card accounts after Obama signed his credit card protection bill.
They sent out letters to their customers stating I could keep the account open if I would opt out of the law Obama signed. I told them all to go scratch. It is the best thing I have ever done. Using cash makes sure you only buy things you actually need. I only buy what I can afford to pay for with cash. Right now I am probably spending only 20% of what I used to spend.
We have even cut back on holiday shopping.

June 17 2013 at 9:14 AM Report abuse rate up rate down Reply

Credit cards are really rather fantastic if one uses them wisely. If one pays off the credit cards monthly, it is a tremendous convenience, and one can earn all sorts of "cash-backs, or credits towards air line travel or "credits" in general.

For thirty plus years we have used credit cards for the majority of our purchases; and it works out extremely well if one pays off the balance on a monthly basis. For those who won't or can't control their spending, it can become a nightmare financially. For those who control their spending, it is a convenient opportunity to even save money. The choice is up to the indivisuslal . . . either live within your income or suffer the consequences. The choices are yours to make.

June 17 2013 at 9:04 AM Report abuse +1 rate up rate down Reply

After the bank bail outs I cancelled all my cards. I also paid off my house truck etc so Im not paying any interest. I didn't get bailed out by the govt so I make sure banks do not make 1 cent off of me.

June 17 2013 at 8:59 AM Report abuse rate up rate down Reply